Federal regulators set sights on Tennessee's payday lending industry

Federal regulators set sights on Tennessee's payday lending industry

March 25th, 2014 by Ellis Smith in Business Around the Region

CFPB Director Richard Corday

REGULATORS SET SIGHTS ON TENNESSEE

What: Field hearing on payday lending

Where: Country Music Hall of Fame, Nashville

When: 11 a.m. central time

WHAT IS A PAYDAY LOAN?

• Payday loans were developed to provide small loans to consumers to meet a short-term need.

• Consumers who take out these loans are usually required to repay them from their next paycheck.

• According to reports from industry analysts, about 12 million American adults are currently choosing to borrow money through payday loans.

• Such loans, which are not secured through a car or a home like normal loans, often carry annual percentage rates approaching 400 percent.

WHO'S INVOLVED

Richard Cordray, director of the CFPB

Bob Cooper, attorney general of Tennessee

D. Lynn DeVault, board member of Check into Cash

Jamie Fulmer, senior vice president for public affairs, Access America

Oneshia Herring, legislative counsel, Center for Responsible Lending

Source: Consumer Financial Protection Bureau

Federal regulators and Tennessee Attorney General Bob Cooper will meet with the public, payday lending officials and consumer advocates in Nashville today as part of a push to further regulate the payday lending industry and cut back on so-called "debt traps" that mire consumers in a cycle of poverty.

Richard Cordray, director of the newly-created Consumer Financial Protection Bureau, will release a study -- purportedly the most in-depth analysis to date -- showing that four out of five payday loans are rolled over or renewed every 14 days. In many instances, borrowers end up paying more in fees than the amount of money they originally borrowed.

The study is drawn from a 12-month period covering more than 12 million loan transactions. Under Cordray, the CFPB began supervising the payday lending market in January 2012 and started accepting complaints from borrowers in November 2013.

In his prepared remarks for today's hearing, Cordray said he chose Tennessee for this particular field hearing "because of the prevalence of payday lenders both here and in many of the neighboring states."

Cordray said that roughly half of all loans are made to borrowers in loan sequences lasting ten or more loans in a row.

"From this finding, one could readily conclude that the business model of the payday industry depends on people becoming stuck in these loans for the long term, since almost half their business comes from people who are basically paying high-cost rent on the amount of their original loan," Corday said in his remarks.

Regulatory agencies often release such studies ahead of new rules clamping down on groups of businesses.

"As we look ahead to our next steps, I will frankly say that we are now in the late stages of our considerations about how we can formulate new rules to bring needed reforms to this market," Cordray said. "So we intend to make sure that consumers who can afford to take out small-dollar loans can get the credit they need without jeopardizing or undermining their financial futures. But we also need to recognize that loan products which routinely lead consumers into debt traps should have no place in their lives."

In addition to regulators and consumer advocates, the hearing will also include members of the payday loan industry, such as Cleveland, Tenn.-based Check into Cash.

Check Into Cash is the nation's largest privately held payday lender with more than 1,200 offices nationwide offering payday, title and other consumer loans, along with check cashing services. Allan Jones, the company's founder and CEO, calls his company "a happy business" that "fills a real consumer need" for short-term cash. On a typical Friday, more than 75,000 Americans are in one of Jones' stores paying on a loan or borrowing more money.

"We've been in business for over 20 years and we haven't had any consumers, to my knowledge, ever complain about our business," Jones said. "Our consumers love us and so-called consumer groups hate us. Consumer groups want us to spend more time thinking about our consumers. Well, that's all we've ever done -- we talk with them, we listen to them and we give them the services they want and need."

Contact Ellis Smith at esmith@timesfreepress.com or at 757-6315.