Iowa City poised to become fifth city in Iowa to use local zoning powers to restrict predatory payday lending
Members in Iowa City have reason to celebrate. With a unanimous 7-0 vote, the Iowa City Council last night passed the 2nd reading of a zoning ordinance that members proposed to crack down on predatory payday lending inside city limits.
The zoning ordinance would restrict payday lenders to specific commercial zones and require 1,000 ft separation distances between churches, schools, parks, and other payday lenders.
The measure passed the first reading by a unanimous 7-0 vote two weeks ago on August 21. The third and final reading is scheduled for Tuesday, September 18 at 7pm.
Des Moines, West Des Moines, Clive, and Ames have all passed similar ordinances at the urging of CCI members in those communities.
Here’s a great op-ed CCI member Misty Rebik that appeared in the local paper just days before the vote.
Council must pass zoning to limit payday lenders
Appeared in the Aug. 30 Iowa City Press Citizen – Read it online here.
The Iowa City Council should stand up for economic justice and neighborhood revitalization and pass a proposed zoning ordinance to crack down on predatory payday lending into law without delay. The proposal would create 1,000-foot separation distances between payday lenders and our churches, parks and schools and restrict their use to specific commercial zones.
Since the 1980s, urban and regional planning theory has striven to become more responsive to the needs and expertise within the community, and a paradigm model within the field has developed that views local governments’ zoning powers as a tool for social justice.
The proposal by local members of Iowa Citizens for Community Improvement was made with that tradition in mind.
Payday loans are not a quality financial product and should not be considered as a stepping stone out of debt. Payday loans actually trap borrowers in a “cycle of debt,” with interest rates as high as 400 percent. Borrowers would be better off missing a payment on their rent or car than being convinced to take a loan that ends up taking an average of 372 days to pay off.
This is how predatory payday loans work. Borrowers obtain a loan — given without any assessment of the borrower’s ability to pay it back — by providing a post-dated check or authorizing the lender to automatically withdraw funds from their account. Then, once the loan is due in full, (only two weeks later) money will be collected.
If the borrower doesn’t have adequate funds, they receive bounced check fees from both their bank and the payday lender. Meanwhile, the lender can repeatedly cash the check and aggressively attempt to collect the debt, which often means threatening borrowers into taking out another loan to cover their past debts.
The argument that Iowa CCI members’ proposed ordinance could restrict competition lacks authenticity and doesn’t make sense. There is no substantial difference in the product offered by the handful of out-of-state corporations that control the market because nearly all payday lenders charge the maximum interest rate allowed by state law (Iowa’s is 358 percent).
Many rely on their so-called competitors to flip loans back and forth to the borrowers they both share in common so they can each get paid back on time. More than $36 million of our community’s hard-earned wealth flees the state of Iowa every year.
Poor people deserve access to good and affordable credit, not a faulty financial product. Although this ordinance may not directly increase alternative loan options, it doesn’t need to to still be good policy.
It will not affect local banks or national branches, only payday lenders regulated as “delayed deposit services” by the state of Iowa. Nor will it adversely affect the payday shops that currently exist in Iowa City because they will be grandfathered in. Unless they have plans to expand, local industry owners have no reason to object to this proposal.
This issue is not just an academic interest for me. Before returning to graduate school, I worked closely with immigrant communities and have known people who have been caught in the cycle of debt. I don’t want to see Ace Cash Express open up on the pedestrian mall and start preying on poor college students.
It is in all of our self-interests to develop land use agreements that allow small, local businesses to flourish. Payday lenders tend to congregate in minority, low to middle income and economically stressed neighborhoods. But their presence can keep other legitimate businesses from wanting to move in next door. It’s one more reason to do the right thing.
The Iowa City Council should pass the CCI members’ proposal into law without delay.
Misty Rebik is a University of Iowa Graduate Student in the College of Urban and Regional Planning and an Iowa CCI member.
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