Payday loan customers in El Paso, Texas will only be able to borrow 20 percent of their gross monthly income and can only roll over or renew their loans three times under the city's credit access business ordinance that will take effect next week.
The ordinance also requires payday and auto-title loan companies to register with the city at an initial cost of $390, maintain records of all loans for three years and make them available to the city for inspection upon request.
Businesses that violate the ordinance can face fines of as much as $500 for each infraction.
The controversial city ordinance was approved last year. Lenders will have 60 days to register their business with the city as the ordinance requires. It also requires payday lenders to provide customers with a form - in English and Spanish - referring them to credit counseling.
Payday loans are small cash advances that usually have a two-week or monthlong loan term and high interest rates and fees. Borrowers can renew the loan by paying the rates and fees, but they retain the same balance.
Auto-title loans allow borrowers to use their car titles as collateral for a typical one-month term. If the borrower defaults, the lender seizes the car.
Opponents of the practice applauded the ordinance, saying the practice they call "predatory lending" exploits the poor with high-interest loans that keep them in a cycle of debt.
Supporters, most of them credit access businesses, said payday and car-title lenders provide money to people in emergency situations who otherwise might not qualify for traditional loans.