Local payday lenders could soon face tighter restrictions on where they can set up shop in Iowa City.

The Iowa City city councilors unanimously decided Tuesday to have the planning and zoning staff look into zoning amendments that would restrict the development of new payday lenders in certain areas. The local chapter of Citizens for Community Improvement asked the council to take action on these proposals last month.

Payday lenders allow people to take out a short-term loan between paychecks and pay the business back with interest after their next pay check.

David Goodner, the Iowa City community organizer for Citizens for Community Improvement, said payday loans trap people in a cycle of debt.

"Loan sharking is the worst it’s been in this country’s history," he said, noting a 400 percent interest rate for payday loans.

Councilor Connie Champion was a bit more hesitant.

"It’s usually the people who don’t have any other resources who are using [the payday lenders]," she said. "I don’t like them, but they do serve a purpose."

Goodner said the proposals would particularly help the South and Southeast Sides of Iowa City.

"… For years, people have talked about what to do about the South and Southeast — that’s where the payday lenders are located," he said. "They’re all located in those poor neighborhoods. [Lenders] have a business model that preys on and exploits poor people."

The Citizens for Community Improvement chapter asked City Council to adopt a one-year moratorium on new payday lenders, pawnshops, and any check-cashing businesses downtown. Goodner said the ban would give the council time to debate and pass a "strong zoning policy" without more similar businesses developing.

He said the preventing the development of these businesses can also affect students.

"In other states, we’ve seen these places start to open up on college campuses, and they’re trying to scalp students," he said.

Jeff Rudolph, an Edward Jones financial adviser in Iowa City, said payday lenders are "extremely detrimental" to college students.

"We recommend that people set aside money for emergencies so payday loans are not necessary and also to live beneath your means," Rudolph said.

Though City Attorney Eleanor Dilkes said city officials don’t have control over interest rates and can’t license payday lender facilities, these types of businesses must obtain licenses from the state in order to operate.

"Cities have the authority to regulate zoning power, and the kind of things we would do is to regulate the proximity of those establishments, what zones they may or may not be located in," she said.

Similar zoning restrictions are in place for drinking establishments and bars. Any establishments that qualify as bars under City Code must be separated by at least 500 feet, with exceptions for grandfathered institutions, Dilkes said.

City Councils in Clive, Des Moines, and West Des Moines have all passed zoning ordinances that have cracked down on payday lenders.

"It’s happening all over the state," Goodner said. "It wasn’t controversial at all in those other cities. [The councils] have been generally very receptive."

City officials in Ames and Ankeny are also expected to vote on similar zoning amendments in the next month.

Mayor Matt Hayek said he’d like city officials to look into the issue by identifying the location of payday lenders and the dispersion, density, and per capita levels, among other things.

"With the liquor licenses, we’ve developed that empirical information, and made a decision locally," he said. "I’d want us to pursue this in the same fashion."

The proposals will be forwarded to the Planning and Zoning Commission, where staff will prepare a report to introduce to the City Council sometime this spring.