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Ordinance 2013-07I ORDINANCE NO. 2013-07 AN URGENCY INTERIM ORDINANCE OF THE CITY COUNCIL OF THE CITY OF GILROY EXTENDING A TEMPORARY MORATORIUM ON THE ESTABLISHMENT, EXPANSION, OR RELOCATION OF PAYDAY LENDING AND CHECK CASHING BUSINESSES WITHIN THE CITY OF GILROY DECLARING THE URGENCY THEREOF WHEREAS, on March 18, 2013, in accordance with Government Code section 65858, the City Council at a duly noticed public meeting took testimony and adopted Ordinance No. 2013 -06, an urgency interim ordinance, (a copy of which is attached hereto as Exhibit "A "), which prohibited, for a period of 45 days, the establishment, expansion, or relocation, which includes, but is not limited to, the issuance of any use permit, building permit, variance, subdivision or any other applicable permit, approval, or entitlement for use for development, of any payday lending business or check cashing business within the City of Gilroy; and WHEREAS, on April 15, 2013, in accordance with Government Code section 65858, the City Council held a duly noticed public hearing and took testimony regarding this urgency interim ordinance extension ordinance ( "Extension Ordinance "); and WHEREAS, the City Council has considered, and by adopting this Extension Ordinance ratifies and adopts, the April 5, 2013, report prepared by City staff describing the measures taken to date to alleviate the conditions which led to the adoption of Ordinance No. 2013 -06, a copy of which is attached hereto as Exhibit "B"; and WHEREAS, because the conditions justifying the adoption of Ordinance No. 2013 -06 have not been alleviated, the City Council now desires to extend the moratorium established by Ordinance No. 2013 -06 for an additional ten (10) months and fifteen (15) days, as permitted by Government Code Section 65858; and WHEREAS, the City Council finds that this Extension Ordinance is not subject to the California Environmental Quality Act ("CEQA ") (Public Resources Code sections 21000 et seq.), because it will not result in a direct or reasonably foreseeable indirect physical change in the environment because this Extension Ordinance prevents changes in the environment pending WH11156129.1 ORDINANCE NO. 2013-07 040813-04706083 2 the contemplated review of City of Gilroy Zoning Ordinance amendments applicable to payday lending and check cashing businesses. CEQA Guidelines, sections 15060(c)(2). THE CITY COUNCIL OF THE CITY OF GILROY DOES HEREBY ORDAIN AS FOLLOWS: SECTION I Findings and Purpose. In accordance with California Government Code section 65858, the City Council finds and declares that this Extension Ordinance is deemed necessary for the following reasons: 1. The inability of low- income consumers with poor credit history to obtain certain services from federally- insured banks has resulted in a two - tiered financial services industry. More financially- stable consumers are generally able to use traditional banks, which charge low fees for checking and issue loans regulated by the federal government, while lower- income, financially- vulnerable consumers often have to rely upon the alternative financial services (AFS) industry for the same services. Payday lending and check cashing businesses are part of the growing AFS industry. 2. Payday lending businesses typically offer small, 14 -day loans for which they charge effective interest rates upwards of 460% annual percentage rate (APR). California law currently caps individual payday loans at $300, from which a 15% fee can be deducted. As a result, payday lending businesses in California generally charge $45 for a two -week $300 loan. According to a 2007 survey conducted by the California Department of Corporations, 48% of payday loan borrowers in California take out payday loans at least once per month. Because payday loan consumers tend to engage in cyclical borrowing, research has demonstrated that the typical borrower ultimately pays $800 for a $300 loan. 3. Check cashing outlets cash checks for a large fee, a significant percentage of the amount of the check, or deposit funds on to prepaid debit cards that incur a per - transaction fee. The fees withdrawn from cashed checks are generally significantly higher than the fees that would be charged by most federally- insured banks. 4. In the face of limited state and federal legislation restricting payday lending and check cashing, the growth of these industries has been extremely rapid. Since 1997, when payday lending became legal in California, more than 2,000 payday lending businesses have been established. In 2010, California payday lenders issued $12 million in loans to 1.6 .million borrowers. The check cashing industry has experienced similarly rapid growth. A study by the Consumer Federation of America found that the check cashing industry doubled in size between 1994 and 2000, and again between 2000 and 2005. 5. The proliferation of these businesses has had significant detrimental effects on the financial stability of low- income communities throughout California, and low- income neighborhoods in the surrounding cities. These businesses operate almost exclusively in low - income neighborhoods and prey upon the City of Gilroy's most financially vulnerable residents, IJH11156129.1 ORDINANCE NO. 2013-07 040813 -04706083 drawing them into a cycle of debt or causing them to lose a significant share of their income to exorbitant fees for simple financial transactions. 6. The City of Gilroy's Zoning Ordinance does not adequately regulate the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy. T In light of the foregoing, the City Council finds that the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy presents a current and immediate threat to public health, safety and welfare. The City Council further finds that a temporary moratorium on the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy is warranted so that the City Council may review and consider possible amendments to the City of Gilroy Zoning Ordinance to address this threat on a permanent basis. SECTION 11 A. Scope This Extension Ordinance prohibits the establishment, expansion, or relocation, which includes, but is not limited to, the issuance of any use permit, building permit, variance, subdivision or any other applicable permit, approval, or entitlement for use for development, of any payday lending business or check cashing business within the City of Gilroy. B. Applicability This Extension Ordinance shall apply to the following uses: Payday Lending Businesses and Check Cashing Business. For purposes of this Extension Ordinance, the terms "payday lending businesses" shall mean retail businesses owned or operated by a "licensee" as that term is defined in California Financial Code section 23001(d), as amended from time to time. The term "payday lending business" as used herein means retail businesses owned or operated by a "licensee" as that term is defined in California Financial Code section 23001(d), as amended from time to time. The term "check cashing business" as used herein means a retail business owned or operated by a "check casher" as that term is defined in California Civil Code section 1789.31 as amended from time to time. SECTION III This Extension Ordinance extends the prohibition imposed by Ordinance No. 2013 -06 on the establishment, expansion, or relocation of any payday lending business or check cashing business within the City of Gilroy. SECTION IV This Extension Ordinance is an extension of Ordinance No. 2013 -06, an urgency measure adopted pursuant to the provisions of Government Code section 65858. This Extension IJH11156129.1 ORDINANCE NO. 2013-07 040813 -04706083 M Ordinance shall be in effect for an additional ten (10) months and fifteen (15) days, or until March 2, 2014, and shall thereupon be repealed and of no further force or effect, unless extended by subsequent enactment of the City Council: SECTION V The City Clerk shall certify to the adoption of this Extension Ordinance and cause the same to be published in the manner prescribed by law. SECTION VI If any section, subsection, sentence, clause or phrase of this Interim Urgency Ordinance is for any reason held to be invalid or unconstitutional, such decision shall not affect the validity of the remaining portions of this ordinance. The City Council of the City of Gilroy hereby declares that it would have passed and adopted this ordinance, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases may be declared invalid or unconstitutional. PASSED AND ADOPTED this 15 day of April, 2013, by the following roll call vote: AYES: COUNCILMEMBERS: ARELLANO, AULMAN, BRACCO, LEROE- MUNOZ, TUCKER, WOODWARD and GAGE NOES: COUNCILMEMBERS: NONE ABSTAIN: COUNCILMEMBERS: NONE APPROVED: 1 Donald Gage, Mayor a 97 1JH11156129.1 040813 - 04706083 ORDINANCE NO. 2013-07 EXHBIT A ORDINANCE NO. 2013-06 AN URGENCY INTERIM ORDINANCE OF THE CITY COUNCIL OF THE CITY OF GILROY ESTABLISHING A TEMPORARY MORATORIUM ON THE ESTABLISHMENT, EXPANSION, OR RELOCATION OF PAYDAY LENDING AND CHECK CASHING BUSINESSES WITHIN THE CITY OF GILROY DECLARING THE URGENCY THEREOF, TO TAKE EFFECT IMMEDIATELY WHEREAS, Government Code Section 65858 provides that a city may, with or without following the notice and public hearing procedures otherwise required prior to the adoption of a zoning ordinance, "adopt as an urgency measure an interim ordinance prohibiting any uses that may be in conflict with a contemplated general plan, specific plan, or zoning proposal that the legislative body, planning commission or the planning department is considering or studying or intends to study within a reasonable time"; and WHEREAS, the City Council finds that this Ordinance is not subject to the California Environmental Quality Act (CEQA) because the activity is not a project as defined by Section 15378 of the CEQA guidelines. The Ordinance has no potential for resulting in physical change to the environment either directly or indirectly. Furthermore, pursuant to Section 15060(c)(2) of the CEQA Guidelines, the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment because this Ordinance prevents changes in the environment pending the contemplated review of City of Gilroy Zoning Ordinance amendments applicable to payday lending and check cashing businesses. THE CITY COUNCIL OF THE CITY OF GILROY DOES HEREBY ORDAIN AS FOLLOWS: I. 1010110 1 1 Findin¢s and Purpose. In accordance with California Government Code section 65858, the City Council finds and declares that this Ordinance is deemed necessary for the following reasons: WH11156129.1 ORDINANCE NO. 2013-07 040813-04706083 0 1. The inability of low- income consumers with poor credit history to obtain certain services from federally- insured banks has resulted in a two - tiered financial services industry. More financially-stable consumers are generally able to use traditional banks, which charge low fees for checking and issue loans regulated by the federal government, while lower - income, financially- vulnerable consumers often have to rely upon the alternative financial services (AFS) industry for the same services. Payday lending and check cashing businesses are part of the growing AFS industry. 2. Payday lending businesses typically offer small, 14 -day loans for which they charge effective interest rates upwards of 460% annual percentage rate (APR). California law currently caps individual payday loans at $300, from which a 15% fee can be deducted. As a result, payday lending businesses in California generally charge $45 for a two -week $300 loan. According to a 2007 survey conducted by the California Department of Corporations, 48% of payday loan borrowers in California take out payday loans at least once per month. Because payday loan consumers tend to engage in cyclical borrowing, research has demonstrated that the typical borrower ultimately pays $800 for a $300 loan. 3. Check cashing outlets cash checks for a large fee, a significant percentage of the amount of the check, or deposit funds on to prepaid debit cards that incur a per - transaction fee. The fees withdrawn from cashed checks are generally significantly higher than the fees that would be charged by most federally- insured banks. 4. In the face of limited state and federal legislation restricting payday lending and check cashing, the growth of these industries has been extremely rapid. Since 1997, when payday lending became legal in California, more than 2,000 payday lending businesses have been established. In 2010, California payday lenders issued $12 million in loans to 1.6 million borrowers. The check cashing industry has experienced similarly rapid growth. A study by the Consumer Federation of America found that the check cashing industry doubled in size between 1994 and 2000, and again between 2000 and 2005. 5. The proliferation of these businesses has had significant detrimental effects on the financial stability of low- income communities throughout California, and low- income neighborhoods in the surrounding cities. These businesses operate almost exclusively in low - income neighborhoods and prey upon the City of Gilroy's most financially vulnerable residents, drawing them into a cycle of debt or causing them to lose a significant share of their income to exorbitant fees for simple financial transactions. 6. The City of Gilroy's Zoning Ordinance does not adequately regulate the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy. 7. In light of the foregoing, the City Council finds that the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy presents a current and immediate threat to public health, safety and welfare. The City Council further finds that a temporary moratorium on the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy is warranted so that the City Council may UH11156129.1 ORDINANCE NO. 2013-07 040813- 04706083 7 review and consider possible amendments to the City of Gilroy Zoning Ordinance to address this threat on a permanent basis. SECTION II A. Scope This Ordinance prohibits the establishment, expansion, or relocation, which includes, but is not limited to, the issuance of any use permit, building permit, variance, subdivision or any other applicable permit, approval, or entitlement for use for development, of any payday lending business or check cashing business within the City of Gilroy B. Applicability This Ordinance shall apply to the following uses: 1. Payday Lending Businesses and Check Cashing Business. For purposes of this Ordinance, the terms "payday lending businesses" shall mean retail businesses owned or operated by a "licensee" as that term is defined in California Financial Code section 23001(d), as amended from time to time. The term "payday lending business" as used herein means retail businesses owned or operated by a "licensee" as that term is defined in California Financial Code section 23001(d), as amended from time to time. The term "check cashing business" as used herein means a retail business owned or operated by a "check casher" as that term is defined in California Civil Code section 1789.31 as amended from time to time. SECTION III This Ordinance is declared to be an urgency measure adopted pursuant to the provisions of Government Code section 65858. Pursuant to Government Code section 65858, this Ordinance is effective immediately and shall be in full force and effect for forty -five (45) days from the date of its adoption. After notice pursuant to section 65090 of the Government Code and a public hearing, the Council, by four -fifths (4/5) vote, may extend the effectiveness of this Ordinance for twenty-two (22) months and fifteen (15) days in accordance with the provisions of Government Code section 65858. The City Council finds that this Ordinance must be adopted as an urgency measure because the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy presents a current and immediate threat to public health, safety and welfare. The City Council further finds that a temporary moratorium on the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy is warranted so that the City Council may review and consider possible amendments to the City of Gilroy Zoning Ordinance to address this threat on a permanent basis. Absent the adoption of this urgency Ordinance, it is likely that the establishment, expansion, or relocation of payday lending and check cashing businesses within the City of Gilroy will result in the harmful effects described above. WHM56129.1 ORDINANCE NO. 2013 -07 040813-04706083 M SECTION IV The City Clerk shall cause this Ordinance to be published in a newspaper of general circulation as required by state law. SECTION V If any section, subsection, sentence, clause or phrase of this Interim Urgency Ordinance is for any reason held to be invalid or unconstitutional, such decision shall not affect the validity of the remaining portions of this ordinance. The City Council of the City of Gilroy hereby declares that it would have passed and adopted this ordinance, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases may be declared invalid or unconstitutional. PASSED AND ADOPTED this 18`x' day of March, 2013, by the following roll call vote: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS ATTEST: Shawna Freels, City Clerk ARELLANO, AULMAN, BRACCO, LEROE- MUNOZ, TUCKER, WOODWARD and GAGE IM10121 NONE APPROVED: Donald Gage, Mayor WMl 156129.1 ORDINANCE NO. 2013 -07 040813 -04706083 ' City of Gilroy oil COMMUNITY DEVELOPMENT DEPARTMENT MEMORANDUM DATE: April 5, 2013 TO: Thomas Haglund, City Administrator FROM: Kristi Abrams, Community Development Director SUBJECT: Extension of Interim Ordinance Establishing a Temporary Moratorium on the Establishment, Expansion, or Relocation of Payday Lending and Check Cashing Businesses within the City for Additional Ten Months and Fifteen Days Pursuant to Government Code section 65858, this memorandum is intended to report on the measures taken to alleviate the condition which led to the adoption of the Interim Ordinance Establishing a Temporary Moratorium on the Establishment, Expansion, or Relocation of Payday Lending and Check Cashing Businesses within the City and the need for an extension thereof. At its March 18, 2013 meeting Council adopted Ordinance No. 2012 -06, imposing a 45 day moratorium on the establishment, expansion or relocation of payday lending and check cashing businesses within the City. The companion staff report is attached as Exhibit A. Staff and the City Attorney are currently preparing an amendment to the Zoning Ordinance for consideration by the Planning Commission and the City Council that would prohibit or limit the operation of payday lending and check cashing businesses in the City. Unless the temporary moratorium is extended, the moratorium will expire on May 3, 2013 before the City Council can consider potential amendments to the Zoning Ordinance. The proposed ordinance would extend the temporary moratorium until the city completes its evaluation, consideration and legislative action, if any, to amend the Zoning Ordinance to address payday lending and check cashing businesses on a permanent basis. Extension of the current, temporary moratorium Ordinance 2013 -06 on the establishment, expansion or relocation of payday lending and check cashing businesses within the city will ensure that these businesses do not proliferate while the city considers enacting regulations affecting their operations within the city. Per State Government Code Section 65858(a) the Payday Lending Urgency Ordinance Ten Day Report: 4/5/2013 current moratorium may be extended for a period of ten (10) months and fifteen (15) days if the conditions that led to the interim ordinance continue to exist. In addition, the Government Code requires a 4 /5ths vote to adopt an urgency ordinance extension. Exhibit A: March 18, 2013 Council Staff Report City of Gilroy COMMUNITY DEVELOPMENT DEPARTMENT 7351 Rosanna Street, Gilroy CA 95020 (408) 846 -0451 (408) 846 -0429 (fax) www.cityofgilroy.org DATE: March 18, 2013 TO: Thomas Haglund, City Administrator FROM: Kristi Abrams, Community Development Director& SUBJECT: Proposed Urgency Interim Ordinance Establishing a Temporary Moratorium on the Establishment, Expansion, or Relocation of Payday Lending and Check Cashing Businesses within the City Recommendation: It is recommended that the City Council: 1. By motion; adopt an urgency ordinance to establish a temporary moratorium on the establishment, expansion or relocation of payday lending and check cashing businesses Within the City of Gilroy and, declaring the urgency thereof, to take effect immediately. A 4 /5ths vote is required to adopt an urgency ordinance. 2. Direct staff to prepare amendments to the City's Zoning Ordinance to limit or prohibit the operation of payday lending and check cashing businesses within the City. Discussion: The city received a request from a local non - profit that services low income residents to evaluate the public policy implications of payday lending /check cashing institutions and consider ordinance provisions to limit or prohibit additional payday lenders within the City of Gilroy. Currently, according to business license records, six payday lenders are located within the city and primarily service low- income consumers, amounting to one payday lender for approximately every 8,300 residents, one of the highest ratios of lenders per capita in Santa Clara County, per the Coalition Against Payday Predators. The inability of low- income consumers with poor credit history to obtain certain services from federally insured banks has resulted in a two- tiered financial services industry. More affluent, financially stable consumers are generally able to use traditional banks, which charge lower fees for checking and issue loans regulated by the federal government; while lower income, financially vulnerable consumers often must rely upon the alternative financial services (AFS) industry for the same services. Payday lenders and check cashing outlets are part of a growing AFS industry. Payday lenders generally offer small, 14 day, loans for which they charge effective interest rates comparable to upwards of a 460% annual percentage rate (APR). Check cashing outlets cash checks for a large fee or a significant percentage of the amount of the check. These businesses operate almost exclusively in low- income neighborhoods and prey upon the most financially vulnerable consumers. Since there is limited state and federal legislation restricting payday lending and check cashing, a number of local jurisdictions have decided to regulate these industries themselves. The Payday Lending Urgency Ordinance City Council Hearing Date: 3/18/2013 County of Santa Clara and the City of Los Altos considered the public policy implications of these institutions, their lending practices and the impacts on the primary constituency these companies serve and have enacted ordinances that completely ban payday lending and check cashing establishments. For similar reasons, the City of San Jose adopted an ordinance that capped the number of payday lenders, restricted payday lenders from locating in low- income neighborhoods and prevented a concentration of payday lenders. San Francisco prohibits payday lending and check cashing businesses from operating within a quarter mile of any other provider of alternative financial services, and has an absolute moratorium on these businesses in certain zoning districts. East Palo Alto enacted a zoning ordinance that prohibits these businesses from opening near others engaged in the same practice and also prohibits them from operating near residential zones, schools, religious institutions, bars and liquor stores. There are several alternatives available to payday loan borrowing such as nonprofit cash assistance programs such as those provided by St. Joseph's Family Center, government assistance programs for food, and utility assistance programs. In addition, the for profit business Progreso Financiero provides affordable loan alternatives and the nonprofit Ways to Work provides vehicle financing. The six existing payday lenders in Gilroy would be grandfathered into any ordinance, including the urgency ordinance, and would continue to exist for those citizens who choose that option. Gilroy's higher than usual population to AFS institution ratio demonstrates the need for consideration of the adoption of the proposed temporary moratorium on the establishment, expansion or relocation of payday lending and check cashing businesses within the city to ensure that these businesses do not proliferate while the City Council considers enacting regulations affecting their operations within the City. Per State Government Code Section 65858 a 4 /5ths vote is required to adopt an urgency ordinance. If the City Council adopts the temporary moratorium it will remain in effect for 45 days. The City Council must issue a written report "describing the measures taken to alleviate the condition which led to the adoption" of the temporary moratorium 10 days prior to its expiration on May 2, 2013. If the City Council needs more than 45 days to consider imposing limitations on the operation of payday lending and check cashing businesses within the city it may extend the temporary moratorium for an additional 10 months and 15 days, following notice and a public hearing. An additional 12 month extension may be adopted should the need arise. Should the City Council not adopt the temporary moratorium, new or existing payday lending and check cashing businesses may expand their operations in the city prior to imposition of any restrictions the City Council may later adopt. Human Resources Impact: Adequate human resources are available to process this urgency ordinance and to present amendments, for Council consideration, to the City's Zoning Ordinance to limit or prohibit the operation of payday lending and check cashing businesses with the City. Fiscal Impact: Sufficient funds are budgeted to process this urgency ordinance and to present amendments, for Council consideration, to the City's Zoning Ordinance to limit or prohibit the operation of payday lending and check cashing businesses with the City. Attachment 1: Interim Ordinance I, SHAWNA FREELS, City Clerk of the City of Gilroy, do hereby certify that the attached Ordinance No. 2013 -07 is an original ordinance, or true and correct copy of a City ordinance, duly adopted by the Council of the City of Gilroy at a regular meeting of said Council held on the 15th day of April, 2013, at which meeting a quorum was present. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Official Seal of the City of Gilroy this 16th day of April, 2013. vna Freels, D Clerk of the (Seal)