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The Bottom Line for High-Cost Lenders in Memphis Depends on Exploitative Loans Targeting Neighborhoods of Color

March 23rd, 2022

New report by Hope Policy Institute and Black Clergy Collaborative of Memphis shows wealth-stripping impact of predatory loans

MEMPHIS, TN — The bottom line of high-cost lenders in Memphis is driven by exploitative loans targeting communities of color and the endless cycle of repeat relending, a new report by the Hope Policy Institute and the Black Clergy Collaborative of Memphis finds. “High-Cost Debt Traps Widen Racial Wealth Gap in Memphis,” links the excess of harmful, wealth-stripping predatory loans, such as payday, car title and flex loans, to the widening racial wealth gap in Memphis. The report details how the combination of the extractive fees and location of these storefronts in communities of color exploit neighborhoods in Memphis, particularly along racial lines. 

“These lenders prey on people who already face extraordinary financial challenges and knowingly overwhelm them with exorbitant rates and terms, creating a cycle of financial instability and poverty,” says HOPE CEO Bill Bynum. “America’s future prosperity requires a fair and responsible financial system that increases, not inhibits economic mobility. Memphis residents deserve better. HOPE is proud to work with community leaders to bring an end to triple-digit interest rates, coercive repayment mechanisms, predatory debt traps and other abusive lending practices that keep our people and city from reaching their potential.”

“We’ve seen the damage that these loans can do to individuals and families first-hand. That financial hardship bleeds into the community; people struggle to make ends meet and can’t support local business,” said Reverend Darell Harrington, Senior Pastor of New Sardis Baptist Church and Economic Empowerment Committee Chair of Black Clergy Collaborative of Memphis “It’s why we’re determined to work with Hope Credit Union to connect borrowers to fair loans and financial tools to meet their challenges and build real wealth.”

Some of the report’s key findings are highlighted below: 

  • In Memphis, there are 114 high-cost lending storefronts, more than twice the number of McDonald’s and Starbucks combined, that are owned by just 21 lending companies. 
  • To date, 65 percent (74) of these stores are owned by nine out-of-state corporations. 
  • In fact, just two out-of-state corporations own nearly half (45 percent) of all the high-cost lending stores in Memphis. 
  • Of the 43 licensed flex-loan lenders in the city, nearly half are owned by a single out-of-state car title lender.  

These exploitative lenders are disproportionately located in Memphis neighborhoods with higher percentages of Black and Latino residents. High-cost payday loans are made to people with an existing bank account. However, the consequences of these unaffordable loans include the loss of a bank account, pushing people out of the mainstream financial system. Given the concentration of stores in communities of color, this is a clear hurdle to racial equity. These loans create a cascade of consequences such as increased likelihood of overdraft fees, defaulting on other bills, involuntary bank account closures and even bankruptcy, as well as psychological stress caused by unaffordable debt and the inability to build wealth in the future.

The report lays out solutions to protect residents from the throes of high-cost predatory lenders. The most effective way to stop the debt trap is for policymakers at the state and federal level to cap the rates at 36 percent or less. This protection is already in place at the federal level for active-duty members of the military and in 18 states plus the District of Columbia. Both the state legislature and Congress have the ability to enact a cap to stop the debt traps in Tennessee. Finally, the Consumer Financial Protection Bureau (CFPB), a federal watchdog agency to prevent unfair, abusive and deceptive financial practices, has the authority to rein in harmful high-cost lending practices and, more importantly, the ability to issue new rules that stop the debt trap. Borrowers can file complaints directly with the agency to push back against high-cost lenders.

To read the full report, click here.

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