Tennessee is awash in predatory lenders who charge high interest rates for small, short-term loans, and those who oppose the industry have long been stonewalled by a powerful payday loan lobby and special statewide legislative protections.

But one local think tank has come up with an approach to push back on the industry that it argues is hurting poor, working-class and minority families and stifling economic mobility.

The Metro Ideas Project, a Chattanooga-based research startup devoted to the analysis and design of public policy, spent four months studying predatory lending in Tennessee before publishing its findings last week. Its 19-page report highlights the extent of predatory lending statewide and suggests a three-pronged strategy to curb the industry's growth and reach.

Joda Thongnopnua, executive director of Metro Ideas Project, said the payday loan industry became a research focal point once he and his staff learned about Tennessee's unique and cozy relationship with the industry, which is heavily regulated elsewhere in the U.S.

The report, "Fighting Predatory Lending in Tennessee," says the state has the most predatory lenders in the country with more than 1,200 locations across 89 of the state's 95 counties. The group's analysis of state licensing data showed that Hamilton County is among the counties with the highest number of brick-and-mortar payday loan locations and the highest concentrations of predatory lenders per capita.

Tennessee counties with the most predatory lenders

At last count, there were 1,233 payday lending locations across the state. Tennessee has the most predatory lenders in the nation.

1. Shelby County: 232

2. Davidson County: 109

3. Hamilton County: 71

4. Knox County: 68

5. Rutherford County: 50

Source: Metro Ideas Project, Fighting Predatory Lending in Tennessee 2017



Metro Ideas report


Demand for payday loans is huge. Payday lenders or check cashers, which charge annual interest rates between 391 percent and 521 percent in the 28 states where they are allowed to operate, are used by more than 12 million Americans, according to the Pew Research Center.

Many who use these kinds of loans are people without a four-year degree, renters, African-Americans and those earning below $40,000 a year, the Metro Ideas Project study shows, and 70 percent of borrowers use their payday loans for regular, recurring expenses, not unexpected emergency costs, as is often claimed by industry proponents. Low credit scores keep many from accessing conventional loans with lower interest rates.

Tennessee Counties with the Highest Concentration of Predatory Lenders

(per 100,000 Residents)

1. Madison County: 29.53

2. Shelby County: 24.74

3. Putnam County: 24.38

4. Maury County: 22.59

5. Bradley County: 22.53

6. Robertson County: 20.76

7. Washington County: 20.74

8. Greene County: 20.41

9. Hamilton County: 20.39

10. Sullivan County: 19.77

Source: Metro Ideas Project, Fighting Predatory Lending in Tennessee 2017



"Predatory lenders are able to exploit this need, in part, because there are few alternatives for consumers to go to," the report states.

And creating more lending options for families struggling to make ends meet is one of three steps that need to be taken to cut back on the widespread use of small loans with triple-digit APRs, Thongnopnua said.

The Metro Ideas Project report argues for the creation of alternative, community-based and nonprofit lending institutions under the same legal structure used by predatory lenders but featuring affordable rates, transparent fees and honest underwriting practices.

"As cities look to build strong local economies and bring people out of poverty, ensuring that people are not trapped in debt and have lending options that encourage upward mobility will be paramount," the report states.

Thongnopnua said Metro Ideas Project also is encouraging places like Chattanooga to push back on predatory lending by introducing creative local regulations.

State law prohibits cities from setting restrictions on interest rates. But the report says cities can require predatory lenders to post plain-spoken warnings on all exterior signage about the danger and risk associated with their services.

Jennifer Harper, a certified financial planner who owns her own financial planning and investing company and sits on the Mayor's Council for Women, said she is for the idea. In the spring, the Mayor's Council for Women published its own report on predatory lending, which was sparked by concern that so many local, single mothers were using payday loans and facing disastrous consequences.

"We have to be a little bolder than we have been," said Harper, who also founded a local nonprofit, Common Cents Financial Literacy Inc., that teaches people about managing money. "I don't see it as any different than a warning on a package of cigarettes. These [loans] are not healthy for our community."

Still, Harper acknowledged that the signage could exacerbate the sense of shame some may feel when going to get a payday loan.

"This is a multifaceted problem. You won't take one action and solve it all," she said. "This is something where we approach it from a lot of angles to get the best results."

A third approach, the report suggests, is to require an additional local permit to operate a predatory lending establishment in city boundaries, which could make opening new locations more costly.

Calls to Check Into Cash, Quick Loans, Advance America and the Community Financial Services Association of America — the primary trade group representing payday lenders — were not returned.

Regardless, however, new rules set by the Consumer Financial Protection Bureau in October are expected to dramatically curtail payday and auto title lenders if this first nationwide regulation of the industry isn't rejected by Congress.

Now, before giving a loan, payday and auto title lenders must determine if a borrower can repay the loan within 30 days. The rules also limit the number of times a borrower can renew a loan. Studies conducted by the CFPB have shown that 60 percent of such loans are renewed once and 22 percent are renewed at least seven times.

Under the new rules, the CFPB estimates loan volume in the payday lending industry could fall by 55 percent.

At the same time, the Office of the Comptroller of the Currency is loosening restrictions on payday lending-like products, known as deposit advance products, and making it a lot easier for banks and credit unions to move into the small-loan niche.

Contact staff writer Joan McClane at jmcclane or 423-757-6601.