Are Tennessee Payday Loans Still Dangerous in 2019?

Inside Subprime: June 17, 2019

By Lindsay Frankel

Payday lenders are popping up in Tennessee at alarming rates, and the loans they offer are putting residents in danger of falling into a debt trap. As of 2018, there were more payday lenders in Tennessee than anywhere else in the country, according to Metro Ideas Project.

Shelby County had an astounding 232 payday loan storefronts, the highest in the state. That’s followed by Davidson County, which had 109 lenders.

A payday loan is a short-term, high-interest loan intended to be paid back out of the borrower’s next paycheck. But most borrowers can’t afford to pay back these loans on time, according to Pew Charitable Trusts. The average borrower can afford to put no more than 5 percent of their gross paycheck towards a payday loan while still covering necessary expenses, but the typical payday loan eats up 36 percent of a borrower’s paycheck. Payday loans in Tennessee have an average APR of 426 percent.

Many lenders in Tennessee have also switched to offering flex loans, which allow the borrower to withdraw the loan in installments. Repayment dates on these loans aren’t specified, and interest continues to accrue the longer the loan is taken out. While the APR on these loans is capped at 24 percent, lenders are permitted to charge an additional daily interest, which can drive up the cost of borrowing.

Tennessee residents contend these loans are predatory and harm consumers. “I personally look at them as predators and am appalled they’re everywhere,” said Glenda Eastridge, president of the League of Women Voters in Blount County. She added that financial literacy efforts are necessary to protect consumers from payday loans. “I just think in society today, people have this ‘get rich quick’ mindset, but they’re not educated on the fact that if it sounds too good to be true, it’s too good to be true,” Eastridge said.

While an Obama-era rule governing payday loans would have protected consumers by requiring lenders to verify a borrower’s ability to repay the loan, the Consumer Financial Protection Bureau announced in February that it would rollback those provisions. Without federal regulations or strict limits on interest rates in the state, business is booming for payday lenders in Tennessee, and residents are left vulnerable to predatory fees and disreputable practices.

The Metro Ideas Project proposed three solutions to curb predatory lending in the state. First, borrowers should be educated about the dangers of payday loans through posted signage that explains the associated risks. Second, municipalities should require a local permit in addition to the state permit, allowing cities and counties to further regulate the industry. Third, the state should establish lenders in the community that provide “affordable rates, transparent fees and honest underwriting practices,” unlike traditional payday lenders.

Learn more about payday loans, scams, and cash advances by checking out our city and state financial guides, including Tennessee, ChattanoogaClarksvilleKnoxville, MemphisMurfreesboroNashville and Smyrna.