Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: May 15, 2012

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San Jose is attempting to pass large payday loan restrictions for future lenders in their city. If the ordinance is passed, the city’s existing 38 payday lenders will be permitted to stay where they are, but future lenders will need to adhere to strict zoning rules.

The central California city is trying to prohibited short-term lenders from being stationed within a quarter mile of low-income areas. Additionally, future lenders will be required to be at least a quarter mile away from existing lenders.

“This is an effort for the entire city and its residents — especially residents who have been taken advantage of,” said Councilman Ash Kalra, the local government member responsible for initiating this payday loan ordinance, according to Mercury News.

Payday loans are a form of short-term cash that allows borrowers with bad credit to receive financing in a matter of minutes. The problem, however, is that these cash advance loans come with extremely high fees. In San Jose, those fees equate to an interest rate of 460 percent, according to Mercury News.

But not everyone agrees with Kalra’s ordinance.

“Capping it will not do anything to affect demand for short-term credit in the marketplace,” said Greg Larsen, a spokesman for the California Financial Service Providers Association.

According to Larsen and his organization, limiting payday loans will force those who need short-term financing to look elsewhere for money. He said they could look to internet lenders that are often unregulated and put people at greater risk.

Even a fellow councilmember opposes Kalra’s pursuit to limit cash advance lenders.

“What my colleagues tend to forget—or maybe discount—is that absent this source of money, many people will be in arrears with their bills or perhaps stretch their checking accounts and write checks that bounce,” said Councilman Pete Constant to Mercury News.

Constant has earned himself a reputation for speaking out against what he calls “nanny state” governing.

“The rules for payday lending are clear, and people have the ability to see that,” he continued. “When someone makes a decision to go to one of these establishments, they’re doing it on their own volition. It’s hard to say that businesses are preying on them.”

Typically, payday loans are governed by state law. There are currently 12 states that have outlawed payday lending all together.

“In the absence of the state Legislature doing something on payday lending laws, we need cities to step up and do whatr they can,” Ginna Green, a spokeswoman from the Center for Responsible Lending, told Mercury News. “And San Jose is leading the way.”