Pacifica's Payday Lender Problem

According to a study by the Insight Center for Community Economic Development, Pacifica has the highest per capita rate of payday lenders in San Mateo County, and one of the highest in the San Francisco Bay Area.

With 3 payday lenders and approximately 40,000 residents, Pacifica has .79 payday lenders per 10,000 people. Second and third place go to San Bruno and Redwood City, with .74 and .68 payday lenders per 10,000 residents, respectively.

Of the 26 payday lender locations in San Mateo County recorded by the state in 2008, 10 were in Pacifica, Daly City and San Bruno--over 38 percent of branches. 

This data, brought to the city council's attention by the Insight Center and the Pacifica Resource Center, prompted Councilwoman Mary Ann Nihart to ask the city attorney to schedule time next city council meeting to do something, or at least talk about, the issue.

Finance experts, such as Tim Lohrentz, program manager at the Insight Center and author or much of the center's reporting on payday lending in San Mateo County, and people who work face-to-face with indigent individuals and families, believe payday lending is predatory. 

That's because when someone takes out a payday loan, often in advance of their paycheck, they pay a fee upfront. In California, the maximum legal payday loan is $300, and the fee is typically $45, so someone pays $45 dollars to receive $255. But, according to the Insight Center, most payday loan customers end up taking out a new loan before the end of the loan period, which is two weeks, and are often encouraged to do so by lenders. The steep upfront interest rate coupled with the short loan term make the effective interest rate on payday lending 459 percent; that's predatory lending, by any measure. 

Other troubling trends, according to the Insight Center: Nationally, the average payday loan customer takes out 11 loans per year and payday loans tend to attract low-income families and individuals that need cash right away and will be less able to pay off the loan immediately. 

Rees has seen what might be considered the worst possible scenario for a payday loan customer: one family, which came to the Pacifica Resource Center for assistance, had four different locations they went to for payday loans, one of which was online, and was paying off the preceding loan with the next loan every two weeks, perpetuating a cycle that has driven some families into financial ruin and bankruptcy, said Rees. 

This cycle is made possible, in part, by the fact that payday lenders do not communicate with each other to determine if a customer has taken out another payday loan recently. All someone needs to take out a payday loan, in most cases, is proof of income, said Rees.

"[Pacificans overusing payday lenders] is something that's been going on for years that we've overlooked," she said. 

But there are alternatives to payday loans. If for instance, someone is considering taking out a payday loan to pay rent, they should come to the Pacifica Resource Center first, said Rees. The center can, depending on the person's need, help them pay rent and in all cases hook them up with a financial counselor to find a less risky way to solve their financial problems than taking out a predatory loan.

Rees also wants to work with local banks and Pacifica's solitary credit union, the Coastside Credit Union, to offer payday loans with lower annual interest rates, along the lines of 36 percent. San Francisco banks and credit unions, in conjunction with the city government, already offer such loans to the city's residents. That deal, she said, is still a long way off, however. 

Nihart said she plans on doing something about any increase in the number of payday lenders in Pacifica immediately. 

Although the law prohibits a city government from passing an ordinance that bans a business or terminates an existing business, a city can pass ordinances that regulate the spacing of any new businesses of a certain type, she said.

For instance, the Pacifica City Council could pass an ordinance that prohibits any new payday lenders within 500 feet of a residential area, or school, or park. If such an ordinance were crafted just right, it would place an unofficial moratorium on any new payday lenders in Pacifica indefinitely. It's an old trick cities have used to prohibit business they see as harmful or immoral (like strip clubs), and Nihart said she's willing to use it if, in the coming weeks, the city council receives enough evidence from the Pacifica Resource Center and Insight Center, as well as other interested parties, to warrant it.

She's already planning on asking for a temporary moratorium on new payday lenders in Pacifica at the city council meeting on Oct. 25.