The city council in Victorville, Calif. has passed a 45-day moratorium on permits for payday lenders as it explores the risks the short-term loan businesses pose to the city's low-income population.

City officials want to be sure the businesses - as well as check-cashing and car title loan establishments - are not overly concentrated in certain sections of the city and therefore taking advantage of economically vulnerable communities, according to a report prepared by the city's legal officials.

The California Consumer Finance Association (CCFA) opposed the city's temporary ban. In a letter sent last week to Victorville Mayor Jim Cox, the CCFA specifically took issue with the reported role the absence of a checking account plays for quick-loan seekers.

"Those who obtain payday loans must have an existing bank account," CCFA President Natasha Fooman wrote. "In fact, among other credit options, a payday loan may be the best choice when consumers consider the often higher costs of bouncing a check, paying overdraft protection fees or incurring late payment penalties."

Fooman said the CCFA is concerned that the moratorium does nothing to reduce consumers’ need for short-term credit, but instead actually could drive them to online, unregulated and perhaps offshore payday lenders. She also said the move will signal to commercial ventures that the city is not business-friendly.

City officials want time to determine if new regulations on the businesses should be introduced, such as requiring conditional use permits or introducing zoning limits. The report prepared by the city's legal department states that many California cities have found that limiting the zoning of money service businesses - and thus decreasing access - has helped prevent residents from impulsively committing to the loans.

A study by the Urban Law and Public Policy Institute, cited in the city's report, found that 42% of households with annual incomes of less than $25,000 live within one mile of a check-cashing business in California. Also, 57% of African-Americans and 49% of Hispanics live within that radius.

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