DALY CITY (KCBS) – A Daly City council member is introducing legislation that would permanently ban any new payday loan businesses from opening in the city and phase out the seven lenders who are already in town.

Payday loans are advertised as small, short-term loans that cover the borrower’s expenses until their next payday. But when borrowers don’t pay them back immediately, the loan’s high fees can put them in deeper debt.

Daly City council member David Canepa calls these lending practices predatory and said the interest rates charges at the end of the year are on average 406 percent.

“If you take a payday loan out today for $300, at the end of the year, you’ll pay $1100. 14 states throughout the United States have banned this,” said Canepa. “This is a response to payday loans at the outskirts of military bases taking advantage of our veterans.”

KCBS’ Anna Duckworth Reports:

In 2006, Congress enacted legislation making it illegal to charge U.S. service members more than 36 percent interest on a loan. Canepa is calling on the legislature to do the same since fees are set up by the state of California.

Earlier this year, the city of Pacifica imposed a two-year moratorium on new payday lenders. Pacifica Mayor Mary Ann Nihart said that she and the city council continue to look into the lender’s practices.

“As we have more foreclosures and more job losses, people turn with credit tightening to places that offer these sorts of payday loans and then end up in this trap,” she said.

Canepa’s legislation also calls for creating a partnership between Daly City and credit unions to secure short-term loans for residents with maximum interest rates of 18 percent.

(Copyright 2011 by CBS San Francisco. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

Comments (11)
  1. Tom says:

    Why is “payday loan businesses” allowed? These guys should be in jail!

  2. SFBeacher says:

    It’s “loan sharking”. Plain & simple.

  3. JaneQPublic says:

    I’m sure these predators are violating anti-usury laws. I agree the perps should be IN JAIL! They prey largely on low-income people who can ill afford their ‘services’. They create a vicious cycle of ‘borrowing’ against the next paycheck – which will be left short – AGAIN – because the consumer is being charged such a gigantic chunk for the preceeding ‘loan’. Guaranteed to keep the person in debted.

  4. JaneQPublic says:

    PS These should be outlawed STATEWIDE – not just forcing each city to enact local legislation.

  5. Joe Leto says:

    I agree that a payday loan is not to be used for the purpose of dealing with long term financial troubles, but rather a surprise situation in which a little extra cash would help solve a problem (car damage, etc) and is able to be paid back a with the next paycheck.

    When I moved out to the bay, I was short on cash after the move, but had a new job and was waiting on a paycheck. I used a payday loan to cover the cost of a BART pass and groceries for the first two weeks.

    This argument reminds me of the same argument regarding alcohol. There are some people who can responsibly have a few drinks, and then there are those who abuse it. Should it all be illegal, or the number of drinks limited due to the fact that some people cannot manage themselves effectively?

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