The proposed legislation, to be voted on at the Aug. 11 City Council meeting, will prohibit new payday lending businesses from opening within 2,000 feet of existing payday lenders. The regulations were driven by concerns from the Youth Leadership Institute, which argued that four of the city’s payday lenders are located on Mission Street within 1 ½ miles of each other, and the businesses are more likely to be located in neighborhoods with high concentrations of minorities.
Local youth activists had recommended that the minimum separation between new payday lenders be at least 1,000 feet, but at Councilman Sal Torres’ suggestion, the resolution was amended to require 2,000 feet of separation.
Check-cashing businesses are the most common sources of payday loans. To obtain payday loans, borrowers write post-dated checks for the requested loan amount, plus a 15 percent fee. Lenders typically deposit the checks at agreed-upon future dates, usually at the start of the next pay period.
According to Youth Leadership Institute representative Fahad Qurashi, the 15 percent fees can translate into annual percentage rates of 459 percent. Although it’s illegal to issue a payday loan to pay off a payday loan, Qurashi said the close concentration of payday lenders in Daly City could encourage borrowers to misuse the services by rotating their debts from one lender to the next, each time incurring additional fees.
Councilman Mike Guingona noted that the Bank On San Francisco consortium offers safer, more affordable alternatives to payday loans, and said he’d like to help the organization expand to serve Daly City residents. Qurashi praised Guingona for working closely with the youth leadership group on the payday lending issue, and also thanked Mayor David Canepa for asking the City Council to address the topic in 2011.
Claiming that payday loan fees can disproportionately impact people of color, youth activist Fernando Aguilar characterized the situation in the city as “an example of racial inequality.”
Because cities lack the authority to regulate financial products, several council members urged the youth activists to lobby for stricter statewide payday lending laws. The council members additionally offered some recommendations on how to persuade state lawmakers, and even volunteered to phone those officials and voice their support for new payday lending regulations.
The activists said they haven’t had much success at the state level, however. Mission SF Community Financial Center representative Dairo Romero, who is Latino, said he was dismayed that several Latino lawmakers in Southern California appeared to support the payday lending industry.