On a stretch of Mission Street in Daly City just over a mile long, there are four stores that offer payday lending services, which provide short-term loans at high interest rates. Such businesses have activists clamoring for a prohibition against any more opening in the city.
According to the Youth Leadership Institute group, Daly City has five businesses offering payday loans, more than any other city in the county. Fahad Qurashi, the senior director of the group, said that is enough.
Payday loans are typically offered by check-cashing businesses. A payday loan occurs when a borrower writes a post-dated check for the loan amount, plus a 15 percent fee. The lender holds the check and then deposits it at an agreed-upon future date, usually at the start of the next pay period.
Qurashi said the interest rate on an average payday loan is 459 percent. He added that Daly City residents spent $275,000 on payday loan fees last year.
"It's one thing to provide financial services so people have mobility," Qurashi said. "It's another to just take everything from them."
Qurashi said his organization is working with local teens whose families have been negatively impacted by payday loans.
One youth involved in the campaign to prohibit the opening of more such businesses in the city said payday loan debt was a factor in his family losing their Daly City residence. The youth, who asked not to be identified, said the family ended up having to stay with relatives in Sacramento.
People in the payday loan business say the numbers attached to the criticism are misleading.
Greg Larsen — spokesman for the Community Financial Services Association, an industry group that represents payday lenders — said the astronomical interest rates cited in relation to payday loans are annual percentage rates, and a payday loan is meant to be a one-time-only, short-term loan.
"That's like renting a hotel room for $200 per night and saying it's costing you $73,000 per year," Larsen said.
Larsen said payday loans are tightly regulated by the state. He said by law, the maximum loan amount is $300. He said payday lenders can't charge compounding interest on those loans, and they don't report unpaid loans to credit reporting agencies
Larsen added that it's illegal to issue a payday loan to repay a payday loan, so it's not likely that the average consumer will get into an endless debt cycle.
Youth Leadership Institute Program Coordinator Gabriel Dela Cruz countered that people do, in fact, use payday loans to pay off previous loans. The group says such businesses are often located near each other and are eight times as likely to be located in neighborhoods with high concentrations of minorities.
The proximity of the businesses makes it easy for consumers to move their debts from one store to the next, each time paying a huge fee, Dela Cruz said. He said four of Daly City's payday lenders are located on Mission Street within 1.5 miles of each other.
"I can go to all four of those and take out multiple loans in one day," Dela Cruz said.