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CHECKS AND SOME BALANCE: Local governments, including those of Santa Clara County and the city of San Jose, have passed laws aimed at stopping payday lenders from exploiting the most vulnerable citizens.

Payday Politics

In 2012, San Jose became the largest U.S. city to limit payday lenders, capping the number of money shops at 39, and the first to ban them from low-income neighborhoods. The rule also required a minimum quarter-mile distance from other payday lenders.

Council member Ash Kalra, whose district covers the city's eastern corridor heading south on Monterey Street and Highway 101, led the charge.

"The state's inaction by itself has grown the problem," he says. "When I was trying to get the city to come down on payday lenders, [the state] increased the cap from $250 to $500—the amount they can borrow per paycheck. It went completely against what we were trying to do. That only quickens the cycle of poverty."

The South Bay has payday lenders all over the map—65 total, with 39 in just San Jose. Wells Fargo and U.S. Bank are also in the payday-loan business. As evidence of how hard the fight can be for local jurisdictions, it took 18 months to get the local ordinance passed. The result was "the most expansive payday lending ordinance of any big city in the nation," Kalra says, adding that it put a cap on the number of businesses, set distance requirements prevented predatory lenders from setting up shop in low-income neighborhoods, which were determined by census designation.

"It was basically a permanent moratorium," Molina says.

City council members Sam Liccardo, Xavier Campos, Ash Kalra and Don Rocha noted in a joint memo that they hoped the city's stance on the issue would "send a message to our state legislators that the time has come to take meaningful action to address concerns surrounding payday lenders in California."

Around the same time, Santa Clara County banned payday lenders from taking refuge in unincorporated areas. Even affluent Los Altos took steps to prevent any from opening up within the town limits; one councilman called it a moral obligation since the state offers so little protection to consumers.

In 2013, Sunnyvale passed a six-store cap, a 1,000-foot buffer between payday lenders and restrictive zoning and operational requirements.

Gilroy took a similar action in January, revising its zoning rules to exclude businesses offering payday lending. Mayor Don Gage noted that the six payday loan businesses in the city lie on the east side of town, home to Gilroy's "most vulnerable populations."

Molina says her group has shifted its focus from local advocacy to lobbying for sweeping federal reform.

"We're gearing up for a fight," she says.

The Consumer Financial Protection Bureau, formed four years ago in the thick of economic crisis to provide oversight to the financial industry, has been studying the payday loan business for a couple years now. It plans to issue a new set of rules governing payday lending sometime in the next year—a prospect that has companies shilling high-interest financial products ramping up in defense.

Earlier this year, the bureau issued a damning report that illustrated how so-called "short-term" loans routinely drag on for months, even years, as consumers dig themselves deeper into debt.

"This is a key opportunity we have to reform the industry as the (state) legislature has been unwilling to pass any consumer protections," Molina says.

Kalra, who led the charge in San Jose and plans to make a run for the State Assembly in the near future, agreed that the onus lies with Capitol lawmakers.

"As much as you're able to do in San Jose, the reality is that the real opportunity to make significant change on payday lending exists in Sacramento, at the state level," he says. "But rather than taking the opportunity to rein in the ever-growing industry of payday lending, Sacramento has facilitated their growth"

Consumer protection advocates want federal regulations to address three specific issues. First, the debt trap.

"People get stuck in this very, very difficult cycle of debt," Molina says. "They get such a high interest rate with such a short term. They don't have enough to pay enough of the loan and juggle their expenses. We want to fix that."

The second issue is something Molina called "the ability to repay standard." Payday lenders don't verify whether a customer can pay back a loan. All they ask for is a bank account and a source of income—even if it's an unemployment check, disability pay or government assistance.

Finally, Molina's camp wants to bar lenders' direct access to customer bank accounts.

"With that kind of reach, the lenders are the first in line to get paid," she says. "They don't see whether that money has to go to groceries or rent. They don't care."

Dollar Swap

In spite of her opposition to its "predatory lending" practices—"I have really taken on the payday lending industry," Evans says—the North Bay state senator has also received campaign funds from payday lenders in recent years. This incongruity between receiving financial support and a stated commitment to fight the payday industry presents some uncomfortable questions for more than a few lawmakers.

Records at[ http://maplight.org/ ] Maplight.org, an online site that tracks money's influence on politics, show that Evans accepted $7,500 from the industry between 2008 and 2012. Bay Area assemblymembers Luis Alejo (D-Watsonville), Nora Campos (D-San Jose), Paul Fong (D-Cupertino) and Rich Gordon (D-Menlo Park) each received more than $4,000 from the payday/title loan industry between the beginning of 2011 and end of 2012, according to Maplight. And records show that state Sen. Jerry Hill (D-San Mateo) received $18,550 over a three-year period, spanning from January 2009 to December 2012, while Sen. Jim Beall (D-San Jose) collected $4,000 over that same time frame.

In an oft-repeated defense amongst elected officials, Evans says her constituents expect her to raise money for her campaigns—but also expect that she'll put the public interest before those of her corporate contributors. She's adamant that she has done just that, even if there was a learning curve, of sorts, on the payday loan issue.

"I have also taken contributions from banks," Evans notes, "but I also wrote the Homeowners Bill of Rights."

Molina cautions against looking too closely at contributions as a bellwether of support for the industry.

"Money in politics is a big issue beyond payday lenders," she says. "If everyone is taking money, yeah, they should stop. But, it's more about how are you protecting your constituents from egregious financial predatory entities?"

The state as a whole, she says, has failed when it comes to meaningful payday-loan reform.

The situation the hapless Michael found himself in would seem a problem in search of an easy fix: A regulation that says you can only take out one loan of up to $300 per paycheck.

"We tried for years to get that to happen," Evans says. "We tried to set up a comprehensive database so that the state could track where they get these payday loans, but there isn't any support in the legislature."

Ironically, the only bill on payday lending to pass in the last four years was a victory for the industry: The controversial "kill switch" bill authored by Sen. Mark Leno (D-San Francisco) and signed into law by Gov. Jerry Brown in August. Predatory lenders' interest in the bill, as one might expect, was hardly altruistic. The industry wanted to make sure it had the power to cut off service for anyone who puts up a smart phone as collateral and fails to repay their bill on time. The new law will only affect phones made on or after July 1, 2015.

The California Reinvestment Coalition was among a group of advocacy groups from around the country that fielded a 2013 report on the payday loan industry. It notes that the industry's predation on the poor has played out on geographic lines. The report identifies "a regional divide among legislators, with the San Francisco Bay Area and northern California members more often voting in support of proposals to rein in the payday loan industry, and those from the greater Los Angeles region siding with the trade associations and payday loan corporations."

Lenders have also been getting a looking over from the U.S. Department of Justice, but Evans says not to expect much of it.

Later this year, the Federal Consumer Protection Board is expected to issue new proposed guidelines for the payday-loan industry, subject to congressional approval. "I'm not holding my breath," Evans says, "because nothing productive comes out of this Congress."

Meanwhile, Sen. Lou Correa (D-Santa Ana), who is 10th on the money list for state senators who received payday lender cash in recent years ($14,700), has authored a series of bills for the new legislative sessions that would make it easier for people with low income and poor credit to borrow—especially in the range between $300 and $2,500, which is the black hole range for borrowers of limited means.

In an email, Correa says his proposed law "provides needed flexibility to non-profits that are offering a bridge to Californians whose incomes or credit scores have limited their access to affordable financial products."

For customers who now rely on payday lenders, the new Correa law might be of some help—even if there's no payday lender reform in it, or anywhere on the legislative horizon for that matter.

"It's been a long struggle just to maintain the current protections," says Evans.

Jennifer Wadsworth and Josh Koehn contributed to this report.