Advocacy Success: San José Passes Strong Controls On Payday Lending

On May 15, the San José City Council approved a strong municipal ordinance that will curb the impact of predatory payday lending on residents of America’s 10th largest city. The vote, on a motion by Councilman Ash Kalra, is the latest and largest victory in Silicon Valley Community Foundation’s ongoing advocacy for local reforms and ultimately a statewide rate cap on payday loans.

San José’s ordinance caps the number of payday lending stores within the city at the current number of 39. The city’s 39th establishment was granted a license on Friday. In addition, the council voted to limit payday lenders from opening within or near very low-income neighborhoods and to limit the density of these businesses.

The Coalition Against Payday Predators, which is funded by the community foundation, has been working with numerous community based organizations to raise awareness among consumers about payday lending and on behalf of local regulation. With the San José ordinance now in place, CAPP plans to begin working for similar reforms in southern Santa Clara County.

Since 2009, the community foundation has invested $5.5 million in anti payday lending policy advocacy. Pacifica, East Palo Alto and the boards of supervisors in both San Mateo and San José have already approved curbs to payday lending. The community foundation congratulates San José’s council for becoming the largest city in the nation to place strong controls on establishments that are charging more than 400 percent annualized interest for these short-term loans.

Payday lenders are disproportionately concentrated in low-income communities that lack access to traditional financial services. They offer quick sources of cash often advertised as a way to help people bridge a short-term cash crunch, but studies show that many customers take out repeated loans and get trapped in a cycle of debt as they try to pay off the original loan and its high fees. More than 17 states and the District of Columbia have enacted 36 percent interest rate caps on payday loans. California is not yet among them.

“This is an effort for the entire city and its residents – especially the residents who are being taking advantage of,” Kalra told the Mercury News before Tuesday’s vote.

Rebecca Salner is the vice president, marketing and communications with the Silicon Valley Community Foundation

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