December 19, 2010; Source: Mercury News | It’s not unusual to think of foundations getting behind efforts to put more money in people’s pockets. Yet in Silicon Valley, the local community foundation is leading the charge to slow the flow of cash from payday lenders who prey on people down on their luck.

According to research conducted by the Silicon Valley Community Foundation, payday lenders typically target people who can least afford the cost of these loans, sometimes forcing them to borrow even more to pay off the original loan or their exorbitant interest rates.

The Mercury News cites a 2009 foundation study that found that payday lenders “are concentrated in poor neighborhoods and often in African-American and Latino communities.” The report also said that “the typical borrowers are more likely to be single women who are poorer and have less education than those who don’t use the loans.”

Borrowers are charged eye-popping interest, about $15 for every $100 or the equivalent of 400 percent a year. People in need of quick cash take out these loans to tide them over until their next payday. But according to Emmett Carson, CEO of the Silicon Valley Community Foundation, it’s doubtful that borrowers “have a sense of what the true cost of these loans are.” Carson adds that “some rates we can say as a society are usury and unacceptable.”

While lenders bill themselves as being there to offer a quick fix for people in a jam, borrowers often find themselves unable to pay the loan back and go deeper into debt by taking out another one to cover the first. According to the Mercury News, in California the “average borrower took out nearly eight payday loans last year,” and the amount loaned in the state in 2009 climbed to $3.1 billion, a five-fold increase since 2005.

To help research ways to slow, even halt the number and locations of payday shops, most likely through zoning restrictions similar to those that have been used in other cities, the city is seeking a $200,000 grant from the foundation. In the past the foundation has supported the work of advocacy groups to convince policy makers of why abusive lending practices need to be stopped, an effort made even more urgent with the recession driving more people into the arms of payday lenders. As the foundation’s Carson notes, “As families are under more stress, their (payday lenders) profit margins go up,” he said. “They attack economic stress.”—Bruce Trachtenberg