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Santa Clara County Adopts Temporary Moratorium on Payday Lending and Check Cashing

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 products.

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 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/Marina Hinestrosa, Office of Public Affairs, (408) 299-5119; Miguel Márquez, County Counsel (408) 299-5902
Posted: February 29, 2012

Last updated: 6/22/2017 12:58 PM