Bay Area City Joins Movement Against Predatory Payday Lenders
By Liana Molina and Kyra Kazantzis
Coalition Against Payday Predators
In the face of the state legislature’s inaction on payday reform and growing national visibility on the issue, cities across California are taking steps to rein in payday and other high cost lenders. Earlier this week, the City Council of Sunnyvale voted to restrict the growth of payday lenders by enacting a “cap” on the number of lenders, creating “buffer zones” between lenders, allowing payday lending only in designated areas, and establishing operational standards.
Most notable of the operational standards is that the city will require local payday lenders to provide information on "alternatives" available to consumers within the city and county that might be more appropriate than their high-cost, short-term loan product, which has garnered increasing criticism for creating cyclical debt for users.
Sunnyvale joins over a dozen other California cities that have enacted local controls to address or prevent the over proliferation of these and other fringe financial outlets. Last week, the City of Long Beach adopted a similar policy, which strictly limits the development of any new payday lender, check casher or auto title lender. San Francisco, Oakland, Sacramento and San Jose have also adopted zoning limitations on high cost financial service entities in recent years.
Photo credit: Taber Andrew Bain
In 2011, payday lenders loaned out more than $3.2 billion in loans to Californians, creating financial heartaches across the state as people were caught in the 'payday loan debt trap.'
Marie Bernard, the Executive Director of Sunnyvale Community Services (an agency that serves over 3,000 people a year with emergency financial assistance) was one of the community leaders who supported the ordinance in Sunnyvale. She explained that staff at her organization have worked with people caught in this ‘payday loan debt trap’ with multiple loans with high fees and interest rates reaching 459%.
Research released by the Consumer Financial Protection Bureau earlier this year demonstrates that this “debt trap” is incredibly profitable for the lenders. In a sample of over 15 million loans, the CFPB found that 48% of payday loan borrowers took out more than ten payday loans a year, and these borrowers generated more than three quarters of the loan fees.
Community leaders in the cities of Fresno, Daly City, and Gilroy are moving forward to curb these abusive lenders. These ordinances are tools to help local communities control the growth of payday and other fringe financial entities through zoning restrictions and permitting requirements. Local communities are mobilizing and city councils are stepping up to the plate to protect neighborhoods from being saturated with these lenders. When will our state legislature enact reforms to protect California consumers from these financial predators?
Liana Molina and Kyra Kazantzis are members of the Coalition Against Payday Predators (CAPP), a coalition of 10 local organizations working to end payday lending in Santa Clara County that has received endorsements from over 40 local organizations and is funded by the Silicon Valley Community Foundation, which was recognized earlier this month by the National Center for Responsive Philanthropy for its work against payday lenders.