Leaders of two organizations that recently introduced an alternative to payday loans are now hoping to lay the groundwork for changes in state law following the release of a new law report about how predatory lenders trap Memphians in debt.
“These payday lenders are having a dramatic impact on our employees and the way they live,” said Shirley Bondon, executive director of the Black Clergy Collaborative of Memphiswho published the report Institute for the Politics of Hope. “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 stop that kind of exploitation.”
The report looks at “costly loans,” including payday loans, auto title loans, and flex loans. Though the terms of these loans vary, the exploitation and harm are the same as they come with extreme interest rates, unfair repayment terms, and “forced” repayment methods such as direct access to an individual’s bank account, the report said.
Also, many lenders do not assess whether someone can afford to repay the loan without worsening their financial situation, which is a “trap,” the report said. At least 75% of the money payday loans generate comes from people taking out more than 10 loans a year, the report said.
And until the borrower can afford to break out of the cycle, “…[T]They are then faced with inadequate fund fees, aggressive collections and ultimately bank account closures or bankruptcies.”
With car title loans, the cost can be one person’s transportation. Nearly half of Tennessee’s auto title loans defaulted in 2019, the latest year for which data is available, meaning lenders took back more than 11,000 cars, according to the report.
But it also hurts more than just the borrower’s bank account.
“These damages are neither exclusive nor exhaustive and extend to psychological stress caused by unpayable debt, burdens on other community and family members, and the resulting inability to build wealth in the future,” the report said.
Memphis has 114 of these storefronts, most of which are owned by non-governmental corporations. Populus Financial Group, Inc./Ace Cash Express of Texas owns 29 locations and TitleMax/TMX Financing of Georgia owns 23.
In Memphis, which is two-thirds Black, just over 1 in 3 residents are either unbanked, meaning they don’t have a bank account, or underbanked, meaning they use financial services like payday loans in addition to traditional banks. according to a Prosperity Now analysis of federal data 2017.
The report shows that high-cost lenders are concentrated in low-income black and brown areas. This includes zip codes for neighborhoods such as Whitehaven, Hickory Hill, Orange Mound, Raleigh and Berclair. Some suburban zip codes, such as Germantown and Collierville, do not have these lenders.
“It tells you they’re targeting a specific group of people, and it’s a continuation of the systemic inequalities that we’re seeing in our communities,” Bondon said.
State Senator Raumesh Akbari sees the injustice in financial services provided in the same communities that are being targeted by predatory lenders, she said in a statement. It’s difficult for Democrats to pass legislation through the predominantly Republican-controlled Legislature, Akbari said, so she sees value in educating voters about the dangers of expensive borrowing.
“In the current State Capitol policy environment, reform that empowers consumers is elusive. But we have taken some steps to advocate for more financial literacy education available to every student and adult who wants it. We want people to understand the true cost of their financial opportunities.”
Despite the legislative challenge, Bondon is confident that protections against robbery loans can be supported by both sides. She hopes the report will enlighten community members, but wants lawmakers to read it too.
“I think you will get bipartisan support on this issue. I’m not being naïve as it’s difficult to get laws out of Shelby County. But this problem is statewide…this isn’t just a Shelby County problem.”
Bondon said the state is the next level of government with the power to regulate the industry. The city and state have done all they can, she said.
City and county legislatures in 2009 accepted a joint ordinance preventing new lenders from opening within 1,000 feet of people’s homes. And in 2020, the Memphis City Council passed one resolution Urge the state to effectively ban the industry.
These high-priced loans require borrowers to repay the full amount plus extreme interest in two weeks or by their next payday.
The report recommends capping the interest rate on these loans. Interest rate caps have been used by other states, including Arkansas, where the limit is 17%.
“It takes a lot of votes to pass legislation and because this affects so many people we don’t just want the clergy, we want others to get involved in this fight with us,” Bondon said.
One voice is Josh Spickler, CEO of city only, a criminal justice reform organization. Spickler wants legislation aimed at an industry he says purports to be a helpful emergency service.
“But the reality is that this industry mostly 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 court fees, he noted.
“It is a system designed to increase poverty, not alleviate it. The criminal justice system does not want to impoverish people, that is not the stated goal – but it does.”
Carrington J. Tatum is a Corps member with Report for America, a national service program that places journalists in local newsrooms. Email him at [email protected]
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