On July 1, the U.S. Court of Appeals for the Fifth Circuit affirmed a lower court’s decision denying a short-term lender’s request for a preliminary injunction against the City of Dallas over the City’s new lending regulations.
In 2011, the City of Dallas passed an amendment to one of its existing ordinances, imposing several new restrictions, including: a fee cap on unsecured loans of 0.1 percent per day of the outstanding balance, and a requirement that loans secured by vehicle titles be repaid in no more than four installments, with each payment reducing principal, fees, charges and costs by 25 percent.
The short-term lender argued that the amended ordinance devastated its business in Dallas, forcing it to close a location and reduce staffing. The company claimed the fee-cap provision made it impossible to offer unsecured loans in a profitable manner, while the repayment requirements for its title-secured loan products led to increased defaults and charge-offs. The short-term lender sought declaratory and injunctive relief, and moved for a preliminary injunction, contending that the City (1) exceeded its powers as a Texas home-rule city, (2) impermissibly acted to regulate a subject matter preempted by state law, and (3) violated the Texas Constitution’s due course of law guarantee.
The district court held that the short-term lender failed to establish a sufficient likelihood of success on the merits. Although the appellate court noted that the district court made a legal error — it required a “heightened” showing of likelihood of success on the merits rather than a showing of “some” likelihood of success — the appellate court held that the short-term lender would have failed to meet the lower standard. As a result, the appellate court affirmed the district court’s denial of preliminary injunctive relief, leaving the City’s expanded lending regulations in place.
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