HIGH-INTEREST LOANS CAN HAMPER FINANCIAL INDEPENDENCE
We’ve heard it our entire lives, the adage reminding us how important it is to “save for a rainy day.” But it’s impossible to imagine saving for any type of day — rainy, sunny, windy or otherwise — if you’re just barely getting by. The struggles of poverty are real and, as you might imagine, disproportionately affect women and children.
To have “financial independence” means to be able to at least provide the necessities for yourself and your family. That’s a far cry from saving for the future, for retirement, for college, for a vacation or an emergency. But that’s the reality facing so many in our community. In fact, 2015 Census data shows 15.9 percent of people in Hamilton County are living in poverty — that’s more than two points above the national average.
Often times, our most vulnerable citizens use alternative financial services to make ends meet. If you are familiar with the business model, then you know the traps, pitfalls and predatory practices that encumber far too many lured by the promise of quick, easy money. That money may be quick but it’s by no means easy, with interest rates much higher than other types of loans.
Research has shown the damage these types of businesses have on individuals, families and communities as a whole. That’s why two years ago, Mayor Andy Berke, Councilman Russell Gilbert and I partnered together on zoning legislation to help decrease the concentration of these businesses in our city. By clearly stating that no new alternative financial service can be located within a quarter mile of another payday lender or pawn shop or within 500 feet of a residential home, the city took a step in at least stemming the flow of predatory lenders. It was a major step, though we have more steps in front of us.
Breaking down the barriers to financial independence starts with education and empowerment. Twelve million Americans use alternative lending institutions, including many people who live right here in Chattanooga. Research paints a stark picture. We know that the most common borrower of a payday loan is female. Payday loans are most often used for recurring, everyday expenses, not unexpected costs or emergencies as you might assume. And perhaps the most jolting statistic? The average borrower racks up eight payday loans per year. That’s about one loan every six weeks.
Interest rates for those loans are so high that it burdens Chattanooga families who are already struggling to get by. In some cases, borrowers will always be in debt, never getting to realize financial independence. As far as regulation goes, Tennessee is a permissive state — that means payday lending places in Chattanooga can charge initial fees of 15 percent or higher of the borrowed amount.
The Mayor’s Council for Women has been analyzing this issue for the past several months, looking at how we can help tear down the barriers that keep our community members from reaching financial freedom. One way we can achieve this is by leveraging existing community resources that teach financial empowerment to Chattanooga workers and encouraging legislation that reduces the amount of predatory lenders, while allowing for traditional lenders to offer loan alternatives.
Reducing payday lending is not meant to limit the choices of citizens and families, but to offer protection and freedom from debt. The issue of high-interest lending practices will be the topic of a public hearing tonight hosted by Mayor Berke and local experts. Participants also will break up into groups to discuss potential solutions.
Tonight is one more step but we need your help. Join the Mayor’s Council for Women and get up to date on our policy papers, including the one referenced here. Support existing community resources that empower Chattanoogans. Encourage state legislation to allow loan alternatives. Educate your neighbors, family and friends on payday lending practices to help reduce the number of Chattanoogans using high interest loans. Together, we can take one step after another, building a foundation that can one day help raise up Chattanooga women and their families toward financial independence.
Dr. Carol Berz is a member of the Chattanooga City Council and co-chairwoman of the Mayor’s Council for Women.