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Chattanooga City Council Chairman Carol Berz listens during a council meeting Tuesday, July 7, 2015, in Chattanooga, Tenn.
some text Chattanooga City Council member Russell Gilbert speaks as a committee discusses a proposed change in the city's sound ordinance Tuesday, Aug. 12, 2014, in Chattanooga, Tenn.

Chattanooga City Council members are considering tightening zoning laws that limit so-called predatory lending businesses after they say one company may be skirting the rules.

The city in February passed new zoning rules that prevent payday lenders, check cashers, title pawns and other alternative financing businesses from opening close to residential areas or to similar lenders.

The aim was to crack down on what council members called a high density of lending businesses in Chattanooga. Council members Carol Berz and Russell Gilbert, who sponsored the rule changes, and Mayor Andy Berke said high concentrations of such businesses increase crime, poverty and hinder development.

Lenders rejected those claims but didn't fight the rule much because it ensured they would not have new competitors moving in nearby.

Since then, Nashville-based Advance Financial is opening a new store at the corner of Hixson Pike and Ashland Terrace, which is within 500 feet of housing. But it's exempt, because the business is an industrial loan and thrift company — a different type of alternative financing institution specifically excluded from the city's zoning rule because it is already regulated by the state.

The company has four other businesses in Chattanooga, including one it is opening on Highway 153.

Last week, Gilbert said he wanted to tighten the ordinance if the language was too loose and allowed lenders to skirt the rules.

"I want it so tight that if they sneeze, we know it, as far as manipulating wording in the future," he said.

District 2 Councilman Jerry Mitchell, who represents the area where the new store is being built, said the same thing.

"If they've just found what they think is a loophole, then we'll just close that loophole," Mitchell said. "If it's a different type of business that isn't predatory, then there's no issue."

Cullen Earnest, spokesman for Advance Financial, says it's the latter.

Advance Financial doesn't do payday or title loans any more; it does installment loans, he said.

"There's a big difference. Consumers prefer an installment loan if you want to be able to pay your small-dollar loan gradually over time. A payday loan is a just a one-time fee," Earnest said.

With more than 70 stores statewide, the company has done title loans, payday loans, check cashing and "all the products that the [Tennessee] Department of Financial Institutions regulates," but it is focusing their business now, he said.

"We are phasing out — throughout the state — our payday lending and title lending," Earnest said. "The Consumer Financial Protection Bureau is looking at a lot of short-term consumer products. A lot of us feel like the federal government is going to put payday lending out of business."

Latricia Schobert, director of Consumer Credit Counseling Service, said installment loans are easier on consumers than other short-term lending. That's because people can pay a set amount over time that's agreed upon when the loan is made, much like a car payment.

The credit counseling service is a nonprofit that helps people find ways to get out of debt and regain strong financial footing.

"They are better in the sense that the interest rate is lower than the typical 350 percent [of a typical payday loan] and the client can make smaller monthly payments," she said.

But there are still better options for people in need of cash, she said.

"We would not advise them to go to a corner-store finance company. We always recommend that they go to a credit union," Schobert said. "A credit union will work with someone with a low credit score and they will give you a lower interest rate."

However, Schobert said CCCS often works better with installment loan shops than other alternative lenders when it renegotiates terms for clients.

Tennessee Department of Financial Institution spokesman Ryan Hughes said in an email Friday that thrift companies are able to loan money at higher interest rates than the state's usury rules.

Thrift companies can charge up to 24 percent interest — with loan charges — for loans as long as 181 months, he said.

Contact staff writer Louie Brogdon at lbrogdon @timesfreepress.com, @glbrogdoniv on Twitter or at 423-757-6481.

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