March 31, 2009: Sacramento Passes Restrictions Against Payday Lenders

SACRAMENTO, March 31, 2009—The Sacramento city council voted unanimously to pass an ordinance restricting the growth of new payday lenders, noting that these businesses strip the earnings of low and moderate income
workers and trap them in a cycle of debt.

The new ordinance, sponsored by Councilmember Sandy Sheedy, goes into effect immediately and would ban new payday stores from setting up business within 1,000 feet of another payday lender, bank, school or house of worship. It would also ban new stores from operating within 500 feet of homes.

"I'm here about the fees that they charge, the over-saturation and that they prey on low-income communities. So there needs to be some kind of control. Do we need payday loan places on every corner? I think not," said Councilmember Bonnie Pannell.

Sacramento is home to 83 payday lenders, which is 2.7 times more per capita in the city than in the state of California. Payday loans drain an estimated $245 million from California’s African American and Latino communities, according to a new study by the Center for Responsible Lending. Payday lenders are twice as likely to cluster in communities of color, and nearly 80 percent of stores are in low-income neighborhoods.

In California, payday loans are two-week loans that come with an interest rate of 459 percent APR. The maximum loan amount allowed in California is $300, including a $45 fee. Because of the loan’s high interest and the lump sum payment required, most borrowers aren’t able to cover their living expenses and repay the loan within this short timespan. They quickly fall into a debt trap by continuing to renew the loan or by taking out multiple loans from multiple lenders. Borrowers in California take out an average of 10 loans a year. With the state’s foreclosure epidemic and unemployment topping 10 percent, more Californians with decimated savings and dwindling credit are becoming vulnerable to payday loans to make ends meet.

"It's about time we do something about the proliferation of these predators in our neighborhoods," said John Cranshaw, a member of Sacramento ACORN who lost his job and then his house to foreclosure. "I was tempted to go to Check into Cash
to get some cash to keep my lights on, but I'd rather shoot myself in the foot. I got on the phone and borrowed money from friends, but not everyone is lucky enough to have friends and family to help them."

Sacramento’s ordinance puts it in the same league with San Francisco, Oakland, and Oceanside, cities that have approved local policies to limit the growth of predatory financial service industries such as payday lenders. The California Reinvestment Coalition, which advocated to pass these ordinances, is working toward a statewide cap on interest rates for payday loans at 36 percent APR.

“Since cities are preempted by state law from regulating these businesses’ actual lending practices, city land use ordinances help send a message to Assembly members and Senators and pave the way toward state legislation to protect all consumers from usury,” said Liana Molina, organizer with the California Reinvestment Coalition.

# # #
For more information, please call Tram Nguyen or Liana Molina at 415-864-3980.

The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of more than 275 nonprofit organizations and public agencies across the state.