• 26
  • October
    2011

Payday loans are short-term loans, providing the borrower with quick cash to tide them over in the short term. In exchange for the fast cash, borrowers must agree to repay the loan at crippling interest rates.

Payday loans target the poorest. Individuals who are living paycheck to paycheck and struggling to survive usually do not have the means of gathering a reserve to cover unexpected expenses when an emergency flares up. When these life events do happen, individuals and families are often forced to make the difficult choice between going hungry or taking out a payday loan.

The end result of payday lending is that the poor are pushed deeper and deeper into debt.

Ultimately, individuals and families realize they can no longer keep up with their required payments and default. Frequently, people in Nashville look to bankruptcy for relief from their debt woes.

Tennessee A Target State for Payday Lenders

Given their target audience, it may not come as a great surprise that Tennessee boasts one of the nation's highest concentrations of payday lenders. According to the U.S. Census Bureau, 17.1 percent of all individuals and 13.1 percent of all families live below the poverty level in Tennessee.

The laws in Tennessee do little to protect its poor. Although the legislature has enacted laws that place caps on the annual percentage rates that may be charged by payday lenders, the interest rates are punishing. An individual borrowing $250 from a payday lender may pay interest as high as 313 percent. Caps for $100 loan are even higher, 459 percent.

Stronger Protection Needed?

Given the challenges created by the nation's crippled economy, it is a wonder that lawmakers have not done more to protect their citizens. According to the Consumer Federation of America, some states, such as Georgia, treat payday lenders as criminals, using racketeering laws to protect their citizens from the strong-arm tactics of payday lenders. Other states, like New York, have banned payday lending through their criminal usury laws.

Some communities are fighting back. When their legislators fail to come through for them and place appropriate caps or restrictions on payday lenders, some cities, such as Dallas, Texas, have stepped in to place limits on the terms of the loans and the caps. Other communities are partnering with banks and credit unions to provide short term loans to borrowers at lower interest rates.

Source: www.thewestsidegazette.com, "Poverty and Payday Loans: Communities Take Local Actions to Fight Predatory Lending", 6 October 2011, Charlene Crowell