CANYON, TX (KFDA) - The City of Canyon is taking steps to regulate businesses that offer short term loans with extremely high interest rates.
Payday loan companies typically offer short term loans between $100 and $500. However, the effective interest rates on these loans can exceed 500 percent.
This means people can get caught in a cycle where they are constantly paying off the interest and never get to the premium.
On Monday, Feb. 7, Canyon adopted a policy that regulates the maximum number of payments that can be given out and limits the number of times a loan can be extended.
"There are a number of cities that have gone down this path in the state of Texas," said Pro-Tem Mayor of Canyon, Gary Hinders. "It's not being addressed at the state level, and we need to keep our people from being taken advantage of."
These types of businesses are illegal in 18 states; however, Texas is not one of them. Therefore, it is the responsibility of local governments to regulate these businesses.
Amarillo made similar steps in September of 2014 and has seen great success in doing so.
"There were about 35 payday lenders in Amarillo, and most of those moved out after we enacted the regulation," said Randy Schuster with the department of building safety. "The regulations we enacted protect the consumer."
The method used by both Amarillo and Canyon has been tested in court and has been deemed legal because it doesn't prohibit businesses in the area, it just makes the area less attractive.