Chattanooga City Council members are considering tightening zoning laws that limit so-called predatory lending companies after saying a company could bend the rules.
The city in February has passed new zoning rules that prevent payday lenders, check tellers, title pawns and other alternative finance businesses from opening near residential areas or similar lenders.
The goal was to crack down on what board members called a high density of loan companies in Chattanooga. Council members Carol Berz and Russell Gilbert, who sponsored the rule changes, and Mayor Andy Berke said high concentrations of such businesses increase crime, poverty and hamper development.
Lenders dismissed these claims, but didn’t fight the rule much, as it ensured they wouldn’t have new competitors nearby.
Since then, Nashville-based Advance Financial has opened a new store on the corner of Hixson Pike and Ashland Terrace, less than 500 feet from the apartments. But that’s exempt, because the business is an industrial loan and savings company – a different type of alternative finance institution specifically excluded from the city’s zoning rule because it’s already state regulated.
The company has four other businesses in Chattanooga, including one it opens on highway 153.
Last week Gilbert said he wanted to tighten the ordinance if the language was too loose and allowed lenders to bend the rules.
“I want it so tight that if they sneeze, we know, as far as handling the words in the future,” he said.
District 2 City Councilor Jerry Mitchell, who represents the area where the new store is being built, said the same.
“If they just found what they think is a loophole, then we’re just going to close that loophole,” Mitchell said. “If it is another type of business that is not predatory, then there is no problem.”
Advance Financial spokesperson Cullen Earnest says it’s the latter.
Advance Financial no longer makes payday loans or securities; he makes installment loans, he said.
“There is a big difference. Consumers prefer an installment loan if you want to be able to pay off your loan a small amount gradually over time. A payday loan is just a one-time payment,” Earnest said.
With more than 70 stores statewide, the company has made securities lending, payday lending, check cashing and “all products that the [Tennessee] The financial institutions department regulates, ”but it is concentrating its activities now, he said.
“We are phasing out – statewide – our payday loans and our securities lending,” Earnest said. “The Consumer Financial Protection Bureau reviews many short-term consumer products. Many of us have the impression that the federal government is going to end payday loans.
Latricia Schobert, director of the Consumer Credit Counseling Service, said installment loans are easier on consumers than other short-term loans. This is because people can pay a fixed amount over time that is agreed upon when granting the loan, much like a payment for a car.
The Credit Counseling Service is a non-profit organization that helps people find ways to get out of debt and get back on a solid financial footing.
“They are better in the sense that the interest rate is lower than the typical rate of 350% [of a typical payday loan] and the customer can make smaller monthly payments, ”she said.
But there are still better options for people in need of cash, she said.
“We wouldn’t advise them to go to a convenience store finance company. We always recommend that they go to a credit union,” Schobert said. “A credit union will work with someone with a low credit rating and offer you a lower interest rate. “
However, Schobert said the CCCS often works better with installment loan stores than other alternative lenders when it renegotiates terms for clients.
Tennessee Department of Financial Institutions spokesperson Ryan Hughes said in an email Friday that savings companies were able to lend money at interest rates higher than the rules. usury of the state.
Savings companies can charge up to 24% interest – with loan fees – on loans with terms of 181 months, he said.
Contact editor Louie Brogdon at lbrogdon @ timesfreepress.com, @glbrogdoniv on Twitter or 423-757-6481.