Payday lending under scrutiny in San Francisco Bay Area cities 

Throughout the Bay Area, local governments are cracking down on so-called payday loans, which carry annual interest rates as high as 459 percent.

The Pacifica City Council has passed a moratorium prohibiting new payday loan stores from opening. Daly City and San Jose are considering similar bans, while San Francisco requires new payday shops to be at least a quarter of a mile away from existing outlets.

“You’ve seen a real hotbed of new activism in East Palo Alto, San Mateo and Santa Clara counties along with groups which have been working on payday lending issues for years and years in San Francisco,” said Paul Leonard, California director of the Center for Responsible Lending.

San Mateo County’s 37 payday lenders earn over $9 million per year in interest payments, with the average borrower doling out $500 in interest on a $300 loan, according to the Silicon Valley Community Foundation.

People who take out payday loans don’t do it “to get their nails done,” said Leah Simon-Weisberg, managing attorney at Community Legal Service in East Palo Alto. Rather, many have maxed out their credit cards and need extra help to cover rent, gas or food. But while the prices of these necessities have gone up in recent years, wages have not, Weisberg said.

“People are not using it as a one-time, emergency-use product as the industry is portraying it,” said Lianna Molina of the California Reinvestment Coalition.

The state limits interest to 15 percent of the face amount of the check, but since that’s 15 percent in as little as two weeks. These high rates lead borrowers to take new loans out just to pay off old debt, Molina said. On average, borrowers take out 10 payday loans per year, according to the California Budget Project.

Greg Larson, spokesman for the California Financial Service Providers Association, a trade group representing payday lenders, said the industry does not provide such “rollover” loans, which are prohibited by state law.

“The overwhelming majority of consumers of payday loans, just like consumers of other legitimate financial products, use them responsibly and pay them off on-time,” he said.

Pending  state legislation would raise the limit on payday loans from $300 to $500. Larson said it would be the first bill to alter the loan limit since the mid-1990s, and would improve the choices available to consumers.

How a payday loan of $100 works

  • Consumer with an ID and proof of employment writes a check for $100
  • Consumer gets $85
  • In two to four weeks, the lender cashes your check
  • APR is 459 percent and you paid $15 to use $85

Source: California Reinvestment Coalition

Alternatives to loans


  • San Mateo Credit Union’s nonpredatory, small-dollar amount loan can be accessed very quickly and gives borrowers 18 months to repay at a reasonable interest rate.
  • The nonprofit Peninsula Family Service’s Ways to Work program offers 6 percent car loans regardless of credit history.
  • Peninsula Family Services offers an Individual Development Account in which clients who save $500 can have access to $1,000 in funds if they attend a 10-hour training program.

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Niko Kyriakou

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