San Francisco City Attorney Dennis Herrera seeks restitution of over $7 million to California consumers entangled in "pay day loan" outlets.
This past July 26 he held a press conference outside the "Money Mart" franchise on Market and Seventh Streets in San Francisco. The SF Examiner reported that he addressed those gathered saying, "in this city of great wealth, "we shouldn't have our most economically vulnerable people being taken advantage of by the proliferation of places like this," he said. "Places like this are literally ripping people off," said Herrera.
This statewide reimbursement campaign is for California consumers who obtained over-sized, short-term loans from "Pay-day" outlets "Money Mart" and "Loan Mart." The repayment would be for the excessive interest rates and multiple fees levied on loans received between 2005 to 2007 as a result of a law suit Herrera brought to court in 2007. In that suit which he sued "Money Mart" and "Loan Mart" for unfair business practices, he noted that in some situations these franchises were charging interest rates of up to 400 percent.
More than six years ago the San Francisco Board of Supervisors addressed the issue of "pay-day loan" practices as storefront lending outlets proliferated working class and low-income neighborhoods. Herrera and others have been working with the City Treasurer Jose Cisneros to establish outreach programs to help working people establish connect to proper mainstream financial institutions. In 2006, the Board of Supervisors placed a 45-day moratorium on such outlets. If nothing else it brought the issue to the attention of some banks which in turn made more efforts at the local level to reach out to the migrant community. Migrant workers are perhaps some of the most vulnerable to the schemes of "pay day" lenders. Many not familiar with banks and often at a loss of English language skills find themselves ensnared in a loan that is next to impossible for them to pay back in full.
San Francisco was not the only city and county to address the issue of "pay day loan" proliferation. As reported by the San Jose Mercury News also back in 2006, Santa Clara County Board of Supervisors also enacted a 45-day moratorium. They feared that if no legislation was enacted to curb the storefront outlets, their proliferation would continue. Yet at the same time, they also noted that as more cities enact legislation that might spur "pay-day loan" outlets to set up more franchises in unincorporated areas of a county. This could make it even more difficult to regulate them.
Yet as Liana Molina of the California Reinvestment Coalition explained these 'pay-day loan' outlets are deferred deposit transaction lenders. "They are not banks," she said. "But these types of predatory loan practices are perfectly legal in the State of California," noted Molina. These type of "check-cashing" lending outlets operate using the State's usury laws she said. While Molina would not comment on the specifics of Herrera's case with "Money Mart" and "Loan Mart" she did applaud the City Attorney's efforts. As a campaign organizer for the coalition, Molina has seen the volume of "pay-day loan" transactions increase despite efforts to restrict this type of lending. Molina noted that much of its continued prevalence is due in part to lobbyists and not enough strong legislation.
What is very confusing noted Molina is that some of the lobbying efforts have established organizations that promote this type of lending "sounding like they are 'pro-community' (Such as the Community Financial Services Association of America, for example) but in fact are actually serving the lending outfits not the people," she said. The CFSAA would not respond to this reporter's inquiry for more details as to why they promote "pay-day lending."
Molina mentioned that in the past decade pay-day lending has exceeded the fast-food industry. She believes that the effort to curb this type of lending should continue on regardless of the obstacles.Because with on-going efforts to enact legislation or establish ordinances at some level, this is a way to hold these types of lenders accountable. The impact it makes upon the everyday people living paycheck to paycheck with little or no other resources is crucial. Such heavy interest places an unfair burden not only on the person borrowing the money but also their families.
In addition to working with the California Reinvestment Coalition, Herrera's team also worked with the Center for Responsible Lending among others. Overall, the case took five years. Deputy Press Secretary Jack Song explained. "We began to take a look at payday lending practices about six months before filing our suit, based upon information received from community groups (like CRC and CRL). Song who is part of the press and communications staff in Herrera's office also like Molina, point to the heavy burden these predatory loan outfits place upon working families.
Courtesy of deputy press secretary Jack Song
San Francisco City Attorney Dennis Herrera at press conference outside the Money Mart/Loan Mart franchise on Market Street and 7th Streets, San Francisco, CA
Song admitted that putting together the case over a five-year-period was not easy. And, he also noted he and press secretary Matt Dorsey were disappointed at the pace of the process sensing that the attorney's on the side of the payday loan outlets were stalling - creating delays.
This reporter tried reaching attorney Stephen Harvey of Pepper Hamilton of Philadelphia who represented "Money Mart" and Paul J. Hall of DLA Piper of San Francisco who represented the First Bank of Delaware. No response came back. Song mentioned that First Bank of Delaware has gone out of business and that the defendants did not admit liability as part of the settlement.
While this settlement and Herrera's reimbursement/restitution campaign has been arduous Song also noted that "a lot has changed." "Money Mart stopped its installment lending business shortly after we filed," said Song. Others like "Check 'n Go persisted longer but has now also stopped," said Song.
Like Molina and others fighting against this type of lending, Pay day lending is still legal in California but the over-sized loans have stopped. Herrera and his office know much more has to be done to safeguard the public. Molina said that even with cap amount limits placed on not only interest rates but also on loan amounts, "there are lobbyists out there working for the various loan franchises to get limits lifted or changed in their favor," she said.
Molina and others say the struggle to place controls on them is daunting. Yet, given the amount of proliferation of payday loan outfits, they believe their efforts are not in vain.
"Our settlement guarantees that they can't restart the bad loan practices anytime soon," said Song. "Money Mart and Loan Mart are required by court order to stop for several years," he said. California Consumers have until Oct. 1, 2012 to submit claims that could result in restitution between $20.00 and $1,800.00 The settlement hotline is (866)-497-5497. Claim forms are available through the City Attorney's office on line. See SF City Attorney web site.