Leaders of two organizations that recently launched an alternative to payday loans now hope to lay the groundwork for changes to state law after releasing a new report on how predatory lenders are trapping Memphians in debt.
“These payday lenders are having a tremendous impact on our people and the way they live,” said Shirley Bondon, executive director of the Black Clergy Collaborative of Memphis, which released the report with the Hope Policy Institute. “In a community like Memphis where people are already living in poverty, it’s easy to exploit them and so we’re trying to find a way to lift people out of poverty and end that kind of exploitation.”
The report examines “high cost loans,” including payday loans, car title loans, and flex loans. Although the terms of these loans are different, the exploitation and harm are the same as they come with extreme interest rates, unfair repayment terms and “coercive” repayment methods, such as access directly to someone’s bank account, the report said.
Additionally, many lenders do not check whether someone can afford to repay the loan without worsening their financial situation, creating a “trap”, the report says. At least 75% of the money generated from payday loans comes from people who take out more than 10 loans a year, the report says.
And the moment the borrower can afford to break out of the cycle, “…[T]They will then be subject to insufficient funds charges, aggressive debt collection and ultimately the closure of bank accounts or bankruptcy.
For car title loans, the cost may be someone’s transportation. Nearly half of car title loans in Tennessee defaulted in 2019, the most recent year for which data is available, meaning loan companies repossessed more than 11,000 cars, according to the report.
But it also hurts more than the borrower’s bank account.
“These damages are neither exclusive nor exhaustive and extend to the psychological stress caused by unaffordable debt, the pressure exerted on other members of the community and family and the resulting inability to create wealth in the future,” the report said.
Memphis has 114 such storefronts, most owned by out-of-state businesses. Populus Financial Group, Inc./Ace Cash Express of Texas has 29 locations, and TitleMax/TMX Financing of Georgia has 23.
In Memphis, which is two-thirds black, just over one in three residents are either unbanked, meaning they don’t have a bank account, or underbanked, meaning they use financial services such as payday loans in addition to traditional banks, according to a Prosperity Now analysis of federal data from 2017.
High-cost lenders are concentrated in low-income black and brown areas, the report says. This includes neighborhood postcodes such as Whitehaven, Hickory Hill, Orange Mound, Raleigh and Berclair. Some suburban ZIP codes, such as Germantown and Collierville, have none of these lenders.
“That tells you they’re targeting a certain group of people and that’s a continuation of the systemic inequalities that we see in our communities,” Bondon said.
State Senator Raumesh Akbari sees the inequity of financial services offered in the same communities that predatory lenders target, she said in a statement. It’s hard for Democrats to pass legislation through the majority Republican-controlled Legislature, Akbari said, so she sees value in educating voters about the dangers of high-cost lending.
“In the current political environment at the State Capitol, reform that empowers consumers is difficult to achieve. But we have made some inroads in advocating for better financial literacy education accessible to all students and all adults who want it We want people to understand the true cost of their financial options.
Despite the legislative challenge, Bondon is confident that predatory lending protections can draw support from both sides. She hopes the report will educate community members, but wants lawmakers to read it as well.
“On this issue, I think you will get bipartisan support. I’m not naive in that it’s hard to get Shelby County legislation. But this problem is statewide…it’s not just a Shelby County problem.
Bondon said the state is the next level of government empowered to regulate the industry. The city and county did everything they could, she said.
In 2009, city and county lawmakers passed a joint ordinance preventing new lenders from opening within 1,000 feet of people’s homes. And in 2020, the Memphis City Council passed a resolution calling on the state to effectively ban the industry.
With these high cost loans, borrowers have to repay the full amount plus extreme interest within two weeks or the next payday.
The report recommends a limit on the interest rate for these loans. Interest rate caps have been used by other states, including Arkansas, where the limit is 17%.
“It takes many voices to pass legislation and because it affects so many people, we don’t just want the clergy, we want others to be involved in this fight with us,” Bondon said.
One voice is Josh Spickler, executive director of Just City, a criminal justice reform organization. Spickler wants to see legislation aimed at an industry he says claims to be a useful emergency service.
“But the reality is that most of the time this industry pushes people further into poverty and keeps them there.”
In this way, he said the payday loan industry is like the criminal justice system. Payday loans are often used to cover legal costs, he noted.
“It’s a system that works to exacerbate poverty, not alleviate it. The criminal justice system is not intended to drive people into poverty, that is not its stated purpose, but that is what it does.
Carrington J. Tatum is a corps member of Report for America, a national service program that places reporters in local newsrooms. Email him at [email protected]
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