The Hope Policy Institute and Black Clergy Collaborative of Memphis’ report, entitled “High-Cost Debt Traps Widen Racial Wealth Gap In Memphis,” concluded that there are 114-high cost loan storefronts in Memphis. Twice the number of Starbucks and McDonald’s combined.
out of the 114 storefronts in Memphis, 74 are owned by out-of-state lenders. Two out-of-state corporations own nearly half of these storefronts: Populus Financial Group/Ace Cash Express and TitleMax/TMX Financing.
As a result, outlets such as TriplePundit have named Memphis as “Ground Zero” for predatory lending.
Amy Schaftlein, executive director of United Housing in Memphis, said these out-of-town companies usually target communities of color, and in Memphis it is typically Black communities.
“In Memphis, 20 percent of white households are liquid asset poor, compared to more than 50 percent of Black households and more than 60 percent of Latino households in the city,” the report said.
The concentration of these lenders in communities of color continues to take the wealth out of these neighborhoods and communities, said Schaftlein. The report also explained how the “wealth-stripping effects of high-cost loans limits economic mobility” for citizens, and perpetuates “long-standing racial and economic inequalities.”
As a result, Schaftlein said, people can perpetually be in a cycle of debt. “A lot of the time, predatory loans are set up so that they cannot be affordably paid back,” said Schaftlein.
Because of the debt that these communities face, most people have a lack of savings, and cannot put down payments on homes or pay off cars, said Schaftlein.
“It can really hurt credit scores, ” said Schaftlein. “We see that in communities of color, the credit scores are much lower. It has long-term impact on financial wellness and viability of individuals —specifically Black and brown neighborhoods for longer-term financial stability.”
The practices not only impact communities of color, but the local economy as well. Schaftlein said that during the foreclosure crisis, the subprime mortgage market was “very active.”
This resulted in many minority communities being targeted, many of whom were unable to buy a home, and were kicked out.
“You had a huge loss of any kind of equity that might have been built up,” said Schaftlein.
She also said the lending practices reverberate through generations, causing people to be ousted from home ownership. Consumer and title loans hurt the economy because, as Schaftlein explains, “if you can’t save for your family, you can’t start a business.”
There are alternatives, and opportunities for hope, however. According to Schaftlein, nonprofits like Hope Credit Union and Forward Memphis — and some traditional banks — offer lower-interest consumer loans that can be helpful with savings.
United Housing also educates people on the predatory nature of these loans, and how people can work on their credit. “The problem is that they’re [non-profits] under capitalized,” said Schaftlein. “They’re not marketed and can’t be on every corner the way payday loans can be.”
Schaftlein said while they can offer alternatives that will help, there needs to be talk with policymakers around capping interest rates on loans. “The laws here are very friendly,” said Schaftlein. “If we have a cap in interest rates — I think it’s 500 percent — it’s in the triple digits, way up there. ”
The report echoes this and explains that lenders in Memphis are able to charge triple-digit rates due to laws enacted by the Tennessee legislature. The report said state law allows payday loans that can result in a 460-percent annual percentage rate (APR) on a loan due in 14 days.
Memphis City Council passed a resolution in September 2020 asking the state legislature to “revoke and ban” business licenses for payday lenders, however the city did not have the power to enforce this, the report said. Schaftlein added that capping the interest rate is a state-level thing, and that many states have done it, meaning Tennessee can too.