Jungle of quick cash: Payday lenders proliferate in East Ridge, elsewhere
BY THE NUMBERS
• $ 3.4 billion – Fees collected each year by payday lenders
• 62% – Portion of fees paid by borrowers in the South
• 76 – Complaints filed against payday lenders in 2012, compared to 120 mortgage complaints and 141 complaints against banks and credit unions.
• 27 – Payday lenders along Ringgold Road in East Ridge
• 16 – fast food restaurants 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 each church. For every traditional bank along the corridor, a Times Free Press investigation found nearly five payday lenders, some of which include securities lending and check cashing transactions behind the same storefront.
It takes 10 minutes to cross the five mile commercial strip that begins at Missionary Ridge and ends just past Interstate 75, but this short stretch supports nearly 30 payday lenders.
For each of the four Ringgold Road 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 – is almost 2 to 1 larger than the 16 fast food outlets.
The growing troubleshooting industry isn’t just limited to East Ridge. A list provided 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 from Rossville Boulevard to l highway 58.
Critics say payday loans trap borrowers in a cycle of debt. The loans carry triple-digit annual percentage rates and collect the majority of their fees – estimated by the Center for Responsible Lending at $ 3.4 billion each year – from “churn”, as borrowers take out a loan to pay it off. another, or endlessly. pay interest on a loan without touching the principal.
The recently established Federal Consumer Financial Protection Bureau reports that 75 percent of payday loan fees are generated by borrowers who have completed more than 10 payday loan transactions in a 12-month period. Consumers in the South pay 62% of all churned fees, according to the Center for Responsible Lending. And a Pew survey found that 81% of borrowers are able to cut spending in the absence of payday loans, which critics say shows consumers don’t need loans, but use them to make reckless purchases.
Lenders claim that their loans support their customers, many of whom cannot afford a $ 300 loan from a traditional bank. Regulators and lawmakers responsible for the rules that limit Americans’ access to traditional loans are to blame on the payday industry, not the payday lenders themselves, they say.
In fact, payday lenders receive few complaints from their clients, who use high interest loans to bridge the payday gap. Customers contacted by The Times Free Press say the loans help them pay for their cars, provide for their children or buy basic necessities for the home. In 2012, the Tennessee Department of Financial Institutions followed up only 76 complaints against payday lenders, compared with 120 complaints related to mortgage loans and 141 complaints against banks and credit unions.
The banks themselves are getting into the game, trying to reach a market they call “unbanked” or “underbanked”. Wells Fargo announces 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 of lawmakers in many states, some of which have all but disappeared from payday loans. But lawmakers’ efforts to control the industry sometimes resemble the Whac-A-Mole game.
Georgia’s strict rules have pushed many payday lenders across the border to East Ridge, officials say, where they continue to serve Georgia residents looking for quick cash. Other lenders have moved online, locating their businesses overseas or on Indian reservations, to the dismay of state regulators. Business-friendly Tennessee government officials have done little to crush the growing cash industry, despite citizens’ concerns.
“I feel for people who have to live week to week, and they have to have support, but be 27 [payday lenders on Ringgold Road], I just don’t see it, ”said Jim Bethune, vice mayor of East Ridge. “All of your East Ridge residents are opposed to there being so many. I have lived here all my life and I oppose it. “
These concerns did not translate into action.
“At the end of the day, you can’t legislate on taste,” said Hal North, East Ridge city attorney. “I know the town of Chattanooga has looked at this over the years, but it’s hard to legislate anything that would be constitutionally compliant. You can’t say, ‘I’d rather have a Neiman Marcus than a pile of title pawns. “It just doesn’t work that way.”
For better or worse, the stores are simply a reaction to consumer demand for easy money, East Ridge Mayor Brent Lambert said.
“It can be difficult for low-income people to go to the bank and get a loan, so they look to whatever mechanism they can use,” Lambert said.
If these people had a choice, they would likely go to the bank, he said. But the way the financial system is set up, banks are neither equipped, nor authorized, to give out the kinds of small unsecured 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 believe the 27 payday lenders the Times Free Press counted on Ringgold Road to be an embarrassment and nuisance. Lawmakers have looked at the example of some cities that have tried with varying degrees of success to limit the number of payday lenders to a portion of the population. But as long as lenders don’t break the law, they can legally challenge such a rule, he said.
“You could try to put some kind of limit or cap on the number, but you will face a lawsuit,” the mayor said. “The question is, does the city of East Ridge really want to go into this fight and be tied up for potentially years?”
Some payday lenders say such regulation is unnecessary. The industry strives 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 are not allowed to let clients “renew” or continue to pay only interest on a loan more than four times, and must offer extended payment plans to members who cannot. repay their original amount. ready.
Amy Cantu, who works as the director of communications for the Community Financial Services Association, said it was important not to lump physical payday lenders with organizations that operate overseas or from Indian reservations, to refuse to obey state laws and engage in questionable marketing. and collection practices.
CFSA members are mostly physical companies that advocate compliance with state laws, Cantu said. Some have an online presence, but unlike online-only lenders like Chattanooga businessman Carey V. Brown, who refused to follow the laws of the states in which he operated and was sanctioned by regulators, CFSA members modify their loan offerings to suit the state in which they are offering the loan.
“It is important that consumers make informed decisions so that they can get as much information about who they are borrowing money from,” Cantu said. “There is good and bad in all areas of financial services.”
Editor-in-chief Tim Omarzu contributed to this report.
Contact editor Ellis Smith at [email protected] or 423-757-6315.