The high cost of quick cash is creating a payday loan crackdown on two fronts in the South Bay.
The Mercury News reports that San Jose's planning commission will consider on Tuesday evening a proposal to bar payday lenders from setting up shop in low-income neighborhoods. Next week, Santa Clara County supervisors will decide whether to make their temporary ban on all new payday lending establishments permanent.
Payday loans offer a quick fix for people who survive on low wages or government benefits. They can carry annual interest rates as high as 459 percent. According to the Silicon Valley Community Foundation, an average borrower pays $500 in interest on a $300 loan.
South Bay officials say these lenders prey on the most financially vulnerable residents. "We're just zoning them right out of existence," Supervisor Dave Cortese told the Mercury News. "This isn't spot-zoning or redlining certain areas. We're just saying we don't want them anywhere."
Although payday loans are pitched as one-time emergency measures, studies of customers' borrowing habits reveal that they often end up returning to the lender again and again, losing ever-increasing chunks of their already-low incomes.
There are now 64 payday lending shops in cities throughout the county, with 38 in San Jose alone. Existing businesses would not be affected by the new laws. If the current proposal is recommended to the City Council on May 15, new applicants would not be allowed to move into low-income neighborhoods but could open elsewhere in the city. The county ban would effectively bar entry into unincorporated areas only.