Leaders of two organizations that recently began an alternative to payday loans now hope to lay groundwork for changes to state law after releasing a new report on how predatory lenders trap Memphians in debt.

“These payday lenders are impacting our people and how they live — drastically,” said Shirley Bondon, executive director of the Black Clergy Collaborative of Memphis, which released the report with 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 bring people out of poverty and stop this type of exploitation.”

The report looks at “high-cost loans,” including payday loans, car title loans and flex loans. Though the terms of these loans are different, the exploitation and harm are the same because they come with extreme interest rates, unfair repayment terms, and “coercive” repayment methods, such as requiring direct access to someone’s bank account, the report says.

Also, many lenders don’t 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 payday loans generate are by people who take out more than 10 loans a year, the report says. 

Nearly half of car title loans in Tennessee went into default in 2019, meaning loan companies repossessed more than 11,000 cars.

High Cost Debt Traps Widen Racial Wealth Gap in Memphis, report

And by the time the borrower can afford to break out of the cycle, “…[T]hey will then be subject to insufficient fund fees, aggressive debt collection, and ultimately bank account closures or bankruptcy.”

For car title loans, the cost can be someone’s transportation. Nearly half of car title loans in Tennessee went into default 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 harms more than just the borrower’s bank account.

“These harms are neither exclusive nor exhaustive and extend to psychological stress caused by unaffordable debt, strain on other community and family members, and the subsequent inability to build wealth in the future,” the report says.

Memphis has 114 of these storefronts, most of them owned by out-of-state companies. Populus Financial Group, Inc./Ace Cash Express, of Texas, owns 29 locations, and Georgia’s TitleMax/TMX Financing owns 23.

In Memphis, which is two-thirds Black, just over 1 in 3 residents are either unbanked, meaning that they don’t have a bank account, or underbanked, meaning that they use financial services such as payday loans in addition to traditional banks, according to a Prosperity Now analysis of 2017 federal data.

“… they’re targeting a certain group of people and it’s a continuation of the systemic inequalities that we see in our communities.”

Shirley Bondon, executive director of the Black Clergy Collaborative of Memphis

High-cost lenders are concentrated in low-income Black and brown areas, the report shows. That includes ZIP codes for neighborhoods including Whitehaven, Hickory Hill, Orange Mound, Raleigh and Berclair. Some suburban ZIP codes, such as Germantown and Collierville, have none of these lenders.

“It tells you that they’re targeting a certain group of people and it’s a continuation of the systemic inequalities that we see in our communities,” Bondon said.

A payday lender in a strip mall along Getwell Avenue. Photo by Andrea Morales for MLK50

State Sen. Raumesh Akbari sees the inequity in financial services offered in the same communities that predatory lenders target, she said in a statement. It’s difficult for Democrats to pass legislation through the overwhelmingly Republican-controlled legislature, Akbari said, so she sees value in educating constituents about the dangers of high-cost loans.

“In the current political environment at the state Capitol, reform that empowers consumers is difficult to achieve. But we have made some inroads advocating for stronger financial literacy education that’s available to every student and every adult who wants it. We want people to understand the true cost of their financial options.”

Despite the legislative challenge, Bondon is confident that protections against predatory lending can draw support from both sides. She hopes the report educates community members but wants lawmakers to read it as well.

“On this issue, I think you’ll get bipartisan support. I’m not naive in that it’s difficult to get legislation out of Shelby County. But this issue is statewide … this is not just a Shelby County problem.”

Bondon said the state is the next level of government with authority to regulate the industry. The city and county have done all they can do, she said.

In 2009, city and county lawmakers adopted 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 asking the state to effectively ban the industry.

With these high-cost loans, borrowers have to pay back the full amount plus extreme interest in two weeks or by the next payday.

In Tennessee, the maximum loan amount is $425 and the interest rate, nearly 460%.

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 this impacts so many people, we want not just the clergy, we want others 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 addressing an industry he said pretends to be a helpful emergency service.

“But the reality is, most of the time this industry drives people further in poverty and keeps them there.”

In that 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’s a system that functions to exacerbate poverty, not alleviate it. The criminal legal system does not set out to drive people into poverty, that’s not its stated goal — but it does that.”

Carrington J. Tatum is a corps member with Report for America, a national service program that places journalists in local newsrooms. Email him at carrington.tatum@mlk50.com

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