Moratorium Will Protect Residents from Predatory Financial Practices
While the Board Considers Long-Term Plan
SANTA CLARA COUNTY, CALIF.
– In the face of limited state and federal legislation controlling
payday lending and check cashing, this week, the County of Santa Clara
Board of Supervisors took a stand against the growing Alternative
Financial Services (AFS) industry, limiting the activities of businesses
that target low-income consumers with poor credit history and in
desperate need of cash.
The Board of Supervisors passed an urgency ordinance imposing a
45-day moratorium on the establishment, expansion, or relocation of
payday lending and check cashing business in the unincorporated county.
The Board also directed County staff to draft an amendment to the County
Zoning Ordinance that would permanently prohibit or limit the operation
of these businesses, and to develop programs designed to ensure County
residents have access to financial services offered on fair terms.
“Many businesses providing Payday Loans operate almost exclusively in
low-income neighborhoods and prey upon the County’s most financially
vulnerable residents,” said Supervisor Dave Cortese, Vice Chair of the
Board’s Finance and Government Operations Committee, and a strong
advocate of this action. “This ordinance will help control the
proliferation of these businesses in our county, and will help safeguard
the financial well-being of residents with limited resources.”
While financially stable consumers have access to traditional banks that
charge low fees for checking and issue loans regulated by the federal
government, lower-income, financially vulnerable consumers often rely
upon the a now booming Alternative Financial Services industry for the
same services. The temporary moratorium enacted by the Board will ensure
that that payday lending and check cashing businesses do not set up
shop, relocate, or expand in the unincorporated County while the Board
considers imposing a permanent ban.
Payday lenders and check cashing outlets are part of the growing
Alternative Financial Services industry. Payday lenders offer small,
14-day loans for which they charge effective interest rates upwards of
460 percent APR. Check cashing outlets cash checks for a large fee or
significant percentage of the amount of the check.
According to the Center for Responsible Lending, these businesses are
overwhelmingly located in African-American and Latino neighborhoods,
where a disproportionately significant number of borrowers live. There
are now 2,000 payday lending businesses in California. Within Santa
Clara County, there are at least 70 check cashing business and at least
64 payday lenders.
This week’s action by the Board seeks to stop the growth of the
alternative financial services industry, which exploits the inability of
low-income consumers with poor credit history to obtain certain
services from federally insured banks.
“We are hopeful that the County will help break a cycle of debt many
families are stuck in at this moment because of outrageous practices by
these businesses,” said County of Santa Clara Board of Supervisors
President George Shirakawa. “Our message is clear: We will not tolerate
businesses that take unfair advantage of residents in dire straits.”
The County will employ zoning--based restrictions to limit the number of
payday lenders and check cashing outlets operating within the
unincorporated County and the ease with which consumers can access their
Additionally, the County is advocating financial education to ensure
residents are aware of the risk associated with payday loans, and
encouraging the availability of alternative financial products provided
at more affordable rates, as other jurisdictions have done successfully.
About Payday Loans
Payday loans are small, short-term loans for which lenders charge
extremely high fees. After a borrower provides proof of income, a bank
statement, and a postdated check for the amount of the loan, the lender
holds the check for a defined period of time, often until the borrower’s
next payday, at which point the loan must be repaid in full.
California law caps individual payday loans at $300, from which a 15
percent fee can be deducted. Borrowers walk out of the door with a $255
for which they pay a fee equivalent to an interest rate near 400 percent
The payday lending industry did not exist in California until 1997, when
the State legislature exempted payday lenders from the laws applicable
to mainstream banks. Currently, there are more than 2,000 payday lenders
in California, at least 64 of which operate in Santa Clara County.
There are now more payday lenders than Starbucks in California.
Media Contact: Gwendolyn Mitchell/Marina Hinestrosa, Office of Public Affairs, (408) 299-5119; Miguel Márquez, County Counsel (408) 299-5902
Posted: February 29, 2012