City of San Jose corrals payday lenders with zoning restrictions

Friday, May 18th, 2012 By

Payday loan store sign

The city of San Jose has passed a zoning ordinance, capping the number of payday loan lenders that can operate in the city. Photo Credit: Wikidenizen/Wikimedia Commons/CC-BY-SA

Payday lenders operating in the city of San Jose are now subject to zoning restrictions that will keep the businesses from spreading further in the city. San Jose joins a number of cities that have used zoning rules to restrict the allotted number of payday lenders.

Showdown in Silicon Valley

Payday loans, a common form of credit for unbanked and underbanked people, have a divisive existence. Critics contend the loans are predatory, force borrowers into a debt cycle and charge outrageous APRs. Granted, a loan with a two-week term cannot, by definition, have annualized interest. Lenders and people who oppose bans counter that people need credit regardless of source, and credit cards and overdraft loans can be equally bad, if not worse.

Many cities and states side against the loans and their purveyors. Different methods are employed to curb payday loan lenders, such as state-wide interest rate caps. Individual cities sometimes use zoning restrictions. Just like similar ordinances for gun, liquor, or adult novelty shops, zoning ordinances cap the number of payday loan operations allowed in the city and within certain distances of another payday lender. San Jose has just passed such an ordinance, according to the Sacramento Bee.

No new shops

The city of San Jose has been considering a zoning regulation that would prohibit any new payday loan stores in San Jose and mandate a distance of one-quarter of a mile between any two lenders or any payday lender and low-income areas. The ordinance passed on May 16, with nine votes for and one against.

The number of payday loan stores in the city of San Jose cannot exceed 39, the current number of payday loans stores in the city. Should any store go under, a new lender can take over in that location six months from the date of the closure. A lender wishing to build a new store can only do so after one store closes and may only open a location at least a quarter mile from another store or from low-income areas.

Tradition of zoning payday loans lenders emerging

The city of Santa Clara, according to the Mercury News, also recently banned any new payday loan lenders from opening for business in unincorporated areas. The law takes effect later this year, and a temporary version of the same ban has been put in place until the law takes effect.

Ames, Iowa, according to the Des Moines Register, passed a similar ordinance on May 10, restricting new payday lenders from opening or operating within 1,000 feet of other payday lenders, schools, child care centers or any residential zones. Ames joins Des Moines, West Des Moines and Clive, Iowa, which passed similar bans in 2010.

A number of cities in Texas, according to the Texas Tribune, have passed similar zoning restrictions, including Austin, Irving, San Antonio and Dallas, among others.

Sources

Sacramento Bee

Mercury News

Des Moines Register

Texas Tribune: http://www.texastribune.org/texas-issues/predatory-lenders/faced-city-ordinances-payday-lobbies-reappear/

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