Our state leads the nation in brick-and-mortar predatory lending locations, with over 1,200 spread across 89 of our 95 counties. In fact, Tennessee has more predatory lending locations than McDonald’s or Walmarts. These institutions charge annualized interest rates north of 450 percent, employ aggressive debt collection tactics, and target our most vulnerable residents.
So why does Tennessee lead the nation with more of these toxic businesses than anywhere else? In a word, greed.
Industry revenues exceeded $14.3 billion in 2016 and those profits have funded powerful special interests and lobbying efforts that have allowed these predatory lenders to fester in our state.
But it wasn’t always this way.
At the time our nation was founded, state constitutions everywhere had strict usury limits - essentially laws prohibiting charging excessive interest rates. The original colonies capped interest rates at 6 percent annually, the states and commonwealths that proceeded them followed suit, including Tennessee. In 1870, the state constitution of Tennessee was revised to cap interest rates at 10 percent, where it would remain for over a hundred years.
Beyond being merely illegal, usury has a long standing reputation as being particularly immoral. Jesus Christ drove the usurers out of the temple. St. Thomas quoted Aristotle in saying “to make money by usury is exceedingly unnatural.” The Bible repeatedly castigates those taking advantage of the poor, from explicitly chastising those who charge excessive interest rates in the Old Testament (Proverbs 28:8; Proverbs 22:22; Exodus 22:25) to a softer reminder in the New (Luke 6:34-36; James 2:6). And although Calvinistic thought later reinterpreted bans on usury to allow low-interest loans, both protestant and Catholic theology remain consistent that excessive and exploitative interest rates remains unethical.
But in Tennessee, our state legislature carved out a special exception for payday and flexible credit lenders to charge exorbitant triple-digit interest rates (up to 459 percent APR) to predominately low-income and vulnerable consumers. These interest rates are even higher than rates charged by illegal loan sharks, often backed by the mob - those loans hovered around 250 percent APR.
At Metro Ideas Project, we worked on a recent report to better understand how predatory lenders impacted consumers in our community. Here in Hamilton County, we found that we have over 20 predatory lending locations per 100,000 people - among the highest in the state.
As we drive down our main thoroughfares, they litter our strip malls and shopping centers. They offer promises of easy money in a tough situation. But many people don’t realize the risks associated with taking these loans. Most consumers take out more than one loan to the pay the original back and often end up paying more in interest and fees than the principal balance. Seven in 10 borrowers use them for regular, recurring expenses as opposed to unexpected or emergency costs.
The lenders would argue that they are simply there to meet a demand, to serve a need. But what they don’t say is that they are armed by an aggressive lobbying operation that is happy to hand out sizable campaign contributions to state legislators in exchange for some of the most permissible and anti-consumer terms anywhere in the nation. They’ve even managed to defeat proposals to mandate the creation of a database to simply allow the enforcement of existing laws restricting the number of predatory loans a consumer may take out at a single time.
In lieu of state action to regulate these bad actors, Metro Ideas Project proposes a three-pronged strategy for cities and counties to curb predatory lending practices: Warn, Permit, and Lend. First, we recommend cities require plainspoken consumer warnings to alert people of the risks and costs of these loans. Second, we strongly encourage additional permits be obtained to operate these kinds of establishments. And third, we propose alternative lending institutions so consumers have more affordable choices.
In the absence of state leadership on this matter, it is our hope that these local strategies can provide a critical regulatory environment.
But residents and citizens should demand more from their leaders at the state level. It should be unacceptable to us that predatory lenders are simply allowed to exploit vulnerable residents - many of whom we personally know, including many working poor, single mothers of color.
Other states, including neighboring Georgia, have taken bold steps to eliminate brick and mortar predatory lending locations altogether. While local action may provide a necessary stopgap, Tennessee should revisit the issue and we should ask ourselves where we draw the line -exploitative lending practices should have no home in our great state.
Joda Thongnopnua, executive director of Metro Ideas Project, a local urban policy non-profit focused on helping cities work better for their residents
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Here's a unique idea... instead of demanding action by taxpayer funded government, how about those who see victims and victimizers teach those they perceive as victims to live within their means?
How about they teach those "single mothers" not to have children without a partner to raise them?
Multiple daddies for multiple children? That's easy. Don't have multiple daddies. But that might involve making better life choices, and then we can't blame others for our poor decisions...
The Book, since it was invoked here, tells us we are to help widows and children, those who cannot help themselves. It says nothing about government involvement in that assistance. It says nothing about providing those who wouldn't hit a lick in a pie factory a higher standard of living than many of those from whom those TaxBucks are ripped, with the force of a government gun.
But this is just the opinion of one who was raised being told that if we need a hand the first place to look is at the end of our own arm, to save for what we want, and not only knows what Butch Wax is but has used it.
Brylcreem ... a little dab'll do ya... Brylcreem... you'll look so debonair...
Royce Burrage, Jr.
Royce@Officially Chapped.org
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Dear Joda Thongnopnua, executive director of Metro Ideas Project, a local urban policy non-profit focused on helping cities work better for their residents,
Let me share a more predatory, devious and unseen crime that transfers wealth to the already wealthy and allows Washington to rob us all even future generations. In addition it also finances wars, and creates and pays off voting blocks. This is done by the printing of money and all of this is done without our consent and it is taxation without representation.
The so called do gooders who always run to the government for help have done more to harm the poor than any predatory lender could ever do over 10 lifetimes.
I have a recommendation for you, Joda, and your nonprofit, which more than likely takes federal and state tax dollars and doesn’t pay any taxes. Take your own recommendation and start your own alternative lending service to meet this travesty you see.
Mike Lynn