Desk itemsSILICON VALLE"T,
a ion,
October 11, 2016
Members of the Planning Commission
City of Cupertino
10350 Torre Ave.
Cupertino; California 95014
RE:: item 1 (October 11, 2016) - Payday Lendln,,!
Dear Members of the Planning Commission:
On behalf of Silicon Valley Community Foundation (SVCF) I want to commend you for considering this
critically important issue and express SVCF's support of staffs recommendation to prohibit the
establishment of payday lending within the City of Cupertino.
Since 2008, our Economic Security grantmaking has supported policy advocacy focused on curbing the
expansion of predatory payday lending in our region and increasing public awareness about the negative
impact of these loans on family balance sheets. To date, this advocacy has resulted in the passing of 11
local ordinances that have limited the presence of payday lending in our region.
As you know, payday loans are short-term, small -dollar loans typically carrying triple digit interest rates.
According to the California Department of Business Oversight (DBO) which regulates payday lenders, in
2014 the average interest rate on a payday loan in California was 361 percent and that close to 90 percent
of the state's 1.8 million individual payday customers had incomes below $50,000. For these families, the
cumulative cost of these loans exceeded $3 billion. This is hard-earned money many of these families need
to meet the rapidly rising costs of living, and nowhere is this more critical than in our own region.
We believe the proposed ordinance will do much to limit the expansion of payday lending in to Cupertino
and reduce the financial harms.caused by the payday loan debt cycle.
As such, we join our colleagues in supporting staffs recommendation to move forward with the ban
on payday lenders in Cupertino. Thank you for your consideration of this request and please do not
hesitate to contact me at 650.450.5536 to discuss our support further;
Sincerely,
Erica Wood
Chief Community Impact Officer
Silicon Valley Community Foundation 12440 West EI Camino Real, Suite 300 Mountain View, CA 94040 1650.450,5400 1 siliconvalieycf.org Page 1 of 1
... ... . ................... .
SENT VIA Em AIL-. nlanning@eupertino.org.
October 11, 2016
Members of the Planning Commission
City of Cupertino
10350 Torre Ave.
Cupertino, CA 95014
Re: Item 1 (October 119 2016)—Payday Lending
Dear Members of the Planning Commission:
We write on behalf of the Coalition Against Payday Predators (CAPP), 1 a broad coalition
of individuals and over 40 community-based organizations who support policy reforms
regarding payday lending and local restrictions on payday'lenders in Santa Clara County.
CAPP believes that sensible regulation of payday lending will lead to greater economic
security and prosperity. We support staff's recommendation of a ban on the
establishment of payday lenders in Cupertino.
Payday Loans and Payday Len
Payday loans are lending transactions in which a borrower provides a lender with a post-
dated check and receives immediate cash from the lender. The borrower's check includes
not only the principal loan amount, but also any interest and fees charged by the lender.
The lender then cashes the borrower's check on the borrower's next payday unless the
loan has been repaid by that date.
Payday loans, sometimes called deferred deposit transactions or cash advances, comprise
one comer of a larger universe of "alternative" or "fringe" financial services, which also
includes check cashing services, pawn brokers, and rent -to -own stores. 3 In California,
CAPP's core leaders include the Law Foundatiod of Silicon Valley, Asian Law Alliance, West Valley
Community Services, United Way of Silicon Valley, Working Partnerships USA, the Opportunity Fund,
and Sunnyvale Community Services. CAPP's efforts are funded in part by a grant from the Silicon Valley
Community Foundation.
2 The text of this section is taken largely from a memo submitted by CAPP to the City of Cupertino in
March 2016; staff include a copy of that memo in the agenda packet.
3 See, e.g., Sharon Hermanson and George Gaberlavage, "The Alternative Financial Services Industry,"
AARP Public Policy Institute (Aug. 2001) (available at b.tt,p://www.aart).o.i-Q /rese,,u-ch/c-�rec:i.t-
payday loans are small -dollar loans; state law caps them at $300.4 However, these loans,
including the relatively large fees associated with them, must be repaid quickly; the
average term of a payday loan is 16 days.5 Due to this short repayment timeframe, their
average APR6 is 366 percent.
Mayday lending is widespread in California. Ih 2015, payday lenders issued over 12
million payday loans. Although payday loans are advertised as short-term credit
products for use in emergencies, data show that most payday loan borrowers are unable
to repay their loans lin lump sumand that payday loan borrowers are indebted for an
average of five months per year.9 IFurther, the average payday loan borrower takes out
eight loans per year, 66often renewing an existing loan or taking out a new loam within
days of repaying the previouus oneo9910 In 2015, there were more payday loan borrowers
who tools out 10 payday loans than there were payday loan borrowers who tools out only
a single loan.11 Sixty-four percent of the total fees collected by the payday lending
industry in California were collected from borrowers who took. out 7 or more payday
loans in a year. 12 Nearly half of all repeat payday loans made to repeat borrowers were
made to the borrower the same day that the borrower paid his or her prior loan. 13
Payday lenders and other fringe financial services tend to be more densely concentrated
in lower-income areas and communities of color. 14 one study found that 66[e]ven after
controlling for income and a variety of other factors, payday lenders are 2.4 times more
concentrated in African American and ]Latino communities. On average, controlling for a
variety of relevant factors, the nearest payday lender is almost twice as close to the center
of an African American or ]Latino neighborhood as a largely white neighborhood." 15 1n
t ............................................................. - l rt-198-1B5I. to l;; . The San ]Francisco Municipal Code also uses the term
"fringe financial services" to refer to these types of establishments. San ]Francisco Duni. Code § 790.111.
4 Cal. Fin. Code, § 23035, subd. (a)
s California Department of Business Oversight, Summary Deport: California Deferred Deposit. Transaction
Law—Annual Deport and Industry Survey (2016) 6 (available at
http://www.dbo.ca.govALicensees/payday_]Lenders/payday_lenders.asp).
The APR, or Annual ]Percentage ]bate of Interest, was developed by Congress "as a standard measure that
calculates the simple interest rate on an annual basis (including most fees), accounts for the amount of time
the borrower has to repay the loan, and factors in the reduction in principal as payments are made over
time. Center for Responsible ]Lending, "APR Maiters on ]Payday ]Loans" (June 23, 2009) (available at
lett .://www.1`es ?onsi.b eleiidi ig.orfz/ )avd-apt-leiidi g,,/rf-search-qtr..i.alys.is/a _ r-matt6rs-o.ii- pavday- .oara:s.ht.rri.l).
DBO, supra note 5 at 7.
s Id. at 6.
9 The Pew Charitable 'Trusts, Payday Lending in America: Who Borrows, Where They Borrow, and Why
(Jul. 2012), 6 (available at
lit:t:L-�://WWW.. e.wstates.c)rg/ii:k?loa.d€d-F-iles/ ",S Assets/2012/pew Pa da Lendigg Report. _ 1).
to Id. at 9.
11 DBO, supra note 5 at 7.
12 Id. at 8.
" Id. at 7.
14 See, e.g., Brookings Institution, "]From ]Poverty, Opportunity: Putting the Market to Work for ]Lower
Income Families," (2006) (available at bU://�� ww.:roo.ki,�du/rep€arts/' 006/071)overty ifellwA es.asm).
is Wei ]Li, et al., "]Predatory Profiling: The Role of Race and ]Ethnicity in the ]Location of Payday ]Lenders
in California," Center for Responsible ]Lending (Mar. 26, 2009); 25 (available at
h.tt ://www.re,s . oiissil)lele.n.di.iig.0i L,/ . �tyiia --J.errdi.ii g/l--ese<trch-anal y sis/ . j -ed t€)1- y- p.ro.f.i1 q&PdD.
2
2015, approximately 60 of California payday loan borrowers had incomes of
$30,000 per year or less. �ercent6
Local, State, and Federal Policy Efforts'
CAPP and its allies throughout California have been advocating for stronger consumer
protections for payday loan borrowers, as well as local land use policies that limit the
proliferation of payday lenders.
In California, payday lenders are governed by I the Deferred Deposit Transaction Law.
(Fin. Code, §§ 23000 et seq.) and by regulations promulgated by the Department of
Business Oversight (Cal. Code Regs., tit. 10, ch. 3). These laws govern the maximum
ximum
loan amounts, fees, and other aspects of how payday'lenders operate. Because California
has, adopted this comprehensive regulatory scheme, local jurisdictions are prohibited
from regulating the terms of payday loans under the legal doctrine of preemption.
However, local jurisdictions are legally permitted to enact local policies that combat the
proliferation of payday lenders in their communities and the overconcentration of these
types of. businesses in low-income and minority neighborhoods. Silicon Valley voters are
in, favor of such local measures according to a 2010 poll, which found that an
overwhelming majority of respondent's supported restrictions on payday lenders, and over
half believed that such restrictions were appropriate actions for city government.17
In Santa Clara County, the cities of Los Altos, Gilroy, and Morgan Hill, as well as the
County itself, have all imposed permanent moratoria on payday loan stores. While
existing stores may continue operation, they may not expand or move, and no new
payday loan stores may locate in those cities. San Jose, Sunnyvale, and Campbell also
cap the number of payday loans stores and limit their placement. Several cities (and the
County) imposed temporary moratoria on payday lenders while they considered the
policy options for longer term regulation of payday lenders.
Although check cashing outlets are a different type of "fringe financial service" that are
licensed differently than payday lenders, they often exist in the same store fronts with
payday lenders, and many cities have elected to regulate payday lenders and check
cashers together.
Recommendations
Cupertino does not currently have any payday lenders, and the Council adopted a
temporary moratorium on the establishment of payday loan stores on September 209
2016. Now is an ideal time for the City Council to act to prevent payday loan stores from
16 DBO, supra note 5 at 8.
17 Goodwin & Simon Strategic Research, San Jose Payday Loan Store Restrictions Survey (Dec. 2010)
(available at.litq):Hwww.respoiisible'le.ndi�n.g.or.f-y/c<tl:i-f(.)i-.n.i,,i/ea-l-)ayda,y/l7e�e,,Li.-c.h.-<iiit1ysis/Saii-Jo.se:L-tvd_<iv-
1,e.n.di.iig-'V'otei--Pol.'].-Mei.iio.i:L11).
3
®opening in the City. We support staff's recommendation t® move forward with a ban ®n
payday lenders in Cupertin®o
Thank y®u for your time and careful attention t® this important policy question. If you
have any questions about the CAPP Coaliti®n ®r about our position, please contact
Melissa Morris at 408®280-2429 ®r melissam@lawf®undati®n,orgo
[any thanks,
Melissa A. Morris
Senior Attorney, ]Law ]Foundati®n ®f Silic®n Valley
/s/
Maria Noel (Fernandez
Direct®r ®f Organizing and Civic Engagement, Working Partnerships USA
/s/
]Liana Molina
Direct®r ®f Community ]Engagement, California Reinvestment Coalition
cc: Angela Munuhe, Deputy City Attorney
Jaqueline Guzman, Assistant t® the Citv Manager