BY THE NUMBERS
• $3.4 billion -- Fees reaped each year by payday lenders
• 62 percent -- Portion of fees paid by borrowers in the South
• 76 -- Complaints filed against payday lenders in 2012, compared to 120 mortgage-related complaints and 141 complaints against banks and credit unions.
• 27 -- Payday lenders along Ringgold Road in East Ridge
• 16 -- Fast-food outlets along the same stretch of road
Sources: Center for Responsible Lending, Tennessee Department of Financial Institutions, Times Free Press survey
Along Ringgold Road in East Ridge, there are nearly four payday lenders for every church. For each traditional bank along the corridor, a Times Free Press survey found almost five payday lenders, some of which include title-loan and check-cashing operations behind the same storefront.
It takes 10 minutes to drive through the five-mile commercial strip that starts at Missionary Ridge and ends just past Interstate 75, but that short stretch supports nearly 30 payday lenders.
For each of Ringgold Road's four grocery stores, there are seven payday lenders. The fast-cash industry -- marked by neon signs and names like Advance America, Cash Express and Payday USA -- outnumbers the 16 fast-food outlets almost 2-to-1.
The growing payday industry isn't limited to East Ridge. A list supplied by the Tennessee Department of Financial Institutions shows nearly 90 payday lenders operating in the Chattanooga area, including 14 in Cleveland, a dozen on Brainerd Road, 11 in Hixson and dozens more spread out from Rossville Boulevard to Highway 58.
Critics say payday loans trap borrowers in a cycle of debt. The loans carry triple-digit annual percentage rates and reap the majority of their fees -- estimated by the Center for Responsible Lending at $3.4 billion each year -- from "churn," as borrowers take out one loan to pay for another, or endlessly pay interest on a loan without touching the principal.
The newly created federal Consumer Financial Protection Bureau reports that 75 percent of payday loan fees are generated from borrowers with more than 10 payday loan transactions in a 12-month period. Consumers in the South pay 62 percent of all churned fees, according to the Center for Responsible Lending. And a Pew survey found that 81 percent of borrowers are able to cut back on expenses in the absence of payday loans, which critics say shows that consumers don't need the loans, but use them to make unwise purchases.
Lenders contend that their loans sustain their customers, many of whom lack the means to get a $300 loan from a traditional bank. The regulators and lawmakers responsible for the rules that limit Americans' access to traditional loans are to blame for the payday industry, not the payday lenders themselves, they say.
In fact, payday lenders receive few complaints from their customers, who use the high-interest loans to bridge the gap between paydays. Customers reached by the Times Free Press say the loans help them make car payments, support their children's needs or buy necessities for the home. In 2012, the Tennessee Department of Financial Institutions tracked just 76 complaints against payday lenders, compared to 120 mortgage-related complaints and 141 complaints against banks and credit unions.
Banks themselves are jumping into the game, attempting to reach a market they refer to as the "unbanked" or "underbanked." Wells Fargo advertises Direct Deposit Advance, Fifth Third Bank has launched Early Access Now, and Regions Bank offers a service it calls Ready Advance.
Payday lenders are a favorite whipping boy of lawmakers in many states, some of which have regulated payday lending nearly out of existence. But lawmakers' efforts to control the industry at times resembles the game Whac-A-Mole.
Georgia's stringent rules drove many payday lenders over the border to East Ridge, officials say, where they continue to serve Georgia residents in search of a fast buck. Other lenders have moved online, locating their businesses offshore or on Indian reservations, to the consternation of state regulators. Tennessee's business-friendly government officials have done little to quash the growing quick-cash industry, despite citizen concern.
"I feel for the people who have to live from week to week, and they've got to have support, but to have 27 [payday lenders on Ringgold Road], I just don't see it," said Jim Bethune, vice mayor of East Ridge. "All your residents in East Ridge are opposed to having that many. I've been a resident here all my life and I'm opposed to it."
Those concerns haven't translated into action.
"The bottom line is you can't legislate taste," said Hal North, city attorney for East Ridge. "I know the city of Chattanooga has looked at that over the years, but it's difficult to legislate anything that would pass constitutional muster. You can't say, 'I'd rather have a Neiman Marcus than a bunch of title pawns.' It just doesn't work that way."
For better or worse, the stores are simply a reaction to consumers' demand for easy money, said East Ridge Mayor Brent Lambert.
"It can be difficult for low-income folks to go to the bank and get a loan, so they turn to whatever mechanism they can use," Lambert said.
If those people had a choice, they'd likely go to the bank, he said. But the way the financial system is set up, banks aren't equipped, nor are they allowed, to make the types of unsecured small loans that prevent people from losing their cars or being evicted from their apartments.
It's not that people would rather have payday lenders than banks, Lambert said. In fact, some of his constituents think the 27 payday lenders the Times Free Press counted on Ringgold Road are an embarrassment and a nuisance. Lawmakers have looked at the example of some cities that attempted with varying degrees of success to limit the number of payday lenders to a proportion of the population. But as long as lenders aren't breaking the law, they legally can challenge any such rule, he said.
"You could try to put some kind of limit or cap on how many there can be, but you will face a lawsuit," the mayor said. "The question is, does the city of East Ridge really want to get into that fight and be tied up for potentially years?"
Some payday lenders say such regulation isn't necessary. The industry is working to develop "best practices" that protect consumers, such as preventing customers from taking out one payday loan to pay off another, and prominently displaying their fees or interest rates. Members of the Community Financial Services Association aren't allowed to let customers "roll over," or keep paying only the interest, on a loan more than four times, and must offer extended payment plans for members who can't pay back their original loans.
Amy Cantu, who works as director of communications for the Community Financial Services Association, said it's important not to lump brick-and-mortar payday lenders in with organizations that operate offshore or from Indian reservations, refuse to obey state laws and engage in questionable marketing and collection practices.
CFSA members are primarily brick-and-mortar businesses that advocate following state laws, Cantu said. Some have an online presence, but unlike online-only lenders like Chattanooga businessman Carey V. Brown, who declined to follow the laws of the states in which he operated and was sanctioned by regulators, CFSA members modify their loan offerings to fit the state in which they're offering the loan.
"It's important that consumers make informed decisions so they can get as much information about those that they're borrowing money from," Cantu said. "There is good and bad in every area of financial services."
Staff writer Tim Omarzu contributed to this report.
Contact staff writer Ellis Smith at firstname.lastname@example.org or 423-757-6315.
Ellis Smith joined the Chattanooga Times Free Press in January 2010 as a business reporter. His beat includes the flooring industry, Chattem, Unum, Krystal, the automobile market, real estate and technology. Ellis is from Marietta, Ga., and has a bachelor’s degree in mass communication at the University of West Georgia. He previously worked at UTV-13 News, Carrollton, Ga., as a producer; at the The West Georgian, Carrollton, Ga., as editor; and at the Times-Georgian, Carrollton, ...