Payday Loans: What Are They And How Do They Affect Blount County? | New

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You have seen them scattered along the edge of the highways. It seems like around every corner you are bombarded with “Get Money Now!” And while the promise of instant funds is captivating, how wise is it to get that money now?

Not very, according to the statistics.

Payday loans, as they are commonly called, are less about receiving money instantly and more about piles of interest stacked on instant money.

The idea of ​​receiving a cash advance is not new.

Hundreds of years ago, “payroll lenders” offered loans to borrowers. These loans were accompanied by exorbitant interest rates, and sometimes physical violence and public humiliation.

While the aspect of physical violence and public humiliation has abated, outrageous interest rates have not.

Modern payday loans appeared in the early 90s and grew rapidly throughout the decade. The interest rate behind payday loans in the 1990s reached over 1,500% APR (annual percentage rate).

Today in Tennessee, payday loans can legally reach an APR of 460%, according to the Center for Responsible Lending.

Many loan companies have switched from payday loans to flexible loans. Flexible loans give the borrower the option of withdrawing all of the loaned money in one go or in installments. Flexible loans do not have designated repayment dates or amounts, but the longer the loan, the more interest accrues.

The state of Tennessee caps flexible loans at 24% APR, but these lenders can still charge daily interest, which can increase debt.

And although payday lenders are legal in 37 states, predatory debt lenders have swept Tennessee in particularly alarming numbers, critics say.

Glenda Eastridge, a longtime Blount County resident and president of the local League of Voters, said these lenders were dangerous.

“Personally, I consider them to be predators and I am appalled that they are everywhere,” Eastridge said.

In 2018, Tennessee had more predatory lenders than any other state, according to a study by a Chattanooga-based company, Metro Ideas Project.

Although the legal limit for borrowing in Tennessee is only $ 500, after the lender’s fees, which cannot exceed 15% of the amount borrowed, the maximum amount a person is really able to borrow at one time is of $ 425, according to the Deferred Presentation Services Act. . This provision was added to the law in 2012.

In the provisions added to the law on deferred presentation in 2012, there was also the declaration that loans cannot exceed 31 days.

With such a high interest rate and such a short repayment term, a borrower could have to pay a total of almost $ 700 on a $ 500 loan after interest in just 31 days.

The Metro Ideas Project study found that the Tennessee County with the most predatory lenders is Shelby, the Memphis home, with 232 lenders; followed by Davidson, home of Nashville, with 109 lenders. Neighboring Knox County ranks fourth on the list, with 68 predatory lenders.

However, on a per capita basis, the counties with the highest concentration of predatory lenders in Tennessee are significantly different from the counties with the most predatory lenders overall.

According to the Metro Ideas Project report, Madison County, which ranks 15th in terms of population, has the highest concentration of predatory lenders per 100,000 population.

In fact, among the top 10 counties with the highest concentration of predatory lenders, eight out of 10 are ranked among teens from the largest populations. When it comes to the concentration of predatory lenders, the population plays almost no role.

For Blount County, there are 14 payday loan services, or about 1 in 9,200 people. All are in Alcoa and Maryville.

The Daily Times visited Check to Cash, Advance Financial 24/7 and Cash Express. All three refused to interview.

In 2016, the Consumer Financial Protection Bureau created rules to control predatory lenders. These rules stipulated that a person could not take more than three loans at a time. Before these rules, predatory lenders relied on the stacking of loans and the high interest rates of those loans to make money. With these restrictions, the amount that people borrowed decreased, and hence the amount of money earned by lenders decreased.

Three years later, predatory lenders are still enjoying huge success in Tennessee despite the restrictions. And for the most part, people don’t find any problem with the deal made to them.

According to the Pew Charitable Trusts, 75% of Americans believe in stricter regulation of payday loans, supporting the Consumer Financial Bureau’s proposal to allow loans to be repaid in small installments over a longer period.

“I just think in today’s society people have this ‘get-rich-quick’ mentality, but they’re not educated that if it sounds too good to be true, it’s too good. to be true, ”Eastridge said.

Blount County residents using these services have mixed feelings about them, however, as lender reviews show. Some rave about the excellent service, while others complain about the exorbitant interest rates. In total, the 14 predatory lenders in Blount County have an average Google rating of 3.6.

The Metro Ideas Project offers a three-pronged solution to tackling predatory lending.

First, warn borrowers about the risks associated with the services through clear signage. Second, require a local permit additional to the state permit already required in order to increase regulation in cities and counties. And finally, create similar community lending institutions that offer “affordable rates, transparent fees and honest underwriting practices” that operate under the same legal structure as current predatory lenders.

Still to be desired: lower interest rates.

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