A truck advertising a check cashing business in City Heights. Photo by Kelly Davis.
Want to open a liquor store within San Diego city limits? There are rules governing location, signage and what kind of security measures you'll need to implement. How about a pawnshop? Fine—just close by 9:30 p.m. each night and don't open until 8:30 the next morning. Junkyards, nightclubs and even plant nurseries are subject to local regulations. And, soon, payday lenders and check-cashing establishments could be added to that list.
A handful of cities around the state—like Sacramento, Oakland, Oceanside and San Francisco—have enacted such ordinances. Here in San Diego, community groups representing areas with large concentrations of payday lenders and check-cashing businesses have urged the city, repeatedly, to consider an ordinance, as well.
“We have something like 70 percent of all of them in the Mid-City area,” said Jackie O'Connor, president of the El Cajon Boulevard Business Improvement District. “We're saturated with them.”
According to the California Reinvestment Coalition, an organization that advocates for fair-banking practices, “fringe” financial establishments like check cashers and payday lenders are eight times more likely to open in areas with large populations of African-Americans and Latinos. This is evident in a set of maps put together in 2007 by San Diego's City / County Reinvestment Task Force. While the maps show banks to be few and far between in economically depressed areas, check cashers and payday lenders practically overlap especially along Mid-City's (North Park, City Heights, College Area and Rolando) main corridors and in Southeast San Diego.
Fair-banking advocates point out that despite the proliferation of the lenders—they've been legal in California only since 1997—competition doesn't drive down fees (capped by state law at 15 percent of the loan). And, according to a CRC survey, most lenders require the money to be paid back in 16 days. By law, borrowers can have up to 31 days to pay off the loan.
“Banks don't make these kinds of short-term, non-collateralized, non-credit-card loans,” said Jim Bliesner, vice chair of the CRC and former executive director of the City / County Reinvestment Task. “And the need for that capital is there. Emergencies happen or you need to stretch three or four days to get to the next paycheck and there they are—they're available and they're open all the time. It sounds like an easy thing to do when you need the money right now—OK, just get the money and bank on the future. Of course, that comes and there's another need that's there on the day you get paid, so the cycle begins. You go back and get another loan to carry you over to the next paycheck.”
The CRC estimates that San Diegans pay $15.9 million in fees to payday lenders annually.
Aesthetics is also an issue. At a meeting last April of the City Council's Land Use and Housing Committee, Bliesner referred to the businesses as an “albatross” because of their often-copious signage.
“This industry is not a good neighbor,” Bliesner told the committee.
The committee requested that a study be prepared to lay the groundwork for an ordinance: How many check-cashing and payday-lending businesses are currently located in San Diego and where? Is clustering impeding more desirable commercial development? Are charter banks staying out of certain areas because of check-cashing and payday-loan establishments? Were any of the businesses attracting crime? How many are violating city codes governing signage?
But, nine months later, such a study's not been produced—and probably never will be. The city's Development Services Department would have been the one to do it, but the department's budget has been cut to the point where it lacks the staffing.
City Councilmember Tony Young, who represents Southeast San Diego and has long advocated for an ordinance, doesn't think a study's necessary.
“It's time to move forward, as far as I'm concerned,” he said. “I think there's plenty of information on this stuff.”
At the April committee meeting, two representatives from payday-lender trade organizations pointed out that the fees they charge are far less than credit-card late fees or what a bank might charge for a bounced check. They also said a distinction needs to be drawn between established payday lenders, like Moneytree, and less-responsible one-off establishments.
“Our clients are not being duped into something that they're coming in and paying exorbitant fees,” said Dan Gwaltney, CFO of Payday Lending Corp. “This service is helping people avoid a late charge on a utility payment or bouncing a check.”
City Councilmember Todd Gloria, who chairs the Land Use and Housing Committee and represents the Mid-City area, said that's not a good enough reason for fees that equate to a 460-percent annual percentage rate.
“When you're charging interest rates of the kinds that they do, that's not a service to my constituents,” he said.
But, he added, most of the complaints he's received are about the businesses' appearance and number.
“The city isn't in a position to regulate usury laws,” he said. “What we're trying to make sure is that when businesses locate in communities, that it's respectful of the community's wants and desires. What I'm hearing more and more is that the proliferation of them in certain communities… and then their appearance—the signage hours of operation—those are the kinds of things we're receiving complaints on.
“The city doesn't have any particular guidelines for these kinds of businesses, so we're going to do what we can do to provide the industry with clear rules of the road of what we would want them to do in neighborhoods and to provide the neighborhoods with the protections and safeguards that they're demanding.”
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