You’ve seen them scattered along the outskirts of highways. It seems that around every corner, you’re bombarded with the opportunity to “get cash now!” And though the promise of instant funds is captivating, how wise is it to get that cash now?
Not very, according to statistics.
Payday loans, as they’re commonly referred to, are less about receiving money instantly and more about the heaps of interest piled atop the instant cash.
The idea of receiving an advance on funds is not new.
Hundreds of years ago, “salary lenders” would offer loans to borrowers. These loans were accompanied by outrageous interest rates, and sometimes physical violence and public humiliation.
While the doling out of physical violence and public humiliation aspect has subsided, the outrageous interest rates have not.
Modern payday loans emerged in the early 1990s and grew rapidly throughout the decade. The interest rate at the origin of payday loans in the ’90s reached upwards of 1,500% APR (annual percentage rate).
Today in Tennessee, payday loans legally are able to reach 460% APR, according to the Center for Responsible Lending.
Many lending businesses transitioned from payday loans to flex loans. Flex loans give the borrower the option of withdrawing all of the money loaned at once or in installments. Flex loans do not have designated repayment dates or amounts, but the longer the loan is out, the more interest accrues.
The state of Tennessee caps flex loans at 24% APR, but these lenders still can charge a daily interest, which can build more debt.
And though payday lenders are legal in 37 states, predatory debt lenders have swept across Tennessee in especially alarming alarming numbers, critics say.
Glenda Eastridge, a lifelong resident of Blount County and president of the local League of Women Voters, said these lenders are dangerous.
“I personally look at them as predators and am appalled they’re everywhere,” Eastridge said.
As of 2018, Tennessee had more predatory lenders than any other state, according to a study by a Chattanooga-based company, Metro Ideas Project.
Though the legal limit to borrow in Tennessee is only $500, after the lender’s fee, which cannot exceed 15% of the amount borrowed, the maximum amount that a person is truly able to borrow at once is $425, according to the Deferred Presentment Services Act. This provision was added to the act in 2012.
Also included in the provisions added to the Deferred Presentment Act in 2012 was the statement that loans cannot exceed 31 days in length.
With such a high interest rate and small amount of time to repay, a borrower could be required to pay a total of almost $700 on a $500 loan after interest in only 31 days.
The study by the Metro Ideas Project found that the Tennessee county with the most predatory lenders is Shelby, home of Memphis, with 232 lenders; followed by Davidson, home of Nashville, with 109 lenders. Neighboring Knox County ranks fourth on the list, with 68 predatory lenders.
However, per capita, the counties with the highest concentration of predatory lenders in Tennessee is vastly different than the counties with the most predatory lenders in total.
According to the report by the Metro Ideas Project, Madison County, which ranks 15th in population, has the highest concentration of predatory lenders per 100,000 residents.
In fact, of the top 10 counties with the highest concentration of predatory lenders, eight out of 10 are ranked in the teens of largest populations. When it comes to concentration of predatory lenders, population plays almost no role.
As for Blount County, there are 14 payday loan services — about 1 for every 9,200 people. All are in Alcoa and Maryville.
The Daily Times visited Check to Cash, Advance Financial 24/7 and Cash Express. All three refused to interview.
In 2016, the Consumer Financial Protection Bureau created rules to control predatory lenders. These rules stated that a person could not take out more than three loans at once. Before these rules, predatory lenders relied on the stacking of loans and the high interest rates of those loans to make money. With these restrictions, the amount that people borrowed was lessened, and therefore the amount of money earned by the lenders decreased.
Now three years later, predatory lenders still find themselves hugely successful in Tennessee despite the restrictions. And for the most part, people find no issue with the deal they’re being dealt.
According to the Pew Charitable Trusts, 75% of Americans believe in stricter regulation of payday loans, supporting the Consumer Financial Bureau proposal to allow loans to be paid back in smaller installments over a longer period of time.
“I just think in society today, people have this ‘get rich quick’ mindset, but they’re not educated on the fact that if it sounds too good to be true, it’s too good to be true,” Eastridge said.
Blount County residents using these services, however, have mixed feelings about them, as made evident in the reviews of the lenders. Some rave over the excellent service, while others complain of the outrageous interest rates. Altogether, the 14 predatory lenders in Blount County have an average Google rating of 3.6.
The Metro Ideas Project offers a three-pronged solution to combat predatory lending.
First, warn borrowers of the the risks associated with the services through clear signage. Second, require an additional local permit to the state permit already required in order to increase regulation within cities and counties. And finally, create similar, community-based lending institutions that offer “affordable rates, transparent fees and honest underwriting practices” that operate under the same legal structure as current predatory lenders.
Still to be desired: lower interest rates.