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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® Joel Ohman

UPDATED: Feb 29, 2012

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While the plans to create a law that will permanently ban payday lenders from setting up shop in Santa Clara County are currently underway, city officials felt the need to curb the additional prospective lenders from opening up new storefronts. County supervisors voted on a 45-day moratorium preventing any additional payday lenders from opening while the county attempts to push their law through.

Santa Clara County currently has 64 payday loan lenders residing in low-income neighborhoods, many of which are mere blocks away from each other.

But as neighboring counties continue to pass moratoriums and bans on payday loans, Santa Clara fears payday lenders will be forced into their own county.

“You don’t want the floodgates to open,” said Supervisor Dave Cortese, a former savings and loan manager who initiated Santa Clara’s moratorium, reported the Oakland Tribune. “If they’re forced out of cities, they’ll try and get into county jurisdictions and then it’s really hard to get rid of them.”

Relating payday lender activity to the way a virus or disease works is not out of character for payday loan opponents. Payday loans take minutes to be approved, require no credit or physical collateral, and come with exorbitantly high interest rates.

Because there are very few qualifications for obtaining this type of financing, lower-income families—those with little to no credit—are often drawn in by their allure. But the high rate of interest often locks borrowers into “debt traps” which occurs when a borrower can’t pay back their loan, and take out another payday loan in order to fund the original one. This cycle of debt is what causes consumer advocates to oppose these loans so vehemently.

“It’s like legal addiction,” Ellen Orcutt, a resident of San Jose who approves of the county’s moratorium, told the Oakland Tribune. “You’re not smoking, you’re not gambling, you’re not doing drugs, you’re doing what you think is best for your family. But it works out to be thousands of dollars for the privilege of borrowing your own money.”

However, proponents of the industry feel otherwise.

Payday loan supporters believe the product allows those who could not obtain financing through traditional lenders the ability to avoid bounced checks, late fees, utility fees, and to help pay for emergencies.

Greg Larsen, a spokesman for the industry’s trade group, the California Financial Service Providers Association, believes limiting payday loans is bad for society as a whole.

“Limiting a legitimate credit option that can save [borrowers] money will inevitably mean consumers will have to pay more because the need for short-term credit will remain,” Larsen told the Oakland Tribune.

While seventeen states and the U.S. military have essentially banned payday lending by limiting interest rates, California continues to resist such legislation. In the meantime, the individual counties are attempting to limit the practice themselves.