MEMPHIS, Tennessee (WMC) – Should payday lenders be banned in Memphis and Tennessee?
Memphis City Council seems to think so.
Each board member voted in favor of a resolution urging Tennessee lawmakers to revoke and ban business licenses for all payday lenders.
At the council meeting last week, Memphis city councilor Chase Carlisle, who sponsored the resolution, explained why action is needed now.
“I bring this resolution because far too many times payday lenders come into our communities and end up hurting economic growth more than they help,” Carlisle said. “If they ever help at all.”
According to the Pew Charitable Trusts, 12 million Americans take out payday loans each year to meet unforeseen expenses. Many borrowers also regularly use short-term loans to pay rent and utilities, a need that has increased during the COVID-19 pandemic.
But with interest rates nearly 400% and higher, critics say payday loans are a debt trap.
“People need help and these lenders are taking advantage of it, so we need to do what we can to get them out of our community,” Carlise said.
Metro Ideas Project, a non-profit, non-partisan research company in Chattanooga, says Tennessee is home to more than 1,200 payday lenders. It says Shelby County has 232 payday loan sites, more than any other county.
Carlisle says the city has done everything it can legally to restrict payday lenders.
“Professional service licenses and business licenses are a state level thing,” Carlisle said. “So unfortunately this is the best advocacy we can make.”
Members of the resolution council voted in favor of the claim that the use of demographics by payday lenders “has led African American neighborhoods to face three times as many payday loan shops per capita than the white quarters “.
The Community Financial Services Association of America (CFSA), which represents payday lenders, said on his site that lenders “provide essential financial services to many people in underserved communities” who may not be able to obtain small loans elsewhere.
“By providing loans to those who cannot otherwise access traditional forms of credit, low dollar lenders help communities and small businesses thrive and allow the money to be reinvested in local businesses and neighborhoods where it is most needed, ”the statement said.
The CFSA says efforts by lawmakers to prohibit or restrict such loans “generally produce unintended negative consequences that far outweigh the social benefits derived from the legislation.”
“When states ban small loans, the marginal situation for consumers only gets worse,” CFSA said.
In July, the Consumer Financial Protection Bureau repealed a provision developed under the Obama administration that required payday lenders to ensure borrowers can repay their loans when due.
The Financial Services Centers of America (FiSCA), another professional association of payday lenders, applauded the decision.
“We applaud the office for standing with consumers who might otherwise risk further financial abandonment and isolation in these uncertain times,” said Ed D’Alessio, Executive Director of FiSCA. “Now more than ever, FiSCA and its members remain committed to providing access to credit and developing innovative products and services that our clients deserve while strictly adhering to state and federal laws.
Massachusetts Senator Elizabeth Warren, who helped establish the Consumer Financial Protection Bureau under the Obama administration, called the rule change “appalling.”
“Tens of millions of Americans have lost their jobs during this pandemic, small businesses are struggling and the people appointed by Trump to @CFPB just finished slashing the rules that protect Americans from predatory payday lenders,” Warren tweeted. “It is appalling.”
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