Every day's a payday: Can San Francisco control legal loan-sharking?
January 27, 2006 - San Francisco, California
On Ellis Street in the Tenderloin, near a Happy Donuts shop and the Glide Memorial Church, stands one of the city's 10 Money Mart locations, a bare-bones storefront with little more than a lobby and a bulletproof partition separating the masses from the money.
Money Mart is owned by a publicly traded, Pennsylvania-based company called Dollar Finance Group, and describes its customers in Securities and Exchange Commission filings as "typically lower- and middle-income working-class individuals." DFG dominates the payday-loan and check-cashing markets in San Francisco and maintains about 1,320 more "financial services" stores in the United States, Canada, and Great Britain.
The loans work like this: The customer writes a postdated check for the amount of the loan, plus interest--generally, plenty of interest. The lender then cashes the check on payday when the customer's account presumably contains enough money to cover it. If the consumer doesn't quickly pay off the loan, the fees start ballooning--on its Web site, the Federal Trade Commission warns borrowers they can easily get stuck paying the equivalent of 391 percent interest on a payday loan.
Obviously, it's a lucrative business: DFG pocketed nearly $300 million in revenue company-wide in 2005. Here in San Francisco, the firm competes for market share with some 90 other outlets.
While the payday lenders clearly have an abundance of customers, not everyone is a fan of DFG and its ilk. Over the last several years, calls to reform the payday-loan industry have emanated from everyone from poverty advocates to red-state lawmakers to state attorneys general.
And now local politicians are zeroing in on the payday lenders. On Jan. 10 the San Francisco Board of Supervisors unanimously adopted a 45-day zoning moratorium on new lenders and check cashers in the city, a move designed to give the board time to devise some long-range regulations. The moratorium was sponsored by Sup. Tom Ammiano and Treasurer Jose Cisneros. When it expires, the supervisors can enact permanent regulations or request a 22-month extension to conduct further research.
And industry lobbyists are already descending on the gilded dome to pressure the board.
Representatives of the trade group California Financial Service Providers appeared at the Jan. 10 board meeting and distributed a memo arguing payday loans are cheaper than the overdraft protection and bounced-check fees charged by banks.
"Payday lenders provide their services as a convenient, less expensive option for consumers with an immediate cash need between paydays," the memo states. In an interview, CFSP's Greg Larsen said, "What we offer is simply one short-term solution. We don't see it as a long-term solution."
Tomás Lee, an aide to Ammiano, portrays the business as "legal loan-sharking," and would like mainstream financial institutions to offer more affordable and reasonable services to poor folks, including cheaper check-cashing and loan options, rather than allowing the payday lenders to continue preying on those currently unable to obtain credit cards or even bank accounts.
"I think the city can make a strong case that payday-loan institutions target low-income communities," Lee said. "Traditional banking institutions don't open in these types of neighborhoods."
Indeed, a map prepared by the UCLA School of Public Affairs shows lenders and check cashers in San Francisco are highly concentrated in neighborhoods with large immigrant populations.
Kevin Stein of the nonprofit advocacy group California Reinvestment Committee, says the payday-loan biz is particularly big in California. "In California the industry is so dug in," Stein said. "There's so much money here; so many consumers. [The lenders] are more entrenched here, even with a Democratic legislature."
Beyond the lobbyists, Ammiano and other local lawmakers may face a larger challenge: Municipalities have little latitude to regulate the banking business, which is generally overseen by state and federal agencies. It's a problem Ammiano ran into back in 1999 when voters passed Prop. F, an Ammiano-authored ballot measure curbing ATM fees. The measure was tossed out by the courts, which said the city had no jurisdiction over banking rules.
Most payday lending is governed by the California Department of Corporations, and Lee admits the city could face a court challenge if it attempts to restrict the lenders. Still, Lee figures the city can use local zoning rules to regulate the businesses. Los Angeles and Oakland successfully employed similar strategies last year.
The San Francisco Bay Guardian, G.W. Schultz, Staff Writer
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- Can San Francisco control legal loan-sharking? [January 27, 2006]
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