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July 27, 2013

Portion of payday loan ordinance said illegal

GREENVILLE — A portion of the City of Greenville’s controversial “Alternative Financial Services” (AFS) ordinance has been found to be illegal and leaves the city open to civil litigation.

City Attorney Daniel Ray intends to meet with the Planning and Zoning Commission next month to work on striking the language in the ordinance which prevents a payday loan company or similar business from opening in the same location where another AFS operation closed.

According to a press release issued Friday, Ray said the issue surrounds the portion of the ordinance which states, “The privilege to continue a nonconforming alternative financial service establishment shall cease and such use shall terminate whenever … A certificate of occupancy for a change of owner, occupant, tenant, or business is issued.”

Ray said the section means that an “Alternative Financial Service” business (i.e., businesses engaged in the practice of short-term loans and auto-title loans) may not sell their businesses to another owner, occupant, tenant, or business if they are a “non-conforming use” – which in this case means they are located within 1,000 feet of another Alternative Financial Service. 

If they do sell, the new owner, occupant, tenant, or business must obtain a new Certificate of Occupancy under other regulations, which will automatically terminate the privilege to continue operations.

Ray said the purpose of the section was to ultimately reduce the number of Alternative Financial Service businesses that could legally operate in certain areas of the city.

“However, this manner of terminating non-conforming uses is not recognized as valid under Texas law,” he added.

Texas law only allows cities to terminate non-conforming uses in three situations: (1) the nonconforming use has been found to be a “nuisance” through duly-adopted procedures (i.e., landfills, businesses that attract rodents, or similar nuisances); (2) it is determined under duly-adopted “amortization ordinances” that the owner of the establishment has achieved a reasonable return on his or her investment (Greenville’s ordinances have no such provision); or (3) the non-conforming use has been abandoned or destroyed (which specifically does not include a sale).

Ray said a non-conforming use privilege is a “property right” under state and federal law, explaining that Section 5-2.25.B.a, “is a direct violation of the US Constitution’s Due Process clauses and the requirements of state law because it illegally deprives the owner of that privilege and terminates their property rights in a manner not recognized by Texas Courts and without providing an avenue for appeal.”

Ray said he intends to meet with the Planning and Zoning Commission August 19, and ask the Commission to recommend to the City Council an amendment to the Code of Ordinances by striking Section 5-2.25.B.a in its entirety.

“Despite publicity and statements to the contrary, this ordinance change is not a loosening of the restrictions on Alternative Financial Services,” Ray said. “It will not allow new businesses in that category to move in, and the 1000-foot spacing requirement will remain in place. The removal of the illegal section will simply allow the legal transfer of Alternative Financial Service businesses from one owner to another. The City Attorney’s office has advised the City Council that failure to remove the illegal language will subject the city to clear civil liability — liability for which there is no insurance coverage.”

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