Payday loan company has no jurisdiction to challenge City ordinance regulating payday loans says Fort Worth Court of Appeals

ACE Cash Express, Inc. v. The City of Denton, Texas 02-14-00146-CV (Tex. App. – Fort Worth, June 4, 2015).

This is a case involving a company’s attempt to invalidate a city ordinance regulating credit access businesses in which the Fort Worth Court of Appeals affirmed the granting of a plea to the jurisdiction.

The Credit Services Organizations Act (the CSO Act) contained within the Texas Finance Code provides for the licensing and regulation of credit access businesses (sometimes referred to as payday lenders).  The City of Denton enacted additional requirements and imposed misdemeanor penalties for violations. ACE Cash Express (“ACE”) sued to invalidate the ordinance asserting it exceeded the City’s police power and was unconstitutional.  The City filed a plea to the jurisdiction which the trial court granted and ACE appealed.

Generally, declaratory and injunctive relief are not applicable to challenge criminal statutes. The crux of ACE’s argument is that it could not challenge the statute in criminal court since no employees would conduct actions to trigger liability.  An exception to the general requirement that challenges to criminal statutes must occur in criminal court is City of Austin v. Austin City Cemetery Ass’n, 87 Tex. 330, 28 S.W. 528 (1894), in which customers of a cemetery had to participate in the criminal act in order to allow the Cemetery to challenge a city ordinance. However, the Fort Worth court noted a distinction between requiring “customer” participation to challenge a criminal ordinance and requiring an employee and/or agent. Therefore the Austin City Cemetery exception does not apply. When ACE self-reported certain matters the City refused to prosecute and thereby prevented ACE from challenging the ordinance.  However, that does not mean ACE would not be able to challenge the ordinance when the City does prosecute. Further, no vested right exists entitling ACE to challenge the constitutionality of the ordinance. The ordinance did not deprive ACE of any physical property, did not retroactively cancel any loans already made, and did not forbid ACE from engaging in its business.  It only regulated the terms under which it may offer its services. ACE did not have a vested property right to its contractual options to renew, extend, or refinance the loans. Finally, the Texas Declaratory Judgment Act does not waive immunity by itself, but is only a procedural mechanism for which independent waiver of an underlying claim exists.  Finding none, the court affirmed the granting of the plea.

If you would like to read this opinion click here.  Panel: Justice Dauphinot, Justice Gabriel and Justice Sudderth. Memorandum Opinion by Justice Gabriel.  The attorney listed for the City is Jerry Drake, Jr.  The attorneys listed for ACE Cash are Benjamin Leon Stewart and Clayton E. Bailey.

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