REPORT TO THE CITY COUNCIL June 26, 2014 FROM: MIKE SANCHEZ, Planning Manager Development Services Division BY: Sophia Pagoulatos, Supervising Planner Development Services Division SUBJECT ..Title * BILL NO. B-30 (Intro. June 26, 2014) (For Adoption) Amending Sections 12-220.3, 12-222.3, 12-231.5, 12-105.P and 12-306.N.17 of the Fresno Municipal Code to establish regulations for payday lending establishments within the City of Fresno. (Citywide Application) - Development and Resource Management Department ..Body RECOMMENDATION The appropriateness of the proposed text amendment has been examined pursuant to Section 12-402 of the Fresno Municipal Code (FMC), and the Director of the Development and Resource Management Department has determined that the proposed text amendment is consistent with the goals and policies in the 2025 Fresno General Plan. Upon consideration of staff evaluation, it can be concluded that proposed Text Amendment Application No. TA-14-001 is appropriate for citywide use. Therefore, staff recommends the City Council take the following actions: 1. APPROVE the environmental finding for Environmental Assessment No. TA-14-001, dated May 1, 2014, pursuant to CEQA Guidelines Section 15061(b)(3), that there is no possibility that this project may have a significant effect on the environment. 2. ADOPT Ordinance Bill approving Text Amendment Application No. TA-14-001, amending Sections 12-220.3, 12-222.3, 12-231.5, 12-105.P, and 12-306.N.17 of the Fresno Municipal Code to establish regulations for payday lenders in the City of Fresno. EXECUTIVE SUMMARY Text Amendment No. TA-14-001 was initiated by City Council Resolution No. 2013-199 on November 21, 2013 (see Exhibit A). The text amendment proposes to amend Sections 12-220.3, 12-222.3, 12-231.5, 12-105.P, and 12-306.N.17 of the Fresno Municipal Code (FMC) to establish a definition for payday lenders and limit the location of new payday lenders to the C-C (Civic Center), C-4 (Central Trading), and C-6 (Heavy Commercial) zone districts as a conditional use. In addition, new establishments would be prohibited from locating within 1,320 feet (0.25 mile) from an existing payday lending establishment. Existing payday lenders could continue current operations but would be required to obtain a conditional use permit for any expansion of use. In addition, whenever the rights granted by a conditional use permit for a payday lending establishment are discontinued for a continuous period of ninety (90) days, the conditional use permit would be considered terminated. Staff supports the proposed text amendment (see Exhibit B for proposed ordinance bill containing text amendment). BACKGROUND PROJECT INFORMATION PROJECT Text Amendment No. TA-14-001 was initiated by City Council Resolution No. 2013-199 on November 21, 2013 (see Exhibit A) and proposes to amend various sections of the FMC to establish zoning regulations for payday lending establishments in the City of Fresno. APPLICANT City of Fresno - Development and Resource Management Department LOCATION Citywide ENVIRONMENTAL FINDING A finding that there is no possibility that this project may have a significant effect on the environment was made for Environmental Assessment No. TA-14-001, dated May 1, 2014, pursuant to CEQA Guidelines section 15061(b)(3). See Exhibit C for environmental finding. PLAN COMMITTEE RECOMMENDATION All active Council District Plan Implementation Committees recommended approval of the text amendment. For details, see page 5 of this staff report. PLANNING COMMISSION On May 21, 2014, the Planning Commission recommended that the City Council: (1) adopt environmental finding, dated May 1, 2014; (2) approve Text Amendment No. TA-14-001 as presented STAFF RECOMMENDATION Approve the proposed text amendment and adopt the related environmental finding BACKGROUND The zoning ordinance of the FMC does not currently regulate payday lending establishments as a specific use. Currently, these types of businesses are considered banks or financial institutions and are allowed by right in most commercial zone districts (C-1 through C-6) and as a conditional use in the C-L zone district. The proposed ordinance would define "payday lending establishments" as a new land use as follows: A business owned or operated by a "licensee" as defined by California Financial Code Section 23001(d), as may be amended, that offers, originates, or makes deferred deposit transactions in which the lender defers depositing a customer's personal check or electronically accessing a bank account until a specific date for a fee or other charge. As proposed in the text amendment, new payday lending establishments would be allowed in the C-C (Civic Center), C-4 (Central Trading), and C-6 (Heavy Commercial) zone districts as a conditional use and would be prohibited from locating within 1,320 feet (0.25 mile) from an existing payday lending establishment. Existing payday lenders could continue current operations but would be required to obtain a conditional use permit for any expansion of use. In addition, whenever the rights granted by a conditional use permit for a payday lending establishment are discontinued for a continuous period of ninety (90) days, the conditional use permit would be considered terminated. As of December 31, 2012, there were 66 sites (see map in Exhibit D) in the City of Fresno licensed by the California Department of Business Oversight to conduct deferred deposit transactions (commonly known as "payday lenders"). Payday Lenders and Consumers California law permits deferred deposit transactions (DDT), in which the lender defers depositing a customer's personal check or electronically accessing a bank account until a specific date, for a fee or other charge. Such charges are not "interest," and may legally amount to the equivalent of a 459% annual percentage rate.1 The State of California, through the Department of Business Oversight, licenses payday lenders pursuant to California Financial Code � 23000, et seq. Each license is granted for a specific site; however the Department of Business Oversight does not alert the City of Fresno when it receives an application for a new license under the deferred deposit transaction law with a Fresno address. Nationally, the consumers who borrow from payday lenders are 52% women, and 55% white; 42% own their homes; 85% do not have a four-year college degree; 72% have a household income of less than $40,000; 52 % are between 25 and 44 years old.2 Commonly, the consumer cannot repay the loan in the short time allowed, and obtains another loan to repay the first loan-incurring another round of fees without reducing the principal. The Department of Corporations has found that repeat borrowers make up 73% of payday borrowers statewide.3 The high fees and short-term lump-sum payment trap puts borrowers in a lengthy cycle of debt. Economic Impact on City of Fresno Between April 1, 2011 and March 31, 2012, payday lenders in the City of Fresno generated gross receipts of $19.7 million, and paid $29,467 in business taxes to the City. Over the 12-month period ending March 31, 2013, they reported gross receipts of $17.8 million, and paid $22,603 in City business taxes. Payday loan fees (by law as high as 459%) funnel dollars out of consumers' pockets-dollars they cannot then re-inject into the local economy; meanwhile, payday lenders' local employees contribute by spending their earnings locally. But Fresno does not reap an economic boost from these businesses' profits: profits from almost 90% of payday lending stores in Fresno are siphoned to corporations outside of Fresno. Several studies have drawn conflicting conclusions about the economic impact of this industry. One study, commissioned by the DDT industry, analyzed only the beneficial impact of the industry as an employer (employees' income infused into the economy); other studies have also taken into account borrowers' reduced spending power, and have estimated a net economic loss per establishment in California of $54,569 in 2011.4 Using the most recent study (Lohrentz, March 2013), a net economic loss to the City of Fresno of at least $3.6 million can be estimated. However the $3.6 million figure almost certainly understates actual loss to our local economy: * It does not take into account the fact that a larger proportion of Fresno residents are likely to use DDT services, because Fresno has higher rates of unemployment and relative poverty than the rest of the state; * It does not take into account that almost 90% of the DDT lenders in Fresno are corporations in other parts of the state and country, so that these lenders' profits end up reinvested outside of the Fresno economy. The local businesses most likely to feel the impacts of families' reduced spending are health care providers, insurers and consumer trade.5 Consumers' loss of spending power to purchase these services reduces these businesses' incomes. As importantly, it also creates real risks to the health and welfare of the entire community. For example, deferred health care results in public health risks from communicable diseases and public spending for increased emergency room visits, and drivers unable to pay for auto insurance transfer to the public the costs of automobile accidents. Other Jurisdictions' Regulations It is possible for local jurisdictions to regulate payday lending establishments through land use regulations and zoning, as has been done by an increasing number of cities in the state and nationwide. Specific measures instituted by California communities have included one or more of the following land use related requirements: * Distance or separation requirements (anywhere from 300 feet to half mile) between payday lending/check cashing businesses to prevent overconcentration in specific areas; * Distance requirements separating the businesses from residential areas and/or other sensitive or specified uses (i.e., schools or liquor stores); * A numerical cap on the total number of such businesses within the jurisdiction; * Limitation to certain zoning districts; * Requirement to obtain a conditional use or special use permit; * Lighting and/or security requirements; * Graffiti clean-up requirements. A summary of payday lending zoning laws in cities across the country is included in Exhibit E. PUBLIC NOTICE AND INPUT In accordance with Fresno Municipal Code Section 12-402-B, a notice of public hearing was published in the Fresno Bee on April 25, 2014, ten days prior to the Planning Commission hearing, and again on June 13, 2014, ten days prior to the June 26, 2014 City Council hearing. The input received is summarized below: Council District Implementation Committees All active Council District Implementation Committees recommended approval of the text amendment. The District 2 and District 5 Committees recommended half- mile spacing between establishments (as compared to the quarter- mile currently included in the text amendment) with District 2 further recommending 500-foot spacing between the establishments and churches or schools. The District 3 Committee recommended approval with no further recommendations. The District 4 Committee recommended more security at existing establishments. The District 6 Committee recommended that auto title loans be included in the text amendment. Airport Land Use Commission The Airport Land Use Commission reviewed the text amendment on April 7, 2014 and found it consistent with the airport land use plans within the City of Fresno. Planning Commission The Planning Commission considered the text amendment at its regularly scheduled meeting of May 21, 2014. The correspondence noted below was received prior to the Planning Commission meeting and included in the staff report. At the hearing, six people spoke in support of the text amendment and nine spoke in opposition. Those that spoke in favor represented the California Reinvestment Coalition, United Way of Fresno, Faith in Community, Central California Legal Services, Inc., Economic Opportunities Commission and The Well church. Those that spoke in opposition were essentially advocates for the payday lending industry or their employees, with the exception of one citizen/customer. The Planning Commission unanimously recommended approval of Text Amendment TA-14-001 and the related environmental finding by a 5-0-1 vote, with Commissioner Vasquez absent. Letters in Support (see Exhibit F) California Reinvestment Coalition, letter dated April 1, 2014 United Way of Fresno County, letter dated April 3, 2014 Faith In Community, letter received on April 4, 2014 Central California Legal Services, Inc. letter dated April 21, 2014 Economic Opportunities Commission letter dated April 1, 2014 Letters in Opposition (see Exhibit G) It should be noted that the entities listed below as being in opposition do not oppose the enactment of some level of zoning oversight for payday lenders, however they do oppose various fundamental elements of the proposed text amendment as outlined below. California Financial Service Providers Association (CFSP), letter dated April 3, 2014 California Consumer Finance Association, letter dated April 4, 2014 Meeting with Payday Lending Representatives A meeting was held between industry representatives and city staff on April 30, 2014 to discuss the proposed text amendment. The concerns of the industry are those enumerated in the opposition letters and described below: 1. Payday lending establishments should be allowed in additional zone districts. Staff Response: The proposed zone districts of C-C, C-4, and C-6 are considered to be adequate, as they provide ample geographic coverage of the city. The C-C and C-4 zone districts apply to the central area (downtown), and the C-6 zone district is a heavy commercial designation that fronts onto many of the city's major commercial corridors, including Blackstone, Kings Canyon, Belmont and locations on West Shaw and Herndon Avenues. The total acreage of C-C, C-4 and C-6 zoning available according to the current Fresno Zoning Map is 2,660.95 acres. This is considered adequate. 2. Existing payday lending establishments should be allowed to expand square footage or extend hours of operation without a conditional use permit. Staff Response: This requirement applies to many other conditional uses in the city (including alcohol uses) and the purpose of inclusion of this rule in the text amendment is to ensure consistency with regulation of other conditional uses. 3. The 1,320 foot spacing requirement is excessive and should be reduced to 500 feet. Staff Response: Other cities have enacted rules ranging from outright bans of payday lending institutions to 1-mile, half-mile and quarter-mile spacing requirements, with additional spacing requirements for specific land uses (i.e. 500 feet from residential uses is a common requirement). Given the proliferation of these uses in Fresno, the 1,320 foot spacing requirement (quarter mile) is appropriate. 2025 Fresno General Plan Goals Goal 1: Enhance the quality of life for the citizens of Fresno and plan for the projected population within the moderately expanded Fresno urban boundary in a manner which will respect physical, environmental, fiscal, economic and social issues. The proposed text amendment is consistent with this goal, as it uses planning tools to address an issue which is causing negative economic impacts to local households, local business and to the city as a whole. The data in this report outline the cycle of debt that is created in local households by payday lending establishments and the corresponding reduction in funds available to support local businesses due to reduced spending power of these households. Goal 13: Plan for a healthy business and diversified employment environment, and provide adequate timely services to ensure that Fresno is competitive in the marketplace. The proposed text amendment is consistent with this goal. The data referenced in the staff report notes that the profits generated by these establishments are mostly (90%) destined for out-of-state corporate headquarters and therefore do not contribute to the local economy. This has been verified for the payday lending establishments in Fresno, which are headquartered in South Carolina, Tennessee, Texas, and Pennsylvania. In addition, the impact these establishments have on the fiscal well-being of local households does not contribute to a healthy business climate for the reasons noted above. Goal 14: Protect and improve public health and safety. For reasons noted above, the proposed text amendment is consistent with this goal, as it would limit payday lending establishments, thereby reducing the potential negative impacts to households' fiscal and physical health. Conclusion Staff believes that the proposed text amendment is in the best interest of the City of Fresno and supports Text Amendment No. TA-14-001 as proposed in the attached Ordinance. ENVIRONMENTAL FINDINGS Pursuant to CEQA Guidelines Section 15061(b)(3), there is no possibility that this project may have a significant effect on the environment. The text amendment is designating certain zone districts in which a general financial type land use may locate. Currently this type of land use is allowed in all commercial zone districts, so the net effect of the text amendment would be allowing such uses to locate in a subset of the currently allowed zone districts. LOCAL PREFERENCE N/A FISCAL IMPACT Affirmative action by the Council will result in timely deliverance of the review and processing of the application as is reasonably expected by the applicant. Prudent financial management is demonstrated by the expeditious completion of this land use application inasmuch as the applicant has paid to the city a fee for the processing of this application and that fee is, in turn, funding the respective operations of the Development and Resource Management Department. Exhibits: A. City Council Resolution No. 2013-199 B. Ordinance Bill of the Council of the City of Fresno, California for Text Amendment No. TA-14-001 amending Chapter 12 of the Fresno Municipal Code, Sections 12-220.3, 12-222.3, 12-231.3, 12-105.P, and 12-306.N.17, to Establish Zoning and Use Regulations for Payday Lending Establishments Within the City of Fresno C. Environmental Assessment No. EA-14-014 dated May 1, 2014 D: Map of Existing Payday Lending Establishments in Fresno E. Payday Lending Zoning Laws/Legislation F. Letters in Support G. Letters in Opposition H. Planning Commission Resolution No. 13284 1 California is one of several states allowing lenders to charge triple-digit interest rates for loans secured by access to the borrower's account (by check or electronically). Payday lenders may charge $15 for a bounced check; they are not permitted to take any criminal action against the borrower, but it is common for them to repeatedly resubmit NSF checks, imposing an additional fee for each time the bank rejects the check on top of the bank's own bounced-check fee. 2 Pew Charitable Trusts, Safe Small-Dollar Loans Research Project, " Payday Lending in America: Who Borrows, Where They Borrow, and Why," (available at wwwpewtrusts.org/small-loans), p. 8. 3 See, California Budget Project, "Recent Reports on Payday Lending in California Should Be Used with Caution," May 1, 2008, p. 15. 4 See, e.g., Lohrentz, "The Net Economic Impact of Payday Lending in the U.S.," Insight Center for Community Economic Development, March 2013 (hereafter, "Lohrentz"); pp. 3-4, Figures 2 and 3 (Value Added to Economy). 5 See Lohrentz, p. 8, Figure 5, "Sub-sectors Most Negatively Affected by Payday Lending in the U.S. in 2011." --------------- ------------------------------------------------------------ --------------- ------------------------------------------------------------