Payday Loans- It's Not What You Don't Know

Today at the East San Jose Carnegie Library, a voice was raised against payday lenders. No longer shall they be called a ‘necessary’ evil, coalition members vowed. With refreshments, jostling babies, and live Spanish translation, the five partnering organizations that have formed the Campaign Against Payday Predators hosted an informative event that was of the community, as much as it was for it.

The Public Interest Law Firm, or PILF, the California Reinvestment Coalition (CRC), the Asian Law Alliance, Somos Mayfair, a community service organization in San Jose, and the Alliance of Californians for Community Empowerment together consist of CAPP. Much of the impetus for CAPP's formation came from this report on payday lending, which made waves throughout California when it was published by the Silicon Valley Community Foundation last October.

What followed was a broad discussion by the panel, which included the testimony of community member and former payday loan user Laura Reza, as well as David Augustine of Bank on SF, Jim Dale from Bank on San Jose, and Alan Fisher of the California Reinvestment Coalition, of the reality of payday lending.

The group discussed the fact that traditional banks just don’t locate in certain communities, mostly low-income ones, and that this simply makes payday lenders the only willing service providers.  This circumstance varies—San Francisco’s compact 47 square miles doesn’t face this particular problem as much as Los Angeles does—but it shows that the problem is as much about traditional banks’ operating practices as it is about the predatory practices of fringe financial institutions. 

This brings us to the potential of banking development districts (BDDs) to act as a solution to the payday lending problem, at least in part. As Augustine said, “Banking development districts can be the way to lure banks into these areas…the city council could say that they would only put the city’s money in banks that are willing to participate.”

The differences in financial services by race are not quite black-and-white, but in San Jose, it’s close. The City Planning department presented a map of the city, showing just how targeted the lower-income and non-white neighborhoods are. Payday lending is not just an economic justice issue- it’s a social and racial justice issue.

The San Francisco Payday Plus model was generally held to be a model to aspire to- Dale said, however, that he was ‘jealous’ of San Francisco’s City-and-County status because it allows more decisions to be made at the top. San Francisco’s leadership took a clear stance- these establishments are not welcome – but they were also able to provide an alternative.  Both approaches are necessary to rid a community of payday lending.

It’s not simple, and there won’t just be one solution. For one thing, payday loans aren’t just on the corner anymore, they’re online. As one of the panelists said, they are even better at appearing innocuous than the brick-and-mortar payday lenders. Ellen Dunesnil of Catholic Charities said that “Everything that is bad about those is hidden, so those obviously need to be regulated.”

So diminishing the harmful effects of payday loans is also about education- helping people see more clearly, understand more fully, and ultimately, make choices. The participants clearly felt that anyone who could choose would always pick an alternative to payday loans. But the question was asked anyway- do asset building advocates actually want to eradicate payday lenders, and if we do, can we?

North Carolina has stopped the practice, but then the mainstream sector started doing shorter term, smaller dollar, higher interest loans, said one community member.  Is this even something that we can get away from, Can we eradicate payday lending, do we want to? 

There’s a credit union in San Jose that is doing both, said Dale, but hopefully people will choose to utilize the longer term services and not just the payday loan alternative. 

And keep in mind that banks are lending money to payday lenders. And credit unions, not banks, participate in these alternative programs. There’s more than one direction to point that finger.

What’s most important here is empowering people to choose, and providing those choices. Rational self interest works only when people have and understand all the information.  And once people know that there’s a loan that will help them make it to the next paycheck that doesn’t charge 450% interest, and that loan is located in their neighborhood, payday loans will be seen as the lesser alternative they are.

An obstacle to the reforms – many of which are happening at the local level, where harmful effects have faces- is the fact that this industry is regulated at the State level, said Augustine. Cities can regulate-lite, but not outright outlaw, these lenders. Some audience members suggested that the practice imitate the way cities provide affordable housing- in this case, by offering tax incentives to banks that participate.

The meeting itself was a valuable, responsible discussion because it addressed the root causes and all the different forces at work in this issue. Emmet Carson of the Silicon Valley Community Foundation ended the gathering: “Remember: It’s not the things you don’t know that get you into trouble- it’s the things you know for sure that are not so.”Some have thought that these establishments have a place, but at a time when working people can least afford a hole in the pocket, they are increasingly a drain. And, in the eyes of many present today, they’re  an out-of-place, out-of-favor drain.