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County Board of Supervisors Takes Stand to Protect Residents Against Predatory Payday Lending

New Ordinance Blocks Predatory Payday Lenders from Seeking Refuge in Unincorporated Santa Clara County

SANTA CLARA COUNTY, CALIF. – Today, the County of Santa Clara Board of Supervisors took a stand to protect local residents against predatory payday lending and check cashing businesses. The Board passed an ordinance that ensures the unincorporated county doesn’t become a refuge for payday businesses.

“The County of Santa Clara is sending a message to predatory payday lenders that their practices of targeting low-income neighborhoods and the county’s most financially vulnerable residents will not be condoned,” said President George Shirakawa, County of Santa Clara Board of Supervisors. “Payday lending and check cashing businesses seeking refuge from cities in Santa Clara County will not be welcome in the unincorporated areas of our county.”

The new ordinance (No. NS-1200.333), amending the Appendix I, Zoning, of the County of Santa Clara Ordinance Code, modifies the definition of "Banks" to prohibit the establishment, expansion, or relocation of payday lending and check cashing businesses within the unincorporated area of Santa Clara County.

In February, the Board imposed a 45-day moratorium on payday lending and check cashing businesses in the unincorporated county, while the County developed a more permanent ban. The temporary moratorium was extended on April 3, and will remain in place until the zoning ordinance amendment adopted today becomes effective.

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 interest rates upwards of 460 percent APR. Check cashing outlets charge 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.
“Our action to limit these predatory services is more than symbolic,” said Supervisor Dave Cortese. “We are effectively blocking payday and check cashing businesses from establishing themselves in unincorporated Santa Clara County.”
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 a now booming Alternative Financial Services industry for the same services, some of which are operated by banks.

“The high rates of interest charged by payday lenders entangle borrowers in a vicious cycle,” said Supervisor Mike Wasserman.  “It drives them deeper into debt.”

 The ban will become effective June 21, 2012.

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 APR.

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/Laurel Anderson, Office of Public Affairs, (408) 299-5119; Miguel Márquez, County Counsel, (408) 299-5902
Posted: May 1, 2012