Some states have tough usury laws that keep payday lenders from setting up shop. States that cap interest rates at 30% have found that payday lenders, who may charge 400% or more, will stay away.
But in the absence of state regulations, local communities often find it is up to them to control these storefront operations that researchers at the University of Utah and University of New Mexico contend "often strip wealth from society’s most economically vulnerable individuals and communities.
In fact, the researchers say these storefronts outnumber all McDonald’s, Burger King, Starbucks, and Walgreens stores combined. After studying how Silicon Valley in Northern California, Greater Metropolitan Dallas in Texas, and Greater Salt Lake City in Utah handled the issue, the researchers have issued a report with 10 lessons for other communities who want to reduce or control payday loan activity within their jurisdictions.
Lesson 1: Form a strong, broad-based community organization and draw up operating rules.
Lesson 2: Tell a story. Don't get caught up in abstractions like “500 percent interest” or “debt traps,” but let actual borrowers tell how payday loans affected their lives and present that message to the community.
Lesson 3: Learn to operate on a shoestring budget. It can be done.
Lesson 4: When enlisting allies, don't overlook faith leaders. They are usually motivated and can be very effective.
Lesson 5: Develop a strong media strategy, both for local media and using social media and other web-based platforms.
Lesson 6: Enlist someone in elected office to run interference for you in political and government affairs.
Lesson 7: When local government bodies are considering proposals dealing with payday lending, meet with them well in advance of any vote and present your case. Arguments should be tailored to what matters most to the individual policymakers.
• Lesson 8: Remember that the industry will oppose your efforts and is well-funded. Be prepared for the pushback.
• Lesson 9: If you are successful in passing an ordinance, help other municipalities do the same.
• Lesson 10: Try to translate your success on the local level to similar efforts on the state and national level.
Some communities have learned these lessons well. The Lubbock, Texas City Council is reportedly close to passing a payday lending ordinance.
There is very little federal regulation of payday lenders, though the Consumer Financial Protection Bureau (CFPB) has moved in that direction in recent months, proposing new rules amid strong political and industry opposition.