Iowa cities bypass state to halt payday lenders
DES MOINES (AP) — Efforts to limit payday lenders in Iowa have repeatedly failed in the Legislature, but more cities are approving zoning changes that make it harder to open the businesses.
Cedar Rapids last week became the latest city to approve an ordinance that bans the short-term loan businesses from certain areas. It became the sixth Iowa city to approve such a law since 2010, leaving opponents of the loan shops hopeful that the city-by-city limits will prompt the Legislature to take action.
"It's been an uphill battle trying to get some more regulations surrounding payday loans," said Sen. Janet Petersen, D-Des Moines, who has previously introduced legislation on the issue. "The fact that they're organizing more on a community level can only assist us at the state level."
Opponents of the business argue they prey on low-income people with few options and can trap people in a cycle of debt.
The businesses typically ask customers with a checking account to write a postdated check to the lender for the amount of the loan plus a fee. The lender holds the check for a certain amount of time before cashing it. If the borrower is unable to clear the debt, he or she can take out another loan to pay the first one back. If the check bounces, borrowers could face additional fees.
Lawmakers have introduced measures since 2010 that would cap interest rates at 36 percent, but the proposals have always stalled.
Backers of the move said they have focused on 36 percent because it's a widely accepted cap for consumer protection on a federal level. Such a limit would be far less than the 400 percent interest rate that some lenders can ultimately charge.
Cities don't have the ability to cap interest rates, but they can limit the businesses through zoning restrictions. Ames, Clive, Des Moines, Iowa City, West Des Moines and now Cedar Rapids have all passed ordinances.
"Clearly there is support. Cedar Rapids is the second biggest city in Iowa. That's important. Des Moines is the biggest city in Iowa," said Bridget Fagan, a community organizer for Iowa Citizens for Community Improvement, a group that has long opposed payday lenders. "Our lawmakers should know that people throughout the state care about this issue. These shops are predatory and they prey on our communities, and we don't want them in our cities."
There are some variations to the ordinances, but most are similar. The latest in Cedar Rapids includes language that requires shops to have a conditional use permit and to be 1,000 feet from churches, schools, day cares, parks, and similar businesses. Current payday lenders are grandfathered in, though the city is researching a clause that would give them some time to comply with the new law.
Thomas Smith, a community development planner for Cedar Rapids, said residents were concerned about payday lenders taking over neighborhood centers, and they were motivated by the work of neighboring cities like Iowa City. He called it the easiest way to deal the problem at this point.
"That sort of drove the discussion," he said. "As we started to look more into what other cities around Iowa were doing, we realized that there was a lot of consistency. You stay on the same page with the other larger cities and try to address those neighborhood concerns, and realize that at the state level, there hasn't been the ability to limit these like they have been able to do in other states."
There are currently 15 states and the District of Columbus that either ban payday loans or subject them to the 36 percent annual percentage rate cap or lower, according to an April report by the National Consumer Law Center.
Amy Cantu, a spokeswoman for Community Financial Services Association of America, said payday lenders have a business model that has its benefits. The organization represents many storefront payday lenders and has 75 member stores in Iowa.
She said a rate cap pushes payday lenders out of business and limits options for consumers.
"By pushing people out of this, you're eliminating options for consumers but you're not necessarily eliminating the need," she said. "There is a great need for short-term credit in this country."
Cantu said whether a payday lender is a regulated and licensed business is an important aspect in the payday loan debate that's often not highlighted. She said CFSA members adhere to a strict set of best practices that include offering an extended payment plan at no cost to customers.
Fagan said she continues to meet with community leaders and attend city council meetings to get more ordinances on the books. She's currently working with the city of Dubuque.
"We know we can only do so much, but we need an interest rate cap. That's really what's going to solve the problem," she said. "But in the meantime, this is what cities can do to curb the growth."