City Ordinance Fails to Check Payday Lenders
One of the neighborhood’s most pervasive storefronts doesn’t sell burritos or evangelical promises. The neon signs offer what many in a recession need.
“Fast money! Need cash now? Go to where the money is!”
The green stuff is there—behind bullet-proof glass. All one needs is a phone number, a bank statement, a pay stub, and an I.D. indicating adulthood. Oh, and a blank check for the store to deposit on payday.
The desperate walk away with up to $255 in cash. The lender makes $45 if the loan is repaid within two weeks and according to the Department of Corporations, about 90 percent of the time they are. Looking for another easy service at your fingertips? There’s check cashing, a simple transaction that comes with a 1-3 percent charge on payroll or government checks and up to a 15 percent charge on personal checks.
The city classified payday loans and check cashing as fringe financial services in 2007, but despite a city ban that keeps new services out of the Mission District and other areas like the Tenderloin and Market Street, they continue to flourish.
Nowhere is that truer than in the Mission District, a neighborhood where many immigrants still find it easier to pay the extra fees than to get the city or Consular ID needed to open a checking account. Even some with checking accounts say they prefer to do simple, one-time transactions at fringe finance stores. What’s more, no bank gives out personal loans as easily and quickly as a payday lender.
Desperation plays a big role. Take Timothy, for example. The middle-aged man in line at the Money Mart on 16th Street said he was forced to take out his first payday loan last summer when his disability check could no longer cover the bills. He’s one of 80 percent of payday borrowers who take out more than one loan per year.
“I’m playing catch up,” said Timothy, who like most customers willing to talk to Mission Loc@l asked that his full name not be used. He’s $400 behind, so Timothy frequents the Check’n’Go on Mission and 26th streets to be able to pay back Money Mart ten blocks away.
“By the end of the year, I’ll be caught up—hopefully,” he said.
In looking at the Mission District’s fringe financial institutions—including 16 establishments licensed to offer pay day loans and check cashing and another 30 only allowed to cash checks—Mission Loc@l found the 2007 ordinance has failed to discourage either lenders or customers.
First, monitoring the industry depends entirely on citizen complaints, and with only four code enforcers in the city, investigations can take months to complete.
Second, one of the easier ways for a fringe financial to get in to a no-fringe zone is to share space with a grocery or liquor store. In places like the Mission and the Tenderloin, check cashing and liquor often go hand-in-hand, making it harder for the city and its residents to discover new fringe financial stores.
Also, the state and the city licenses inadvertently work at cross-purposes. The state gives fringe financials the go ahead without following up on where the new business will open up. That leaves it up to the city to follow up, but there is no tracking system.
“We have done all we can do at the local level. We think that’s not quite enough,” said David Augustine, policy and legislative manager at the Treasurer’s Office.
Monitoring the Creep Effect.
Mi Ranchito, a Mission Street grocery store, for example, got its state permit to cash checks in April of this year. The permit is legal but operating in the Mission is not, according to city planners.
The owner, who owns several other check-cashing businesses and only wanted to be identified by his first name, Izzy, said he hopes to start cashing checks at Mi Ranchito in less than a month. When Mission Loc@l asked how this is possible under the city ordinance, Izzy said that new check cashing services are allowed to open in the no-fringe zones as long as they are located within grocery stores.
But the planning department disagrees. Grocery mart or storefront, an additional use requires a trip to the planning department for a land-use entitlement.
“Before they ban payday loans, they should change the credit card industry,” said Izzy. “I’m not trying to rob people—that’s why I don’t do payday loans.” He added that check cashing at his store is cheaper than having a bank account.
Randa’s Market on 16th Street near Valencia also got its 2008 permit after the ordinance went into effect in 2007. The owner said he applied for it immediately after someone from the Department of Justice found out he had been illegally cashing checks.
Again, his state-issued license is legal but the 2007 ordinance makes it illegal to open in the Mission District. The owner doesn’t advertise check cashing and turns the majority of customers looking to cash checks away, he said. He performs the service for only a select number of long-time customers.
The city does not track new fringe financial businesses, and the ones that hide behind principal uses like food or liquor can slip under the radar, said AnMarie Rodgers, manager of legislative affairs at the Planning Department.
But some city leaders think the big franchise lenders and check cashiers are the problem.
Although the city isn’t allowed to issue interest rate caps or override state rules, City Attorney Dennis Herrera has been fighting two franchise payday lenders with a strong presence in the Mission District for “illegal business practices” and “deceptive marketing.”
Herrera filed the lawsuit in April 2007 against both Check’n’Go and Money Mart for exceeding the state’s interest rate cap of 459 percent, doling out bigger loans than allowed, and sending customers to take out payday loans via the Internet. The goal of the suit is to get restitution for customers.
Fringe Financials and Liquor
With the economy hitting construction particularly hard, many low-income workers are now more desperate than ever. And many pay centers are snuggled strategically within liquor stores, where cashed checks can quickly buy bottles of brew.
In fact, when planners designed the ordinance in 2007, they used the “alcoholic beverage special use districts” as a model for the payday lenders and check cashers. It turned out pay centers and liquor stores had an almost identical layout.
At the newly-opened CK Check Cashing on 24th Street, advertisements blanketing the storefront’s glass read “Payday advance” in bright yellow letters, followed by “beer sale.”
“I’ve heard criticism about that kind of proximity,” said Mark Leyes, spokesperson for the department of corporations.
Suresh Jandial, the owner of six fringe financial stores in the Mission District, said businesses that sell liquor and cash checks are known to offer free check cashing to customers if they just buy some drinks.
“In our case, we don’t sell anything,” said Jandial. “Those are the places they should be concerned about.”
New fringe financials grandfathered in.
Although some of the names have changed, there are at least as many fringe financial institutions now as there were in 2007 when the ordinance passed. That’s because it’s legal for one to close and another to open in the same spot. The grandfather effect happened at CK Check Cashing and where a Money Mart closed last year to give birth to Fantastic International Services.
Moreover, any fringe financial can add fringe services. So a place that once just cashed checks, such as P & S Liquors on the corner of Folsom and 24th, now also offers payday loans. In the last year, Check’n’Go has also expanded its services from purely payday lending to check cashing.
Enforcing Abuses Difficult.
The path to closing or fining a fringe financial business that violates the city ordinance can take a while, officials said.
After an investigation, the planning department issues “an alleged notice of violation,” allowing the owner time to appeal. If the business is still found guilty, the department then sends a “notice of violation,” after which the owner has to quit offering fringe financial services or pay fines of $250 a day.
Consumer advocates and political leaders say regulating the industry at the city level is a good start and a way to raise awareness about predatory lending and over-saturation but they argue that the real change needs to come from the state, in the form of legislation that caps the annual interest rate on payday loans at 36 percent, the rate for small bank loans.
No bank fees, no overdraft fees.
Despite the charges, most customers interviewed said they prefer the quick access of the check cashiers to the fees of a bank.
Rai, a sheet metal worker, regularly cashes his checks at United Cash-A-Check on 16th and Mission, one of the few independently-owned fringe financial services in the neighborhood.
There, Rai can cash his checks, pay his utility bills and even buy a Muni pass, a convenient one-stop-shop service offered by a select number of pay centers in the neighborhood and one that owner and Indian immigrant Jandial capitalized on over two decades ago when he opened the first of many fringe financial services in the Mission.
Though Rai has a checking account, he said he avoids the bank. “I’d rather give these guys five bucks and have my cash,” he said, standing in line with his check. It’s been years since he took out a payday loan—a “rip-off,” he called it—but he thinks they’re a good service in tough times.
The banks, he said, can also become expensive with overdraft charges of $35 and interest rates with no caps, according Joe Ridout, consumer services manager at Consumer Action. Many credit card companies are now charging up to 30 percent interest rates.
At Money Mart, an employee said people are taking out more payday loans than ever.
“People are losing their jobs and they need the money,” she said.
But while 38-year-old teacher Chiffona Patterson has proudly cashed her checks at fringe financial stores for the past 21 years, she resists the urge to go for the payday loan, no matter how difficult her circumstances.
“I always wanted to get a loan, but something in the back of my mind said ‘no no no,’” she said, walking to the bus stop with her teenage daughter.
ASI Federal Credit Union currently has a payday loan debt consolidation program.
The debt consolidation loan is either called the “freedon” or “payday rebuilder” loan. Members are required to attend a few hour financial management class prior to being approved for the loan. The credit union requires members to list each payday lender they currently owe; if approved, the credit union pays off the payday lenders in full up to $2,500 or $3,000 and give the members up to 18 months to pay off the loan, members are required to sign an agreement that he or she will not take out a payday loan througthout the term of the loan and must put $15 a month in a restrictive savings account to off set the risk or provide funds once the loan is paid off. I believe this is a one-time bailout and restrictions apply, so if you currently have no credit history or cleaned up your bad credit and your debt-to-income ratio is low to moderate, then you are more likely to get approve than those currently with very bad credit and whose debt-to-income ratio is high or both.
Also, ASI Federal credit union currently has an open-end revolving line of credit called the “Strecth plan”, which ranges from $200 to $500 and to help members avoid or rescue them from the payday loan debt trap and build or repair thier credit Since there is no credit check required, the Strecth plan is much easier to get than the payday debt consolidation loan.
If the city of San Francisco wants to possibly get rid of payday lenders, then the six credit unions should follow the lead of ASI Credit Union, which is based in Harahan, LA.
Sounds like the banks could learn something from the check cashing places when it comes to convenience.