New rules for payday lenders

December 26, 2007 8:42:58 PM PST
Under the city ordinance, no new payday lenders will be allowed to set up shop within a quarter of a mile of an existing one.

Why? Pay day lenders charge interest rates of 400 percent and more. That has made them prime targets for consumer advocates.

Dennis Griego doesn't have much. What little he owns fits into this locker in a San Francisco homeless shelter.

In debt, the Gulf War veteran turned to payday lenders.

"I was trying to get caught up with paying, that's when the whole homeless thing came into effect. I'd take out one loan, pay off another loan, pay off a few bills, but it would get out of hand. It was getting hard to pay back," said Griego.

so he took out advances on his paycheck. All together eight loans over three months, each time paying an annual percentage rates of more than 400-percent.

The situation got so bad, he ended up in collections.

"It got paid back at the end, but I promised never to do it again," said Griego.

Stories like Dennis's have grabbed the attention of San Francisco city treasurer Jose Cisneros. He has been tracking the growth of payday lenders for several years.

"They tend to go where the people have the least amount of money to begin with, and they prey on folks there, and they seem to thrive and grow there profusely, while ending up in practically no where else in the city," said Cisneros.

The ordinance sponsored by supervisor Tom Ammiano bans new payday lenders in the Mission, Third Street, North of Market, Divisadero and the Haight from opening up within a quarter mile of each other.

"What it essentially does is eliminate the possibility of new check cashers and payday lenders know you are in low income neighborhoods, by and large," said Cisneros.

But where Cisneros sees a blight, Richard Lake sees as a service and business opportunity. Lake is president and CEO of California Check Cashing Stores.

He says the treasurer's efforts are misguided and says the interest rates charged are comparable to fees bank charge for bouncing a check.

"If your alternative is I need 300 dollars cash today. I can either pay with my credit card late, or I can overdraft my account or I can bounce a check, or I can walk to get a payday loan. The payday loan could be the good choice," said California Check Cashing Stores President and CEO Richard Lake.

And it's just not San Francisco taking a hard look at pay day lenders. The state is looking at new regulations as well.

The executive director of the California reinvestment coalition agrees that bank fees are too high, but says interest rates charged by payday lenders are out of control too.

He expects a bill capping those interest rates to be introduced in the state legislature soon.

"We certainly hope the legislature will stand up on this and will cap at 36 percent the lending so people are not losing so much money," said California Reinvestment Coalition Executive Director Alan Fisher.

Those who back the bill say it simply mimics a federal law signed by president bush. That law caps interest rates charged by payday lenders to members of the military and their dependants .

Lake says the free market should reign, that his industry could not survive if the 36 percent cap were extended to the entire population.

"We don't feel its fair being our product is appropriately priced and does compete with alternative products. We believe customers should be allowed to have their choice," said Lake.

Lake says it is not like the pay day lending business would go away, it would simply go on line and there few laws apply.

The internet is where Danielle Lopez of San Francisco took out payday loans from six different companies with annual percentage rates ranging from 644 percent to nearly 1,100-percent. She compares it to being caught in an animal trap.

"Instead of putting something in there to catch an animal, they put a pack of money in it, and you reach in there and you are caught. You are trapped. That's how I see these payday loans," said Danielle Lopez.

The California Reinvestment Coalition says that's exactly why the interest rate cap must be passed soon.

"Now is the time to put this forward. In a way, we can think of it as the other sub prime lending. It's one more place that people are losing tremendous amounts of money," said Alan Fisher.

At least 12 states have imposed restrictions on payday lenders and check cashers. Now for those caught in a cycle of debt, there are alternatives. Fifteen banks and credit unions are participating in a program by the city treasurer known as Bank on San Francisco.

It offers free checking and low balance savings accounts for those who would otherwise not have a banking account.

Bank of San Francisco

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