The Fresno City Council, worried about high interest rates charged by payday lenders, will consider establishing a moratorium on new lenders next month.
Council members decided Tuesday to ask city staff to draft a proposed 45-day moratorium. Sacramento, San Francisco, Oakland and other cities have passed similar restrictions. Fresno now is home to 78 payday lenders.
Fresno council members also asked city staff to prepare a resolution calling for the state Legislature to approve an annual interest cap of 36% on payday loans.
Council Member Brian Calhoun proposed the restrictions.
He called payday lenders and check-cashing businesses a "semi-underground economy." They prey on the poor by charging annual interest rates of 400% or more, he said.
Payday lenders are concentrated in south Fresno, where the city's poorest residents live, Calhoun said. The poor have a harder time obtaining traditional banking services, he said.
Several advocacy groups asked for the restrictions, including Central California Legal Services, Fresno Works for Better Health and the California Reinvestment Coalition.
Payday lenders keep poor residents trapped in debt, said Liana Molina, an organizer with the California Reinvestment Coalition in San Francisco, which advocates for increased access to credit on behalf of low-income communities.
Customers frequently obtain payday loans to pay off earlier loans, and they end up spending more on interest than on the principal, she said.
Larry Hodges of the Central Valley Financial Literacy Initiative said council members should have responded sooner to the problem of payday loans.
"Shame on you," he told the council.
His remark drew a strong rebuke from council members.
"I don't think I've ever been more offended by a presentation," said Jerry Duncan. "Shame on us? It's not our job to take care of people."
Duncan said residents are smart enough to figure out the costs of payday loans and don't need government interference.
Duncan and Council Member Mike Dages said they voted against the proposal because they didn't think a moratorium was necessary.
Dages said he supports a cap on interest rates but doesn't think a moratorium will address the problem.
"That's just about the worst thing I've ever heard in my life -- to tell business that you can't do something," he said.
Calhoun, however, said a moratorium would send an important message that the city wants to stop the proliferation of payday lenders. He said Fresno is reaching the point where it will soon have more payday lenders than banks.
The city has about 125 banks, he said.
Calhoun originally asked for a six-month moratorium but agreed to a 45-day ban on new payday lenders after City Attorney Jim Sanchez said it would be more legally defensible.
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