The profits of high-cost lenders who offer so-called payday loans, car title loans or flex loans largely depend on targeting communities of color and stripping them of their wealth, a recent report concluded. on predatory lending published by the HOPE Policy Institute and the Collaborative of Black Clergy Memphis (BCCM).
According to the HOPE-BCCM report, there are currently 114 high-cost loan storefronts in Memphis, more than double the number of McDonald’s and Starbucks in the city combined. These storefronts are disproportionately located in Memphis neighborhoods with higher percentages of black and Latino residents.
“These lenders prey on people who are already facing extraordinary financial challenges and knowingly overwhelm them with exorbitant rates and terms, creating a cycle of financial instability and poverty,” said HOPE CEO Bill. Bynum, in a public statement. “America’s future prosperity requires a fair and responsible financial system that increases, not inhibits, economic mobility.”
Predatory moneylenders, say the report’s authors, suck millions of dollars from impoverished communities across the country, and in the case of Memphis, most of that money is also leaving the state of Tennessee. According to the HOPE-BCCM report, 74 of the 114 high-cost lender storefronts are owned by out-of-state companies, and only two of those companies have 52 storefronts between them.
In Memphis, 20% of white households are cash-strapped, compared to more than 50% of black households and more than 60% of Latino households in Bluff City. These high-cost loans, through their fee extraction and economic consequences concentrated primarily in the city’s Black and Latino communities, perpetuate this gap, limit individuals’ economic mobility, and maintain long-standing racial and economic inequalities, added the HOPE-BCCM report.
People who live outside of these communities don’t fully understand the impact of predatory high-cost lending, Bynum told TriplePundit.
“When people see these storefronts clustered on the thoroughfares of certain neighborhoods, it might seem like they’re there to provide a convenient service, or they might generally know that loans are probably a little pricey,” Bynum told 3p. “What most people probably don’t realize is how expensive they are, like interest rates over 400%, which is almost hard to believe, but it’s true.”
Being trapped in a cycle of high-cost debt is also devastating to the physical and emotional health of these communities, said Reverend Darell Harrington, senior pastor of New Sardis Baptist Church and chair of BCCM’s Economic Empowerment Committee. Harrington told 3p that pastors and religious leaders in Memphis view predatory lending “as a purely evil element that continues to eliminate a sense of freedom and equality for those who are trapped.”
“Victims of predatory lending often suffer in silence, compounding external frustration and agony, along with internal fear and grief,” Harrington said. “The stressors and mental strain caused by these exploits further exacerbate the prevailing injustices, primarily in underserved areas.”
The HOPE-BCCM report acknowledges the steps taken by local government to combat predatory lending as well as its limited options, calls for more action by state and federal governments.
“Tennessee state law currently allows lenders to charge more than 400%. Legislature has the power to change that, to prevent these predatory high-cost loans that are most often for people who already have struggling to make ends meet,” Bynum told 3p. “Reducing the costs of these loans, just as many other states have done with bipartisan support, is a common-sense step to ensuring the economic security of people of Tennessee.”
Congress has the power to reduce the costs of these loans nationwide, Bynum said, and that would extend protections already in place for active-duty military personnel, which caps the rates on these loans at no more than 36% per year.
Congress took this action, with bipartisan support, because the “Department of Defense determined that loans at rates of 300 to 400 percent undermined military readiness,” Bynum said. The Veterans and Consumer Credit Fairness Act, which was introduced in November 2021, extends that protection by a rate cap of 36% for everyone, he said. Beyond Congress, Bynum said the Consumer Financial Protection Bureau also has the power “to take action to prevent predatory lenders from trapping people in a perpetual cycle of debt as they are doing now.”
“The best way to address the evils of the 400% loan debt trap is to tackle it head-on. This will require action from our policymakers at the state and federal levels,” Bynum added. private sector can and should be a voice of support in calling for these changes to address these practices that are so harmful to our communities.”
Image credit: Joshua J. Cotton via Unsplash
