MEMPHIS, Tenn. (WMC) - Should payday lenders be banned from Memphis and Tennessee?
The Memphis City Council seems to think so.
Every council member voted in favor of a resolution urging Tennessee lawmakers to revoke and ban business licenses for all payday lenders.
During the council’s meeting last week, Memphis City Councilman Chase Carlisle, who sponsored the resolution, explained why action is needed now.
“I’m bringing this resolution because far too many times payday lenders come into our communities and ultimately harm the economic growth more than they help,” Carlisle said. “If they ever help at all.”
The Pew Charitable Trusts says 12 million Americans take out payday loans each year to help with unexpected expenses. Many borrowers also use short-term loans on a regular basis to pay for rent and utilities, a need that has increased during the COVID-19 pandemic.
But with interest rates of nearly 400 percent and higher, critics say payday loans are a debt trap.
“People need help and these lenders take advantage, so we need to do what we can to remove them from our community,” Carlise said.
Metro Ideas Project, a nonpartisan nonprofit research firm in Chattanooga, says Tennessee is home to more than 1,200 payday lenders. It says Shelby County has 232 payday lending locations, more than any other county.
Carlisle says the city has done everything it can legally do to restrict payday lenders.
“Professional service licenses and business license, it is a state-level thing,” said Carlisle. “So, unfortunately, this is the best plea we can do.”
The resolution council members voted in favor of says demographic data payday lenders use “has led to African-American neighborhoods facing three times as many payday lending stores per capita as white neighborhoods.”
The Community Financial Services Association of America (CFSA), which represents payday lenders, says on its website that lenders “provide essential financial services to many individuals in underserved communities” who may not be able to obtain small-dollar loans elsewhere.
“By providing loans to those who cannot otherwise access traditional forms of credit, small-dollar lenders help communities and small businesses thrive and allow money to be reinvested in local businesses and neighborhoods where it is needed most,” the statement reads.
CFSA says efforts by lawmakers to ban or restrict these loans “typically produce negative unintended consequences that vastly exceed any social benefits gained from the legislation.”
“When states ban small-dollar loans, the marginal circumstances of consumers are only further aggravated,” said CFSA.
In July, the Consumer Financial Protection Bureau rescinded a provision developed during the Obama administration that required payday lenders to make sure borrowers could repay their loans when they were due.
The Financial Services Centers of America (FiSCA), another payday lenders trade association, applauded the decision.
“We applaud the bureau for standing alongside consumers who might otherwise risk further financial abandonment and isolation during these uncertain times,” said Ed D’Alessio, executive director of FiSCA. “Now more than ever, FiSCA and its members remain committed to enabling access to credit and developing innovative products and services our customers deserve while strictly adhering to state and federal laws.”
Massachusetts Sen. Elizabeth Warren, who helped create the Consumer Financial Protection Bureau during the Obama administration, called the rule change “appalling.”
“Tens of millions of Americans have lost their jobs during this pandemic, small businesses are struggling, & Trump’s political appointees at the @CFPB just finished gutting the rules that protect Americans from predatory payday lenders,” Warren tweeted. “This is appalling.”