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RSSA Payday Loan Business
February 12th, 2012
From her Memphis shop, Lisa doles out cash to customers who pay her $30
“There is a segment of the population that can’t go to a bank and borrow $200. They don’t deal with banks,” said Lisa Brock, owner of a quick cash store. “But they need short-term loans. They need money to fix their car or go to a doctor.” Now, a new federal watchdog is gearing up to patrol the 36,000 loan shops like hers throughout the nation just like they were regular banks.
Paydays
Tens of thousands of Memphians long have relied on cash rather than paper checks or plastic credit cards, giving rise to about 400 quick-loan stores in the metropolitan area.
Instead of going to banks, many Memphians for years tapped pawn shops, loan sharks, friends, colleagues and relatives. Then the quick-loan business stepped up in the last decade, lining Memphis-area streets with almost two shops for every bank branch.
Social activists
Social activists contend the quick-loan trade works against the city’s poorer families. Loan fees and interest payments, activists say, can surpass the cost of a regular checking account by several hundred dollars per year for frequent borrowers. What’s not clear is whether Washington will scale back loan volumes by imposing sterner rules than Tennessee’s.
Toughen up
While some Republican members of Congress are still trying to derail the federal agency, Tennessee consumer advocates argue for tougher rules flowing from Washington.
In Nashville, some activists favor clearer records that identify the loan shop owners. And activists want payday rates dialed back.
Repayment
Payday customers often fail to repay the loan on time. Then they borrow again to retire the first loan. Caught in this cycle, 12 million of the nation’s 19 million payday customers take out at least five payday loans per year, according to a 2009 study by the Center for Responsible Lending, a liberal group in Durham, N.C. Tennessee law limits loans to $500, and allows no more than three loans at once to a single customer.
Meeting needs
Not everyone thinks that’s a deep problem. Tennessee state Rep. Steve McManus, R-Cordova, said payday shops fit a purpose. “If banks are reluctant to lend, and many are, this fulfills a need for these people,” said McManus, chairman of the House commerce committee, which oversees the state’s financial institutions agency. “With the unemployment rate as high as it is,” McManus said, “people have to have the means of trying to get some kind of liquidity.”
Why more paydays?
The 38 states that permit the trade counted 2,000 payday shops in 1996. Within a decade, the number had multiplied to 24,000, according to a report by the Federal Reserve Board, an agency regulating banks and the U.S. money supply. About 12,000 title-pledge shops lend money on cars.
No money
Brock, the payday lender on Summer Avenue. “They don’t understand what it’s like to not have money. You need money to open a checking account, but a lot of people don’t have it.” That doesn’t mean they’re destitute, Brock said. Her customers work, she said, often for low wages. They show her paychecks and sometimes tax forms. Tennessee financial department examiners enter Brock’s shop twice a year, she said, checking her records to make sure loan contracts follow the state rules. “I think the state regulates the industry very well,” Brock said. “I don’t see the need for a federal agency to oversee it.”
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