Predatory Practices 

New ideas emerge for cities to manage payday lenders.

Imagine a business that came with a warning, just like a pack of cigarettes.

That's one new way cities can deal with payday lenders, according to a new report from an urban policy think tank. Tennessee cities need new methods to deal with payday lenders, the report says, because state lawmakers have "failed to act."

Payday lenders offer up easy-to-get, short-term loans often made with no credit check and often with high annual percentage rates (APR) that can create a mountain of debt for lendees.

click to enlarge Options include mandatory labeling on signage.
  • Options include mandatory labeling on signage.

The report, "Fighting Predatory Lending in Tennessee," was issued last week from Chattanooga's Metro Ideas Project. It calls these organizations "predatory lenders" and says they are most widely used by home renters, African Americans, those without a four-year college degree, and those earning less than $40,000 a year.

Shelby County has more payday lenders than any other county in Tennessee, according to the report. Shelby has 232 payday lending locations, more than double of second-ranked Davidson County (Nashville), which has 109.

Shelby ranks second of all Tennessee counties for the number of such lenders per capita. For every 100,000 Shelby County residents, there are nearly 25 payday lenders. Only Madison County (Jackson) beats Shelby, with nearly 30 payday lenders per capita.

In total, there are more than 1,233 payday lending locations, in 89 of the state's 95 counties. This gives Tennessee more "payday lending locations than any other state."

This is thanks, according to the Metro Ideas Project, to a "loose regulatory environment" in the state. State law pre-empts local authority on the terms of the payday loans. Lenders here can charge up to 459 percent APR on loans, for example, and city leaders cannot change that.

But local governments can force payday lenders to give space on all outdoor signage that reads "warning: predatory lender," much like the Surgeon General's label on cigarettes, alcohol, and more.

Cities can also require such lenders to get a local permit, preventing the creation of clusters of lenders. The Memphis City Council and Shelby County Commission passed a joint ordinance in 2009 that would not allow payday lenders within 1,000 feet of homes.

The report also favors establishing a nonprofit, "non-predatory" lender "for residents with poor or nonexistent credit histories."

Changing state law on payday lenders would be the easiest route, the report said, but that isn't likely in Tennessee.

"The Tennessee General Assembly, however, has failed to act and instead has chosen to give away the store to the payday industry," the report says. "To date, it seems that statewide reform of APRs, fees, or enforcement of aggregate loan limits is off the table until state legislators are willing to act.

"In lieu of state action, cities must take the issue into their own hands."

In Washington, Congressman Steve Cohen and others recently introduced a bill that would cap APRs at 36 percent, much less than the 459 percent they can currently charge in Tennessee.

"Throughout my career, I have always worked to shield people from those who would take advantage of them through predatory lending practices that can wreak havoc on people's lives and perpetuate a cycle of indebtedness," Cohen said in a statement.

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