Zoning Out Payday Loan Stores and Other Alternative Financial Services Providers

Abstract

Payday lenders and similar alternative financial services providers are primarily regulated at the state level, but local governments have increasingly begun to impose restrictions of their own on these fringe financial services providers. While some ordinances have focused on lending restrictions and other consumer protections, most municipal payday lender regulations are found in zoning and other land use laws.

Zoning has long been used to restrict the siting of undesirable land uses – ranging from junkyards and landfills to tattoo shops and adult businesses – making it an ideal method for local governments to regulate payday lenders. Experience with other unwanted land uses has led to the development of various zoning techniques appropriate for controlling these businesses, such as separation and dispersal requirements, nonconforming use limitations, special permit procedures, and partial or total exclusions.

This article provides an overview of these and other approaches that local governments have taken to regulate alternative financial services providers. After providing some background regarding the general functions and characteristics of these businesses in the first section, the second section discusses state-level financial regulations and preemption issues. The third section covers the different types of municipal controls that have been imposed on payday lenders and similar businesses, drawing on actual ordinances as well as on case law discussing their use and validity. Finally, the fourth section mentions several alternative, incentive-based non-zoning approaches that have been used to improve financial literacy and extend traditional banking services to a broader population. An appendix listing and briefly describing more than 60 payday lender ordinances is also included.