Three years after its last try fizzled, Daly City is renewing the fight to regulate where payday lending business can locate in the city as a way of preventing an overconcentration of them particularly in lower income areas.
The city can’t legally regulate the loans themselves such as capping the annual percentage rate but is allowed to limit them to certain zoning areas and require a certain amount of distance between each business to keep a glut from popping up in one spot.
On Monday night, the City Council will consider both based on an unanimous Planning Commission recommendation to amend the zoning code. If passed, a definition of “payday loan business” will be added to the code rather than filed under the umbrella of “bank” and they will be allowed to operate without a use permit in four zoning areas: office commercial, BART office commercial, light commercial and Sullivan Corridor Specific Plan District. The proposal also calls for a 1,000-foot minimum distance between new payday loan businesses and other payday lenders.
The last caveat is meant to prevent future concentration and keep space available for more traditional financial institutions like credit unions or banks, according to a staff report to the council.
Currently, the city says there are five licensed check cashing businesses in Daly City — some whose 1,000-foot boundary overlap each other — which are concentrated along the Mission Street corridor. City staff say, based on 2010 census data, these businesses are located mainly among Daly City’s lowest income neighborhoods on the east side.
Opponents of the short-term loans often say the convenience for those who may not have access to more traditional lending options is outweighed by fees equivalent to an annual interest rate of 460 percent that can perpetuate a cycle of debt.
The idea of regulating payday lending in Daly City was first raised in 2011 but the plan never came to fruition. Mayor David Canepa, who championed the idea three years ago, said there was not sufficient “appetite” back then but a subcommittee he appointed this year agrees this is good policy.
“[S]sometimes it’s not the policy, but rather just the timing,” Canepa said in an email to the Daily Journal.
The previous effort, though, targeted not just the locations but the actual loan products. Canepa had proposed allowing short-term loans up to $500 with a maximum APR of 18 percent for residents and give users the ability to build credit by paying off loans over a period of up to a year. Canepa also wanted a cap of three loans per person per year and a financial education requirement for borrowers.
State law and court challenges preempts the city from targeting the actual loans which is why this second attempt is focused on the providers.
In June, the Planning Commission voted 5-0 in favor of the zoning changes but did raise some questions about regulation. The business license division will collect new lenders’ information but there isn’t a way to stop existing businesses from adding payday loan services.
The commissioners also recommend the city proactively educate residents about the “pitfalls” of payday loans through fliers, brochures and other advocacy.
Canepa agrees and wants to partner with county nonprofits on outreach.
“As policymakers we should inform the public of the exorbitant interest rates which stem from payday loans,” he said.
If the Daly City Council moves ahead, it joins Redwood City in regulating where the industry can set up shop. That city bans check cashing businesses downtown and some zoning districts and requires a use permit in others. Pacifica enacted a two-year moratorium on them which it has voted to extend. The city of San Mateo has recently begun exploring the possibility of regulations, too.
The Daly City Council meets 7 p.m. Monday, July 14 at City Hall, 333 90th St., Daly City.
(650) 344-5200 ext. 102