Santa Clara Bans Payday Lending, State Should FollowCalifornia has been hit especially hard by the recent economic crisis, with the housing market collapsing in many places and with many people struggling to find jobs in a time where unemployment remains high. Many people facing financial struggles have turned to payday loans to help them to get through tough times. Unfortunately, payday loans are often the very worst thing that a person can do.
“Payday loans not only take advantage of borrowers, but often also sentence them to a cycle of continuous debt,” explained California personal injury attorney James Ballidis.
In an effort to help curb the predatory lending practices that characterize the payday loan industry, Santa Clara County Supervisors have recently instituted a temporary ban preventing new payday lenders from opening storefronts. The ban is a 45-day ban that will remain in effect as officials work to draft a new law that will either enact a permanent ban or impose significant restrictions on new payday lenders.
Santa Clara County is taking steps to stop payday lending in large part because payday loans have become a major source of financial struggle for the working poor. In Santa Clara County alone, there are more than 64 payday loan locations, most of which are located within just blocks of each other in some of the poorer areas of town.
Santa Clara is not the first area in California to take steps to stop payday lenders. Both San Francisco and Oakland have rules in place restricting payday lenders and San Mateo is in the process of increasing restrictions on payday lending. The Silicone Valley Community Foundation has also invested more than $1 million into studying payday lending and advocating for reform.
Outside of California, seventeen states have effectively banned payday lending outright by capping interest rates at 36 percent, and the U.S. Military also has a moratorium on payday lending in place as well.
Yet, even as individual counties and other states take action, the California legislature as a whole has not embraced reform of payday lenders. In fact, state legislatures are in the process of raising the payday loan limit from $300 to $500 even as individual counties put bans and restrictions into place.
Payday loan reform is an important and necessary issue to tackle because of the dangers of payday loans. Payday lenders offer short-term loans that normally must be paid back by the next payday (within a week or two from the time the loan is made). These loans promise that no credit check is necessary and that anyone can qualify as long as they have an employer and, usually, a bank account or a checking account. In exchange for this fast and easy access to cash, payday lenders charge a fee. Unfortunately, this fee effectively amounts to an interest rate that can be as high as 400 percent annually. Borrowers often cannot repay the load in full and are forced to take out additional ones, trapping them in a cycle of debt.
Hopefully, the ban in Santa Clara will become permanent and extend statewide in the near future.
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