FINANCIALINDEPENDENCEEmpoweringChattanoogans

ChattanoogaMayor’sCouncilforWomen–March21,2017CarolBerz-Chairwoman

AbstractAmulti-facetedapproachforFinancialIndependenceisoffered:preventivemeasurestoincreaseearlyfinancialempowermenttodecreasefuturedemandofpredatoryloans,aviablealternativetotheloans,andsupportiveprogramstoencouragelong-termfinancialstabilityandwell-being.

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TableofContentsSummary...........................................................................................................................................................2

CurrentStateofFinancialIndependence........................................................................................................2

Location,impact,andtrendsofpredatorylending.........................................................................................4

Locations.......................................................................................................................................................8

LegislativeActioninotherStates...................................................................................................................11

Georgia........................................................................................................................................................13

NorthCarolina............................................................................................................................................13

Virginia........................................................................................................................................................14

ExistingCommunityResources......................................................................................................................15

PreventiveResources.................................................................................................................................15

SupportServices.........................................................................................................................................16

LoanAlternatives........................................................................................................................................17

ProposedGoals/Outcomes.............................................................................................................................18

ProposedLendingAlternative........................................................................................................................19

CommunityWellbeing....................................................................................................................................20

WorkgroupMembership................................................................................................................................21

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Summary

WhentheFinancialIndependenceworkgroupwasformed,ourprimarygoalwastoreviewandproposeviablealternativestopaydaylending.Wereviewedmanyresearchsourcestolookatthecurrentstateoffinancialwell-beinginourcommunity,state,andthebroaderregion.Whilemuchmorediscoveryisneeded,severalfactorscametoourattention.

Weknowthatinlenientstates,suchasTennessee,theuseofpredatoryloans(paydayloans,titleloans,pawnshoploans,checkcashingbusinesses,etc.)isdoubletherateofuseinstateswithmorerestrictivelegislation.Wealsoknowthatwomenaremorelikelytobetheconsumersoftheseloansthantheirmalecounterparts.Weknowthatourregionisatthecenterofadirefinancialpictureformanyfamilies.

Thesolutionweofferismulti-faceted.Webelievethatacombinationapproachisneeded.Inthefollowingpages,wehaveoutlinedathree-prongedapproach:preventivemeasurestoincreaseearlyfinancialempowermentanddecreasefuturedemandoftheseloans,aviablealternativetotheloans,andsupportiveprogramstoencouragelong-termfinancialstabilityandwell-being.

WewouldalsoencouragestatelegislatorstoconsidertheactionstakenbyourneighborsinNorthCarolinaandGeorgiatobanthemostegregiousratesthatarecurrentlyallowedunderTennesseelaw,andtoallowtraditionalfinancialservicesinstitutionstheabilitytoprovideabroaderrangeofservicestoreduceour‘unbanked’population.

CurrentStateofFinancialIndependence

In2015,theUnitedStatespovertyratewas13.5%.Thisrateequatesto43.1millionAmericanslivingbeneaththepovertythreshold.1Varyingdemographicsarerepresentedamongthesecitizens,andtheimpactonthesecitizensvariesaswell.Alongthelinesofgender,12.2%ofmenwereimpoverishedcomparedto14.8%ofwomen.Single-parenthouseholdsechothesamegenderdisparities.Thepovertyrateforfamiliesheadedbyamanwithoutawifewas14.9%whilethepovertyrateforfamiliesheadedbyafemalewithoutahusbandwas28.2%.2

Povertyvariesbycharacteristicsotherthangender,aswell.Regionally,theSouthhashistoricallyhadthehighestrateofpoverty.ThesouthernregionoftheUnitedStateshadapovertyrateof16.5%in2014–aratethatequatestomorethan19.5millionpeople.3InthestateofTennessee,anestimated18.2%ofits

1http://www.census.gov/library/publications/2016/demo/p60-256.html2http://www.povertyusa.org/the-state-of-poverty/poverty-facts/3http://www.irp.wisc.edu/faqs/faq3.htm(region)

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residentswereimpoverished.InHamiltonCounty,anestimated15.9%ofitsresidentswereimpoverished.4

TherearemanyreasonswhyAmericansfindthemselveslivinginpoverty.Amongthosereasonsarejobloss,medicalandotherunexpectedexpenses,anddivorce/separation.Thesereasons,alongwithpoororexcessuseofcredit,comprisethetopfivereasonsindividualsfilesomeformofbankruptcy.5

TheAdministrativeOfficeoftheU.S.Courtsreportstherewere818,783filingsofallchaptersofbankruptcyinfiscalyear2015.Chapters7and13aremostoftenfiledbyindividuals.Whiletheoverallnumbersofthosecasesareonthedeclinefrom2010-2015,Chapter13filingsareontheriseat34%in2015comparedto31%in2014.Chapter7filingsdecreasedfrom68%to65%ofthosetotalsin2014and2015,respectively.6

Currently,thetopthreestatesholdingthehighestratesofpersonalbankruptcyfilingsarefoundinthesouthernUnitedStates.Tennesseeleadsthestateswithafilingrateof610casesper100,000people.GeorgiaandAlabama,bothborderingTennesseeandminutesfromChattanooga,Tennessee,followwiththenexthighestratesof524and519,respectively.7

Ratesofpovertyandbankruptciesarecertainlypresentingchallengestoachievingfinancialindependenceforourcommunities,andinthe1990s,anotherchallengebegantogrow–paydaylending.Fromstorefrontproviderstoonlinelendersandbanksthatofferdepositadvanceloans,thisalternativeformoflendinghasbecomearesourcetomeetshort-termfinancialneeds.However,thealreadyburdenedborrowerisoftenunabletorepaytheloanwhendue.Renewalsareobtainedandfeesareassessedthatturnthistemporarysolutionintoalong-termproblemthatisdifficulttoovercomeandprolongstheachievementoffinancialindependence.

Approximately12millionAmericansusepaydayloansperresearchconductedbyPewCharitableTrusts.Itisreportedthat5.5%ofallAmericanshaveutilizedapaydayloanwiththemostcommonborrowerbeingafemaleandwhite.Fifty-twopercentofborrowersarebetweentheagesof25to44;58%arerenters;85%donothaveacollegedegree;and,72%resideinahouseholdwithlessthan$40,000inincome.Thesecharacteristicsarealsocommontoourmostimpoverishedcitizens.

Ithasbeenfoundthatthemajorityofborrowersusepaydaylendingforrecurring,ratherthanunexpected,expenses.However,thecostandfrequencyofpaydayloanspresentfurtherchallengestothosealreadyhavingdifficultymeetingeverydayexpenses.Theaveragenumberofloansperborroweriseightperyear.Theaverageloanamountis$375eachwithanaverageinteresttotalof$520annually.Averagefeesperloanvarydependingonthefeespermittedbythestatewithrangesbeingseenfrom$55to$100.Itispossibletoseetheserangesforaloanforthesameamountfromthesamecompanybasedonthestateofloanorigination.

4http://www.census.gov/did/www/saipe/data/interactive/saipe.html?s_appName=saipe&map_yearSelector=2014&map_geoSelector=aa_c&s_measures=aa_snc&s_county=47065&s_state=475http://www.investopedia.com/financial-edge/0310/top-5-reasons-people-go-bankrupt.aspx6https://www.justice.gov/ust/annual-reports-significant-accomplishments7http://www.worldatlas.com/articles/highest-personal-bankruptcy-rates-in-the-us-by-state.html

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Anothervarianceamongstatesistheamountofregulationonthisformoflending.Therearethreestatelawtypes:permissive,hybrid,andrestrictive.Permissivestateshavetheleastamountofregulation.Initialfeesof15%orhigheroftheborrowedamountmaybecharged.AnAnnualPercentageRate(APR)rangingfrom391%to521%istheusualrange.Ahybridstateallowsfeesandeventriple-digitAPRs,butcapsonfees,thenumberofloansperborrower,oranincreaseinthenumberofpayperiodsforloanrepaymentmaybeimplemented.ArestrictivestateeitherdoesnotpermitpaydaylendingorestablishesAPRcapsthathaveservedtodecreasethepresenceofpaydaylendinginstitutionsinthesestates.

Tennesseeisoneofthe28permissivestatesintheUS.Whileonlinelendingisanoptionforborrowersinrestrictivestates,only2.9%ofadultsreportusageinthesestates.Hybridstatesseearateof6.3%usage.Permissivestatesseethehighestamountofusageat6.6%,andtherefore,thehighestamountofchallengestofinancialindependencefromthisresource.

Location,impact,andtrendsofpredatorylending

AUniversityofTennesseeatChattanoogaSolutionScholarsclassresearchedpredatorylendinginChattanoogaandalternativesthatarebeingusedinothercommunities.Theyofferedanindustryandregionaloverview,consumerdemographics,communitymapoverlay,alternativemodels,andsuggestedbestpracticesandpartnerships.

Theyfoundthatthesoutheastaccountsfor28.6%ofpaydaylendingestablishmentsinthecountry.Thesoutheasthasalargeconsumerbase,butdisposableincomelevelsforconsumersintheregionarelowerthanforthecountryasawhole.Tennesseehasoneofthehighestpercapitapaydaylendingstore-to-householdratiosinthenation.

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Theratiooflendingstore-to-householdsin2014inChattanoogais1:1,519(46storesto69,890Households)8

8https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=CF

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Duringtheirresearch,theyalsodiscoveredthattheMedianIncomeperhouseholdinChattanoogais$39,683,whilethisisabovetheFederalPovertyThreshold9,thiscanbeamisleadingindicatorasitisthemidpointoftheincomescaleanddoesnotconsidertheextremeoutliersateachendoftheincomespectrum.ThePerCapitaIncome(average)inChattanoogain2014was$24,134,almostthesameasthestateaverageof$24,811,butwaslowerthanthenationalaverageof$28,55510.

UsingthePerCapitaIncomemeasureanddataobtainedfromthe2014AmericanCommunitySurvey,thenumberofhouseholdswithineachhouseholdincomebandwascharted.32.6%ofChattanoogahouseholdsearnedlessthanthetwoadultswithtwochildrenundertheageof18federalthresholdsforpoverty.

Theirresearchsourceswerelargelyconsistentwithotherpaydaylendingreports,suchasthe2012PewCharitableTrustReport,PaydayLendinginAmerica:WhoBorrows,WhereTheyBorrow,andWhy.Whilethelargestsinglepercentageofpaydayloanborrowersarelowtomoderateincome,thereisabroadsegmentofborrowersthatdonotfitthestereotypicalmodel.Accordingtothe2015IBISWorldReportforPaydayLendingIndustry,morethansixpercentofpaydayborrowershaveincomelevelsbetween$75,000and$100,000.

9https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-thresholds.html10http://www.usa.com/chattanooga-tn-income-and-careers.htm

8,017

5,1899,548 8,540

10,29412,086

6,436 6,138

1,783 1,859

11.50%

7.40%

13.70% 12.20% 14.70%

17.30%

9.20% 8.80%

2.60% 2.70%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Lessthan$10,000

$10,000to

$14,999

$15,000to

$24,999

$25,000to

$34,999

$35,000to

$49,999

$50,000to

$74,999

$75,000to

$99,999

$100,000to

$149,999

$150,000to

$199,999

$200,000ormore

ChattanoogaHouseholdIncomeCount&PercentagefromtheAmericanCommunitySurvey2014

HouseholdIncome %ofChattanoogaHouseholdCount

2016FederalPovertyThreshold2 Adults&2Childernunderageof18

7

(IBISWorldReportforPaydayLendingIndustry)

ComparingthemarketsegmentbreakdownofconsumerincometothehouseholdincomeofChattanoogans,wecanascertainthat59.5%ofChattanoogahouseholdsmakeanincomeof$50,000orless,whichcorrelatesto83.7%ofthegeneralmarketsegmentofpaydayloanborrowers.Quick,generalcalculationstellusthat~34,809(49.8%oftotalhouseholdsregardlessofincome)Chattanoogahouseholdswith$50,000incomelevelorlowerfallintothesegmentofhouseholdsthatusepredatorylending.

Additionally,bothreportsidentifyrecurringlivingexpensesasakeydriverforborrowing.ThePewreportshow53%offirstborrowersidentifyingregularexpensesasthereasonfortheirfirstpaydayloan,whileTheIBISreportcitesthatpercentageat46%.

(IBISWorldReportforPaydayLendingIndustry)

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Locations

Using2010censusdataandReference.govtolocatethelocationsofpaydaylendersintheChattanoogaarea,theycreatedamapshowingMedianHouseholdIncomebyCensusTractandpaydaylenders(circles)aswell.Themapshowsthatpaydaylendinglocationsareinareaswherethemedianhouseholdincomeislowerthanthemidpointof$42,892(goldcoloredareasinatthemidpoint.Returningtothefactthat83.7%ofpaydaylendingborrowersmakelessthan$50,000peryear,thelocationofthelenderstakesadvantageofthesurroundingareaslowerincome.

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Examiningthelocationsofpaydaylendersledthemtoconsiderpublictransportationroutesandhowtheycorrelatedtothelocationsofthepaydaylenders.MappingthelocationofCARTAbusstops(starsonmap)andlayingthatatopthepaydaylendinglocationmapitwasfoundthatmanyofthepaydaylendinglocationsarealongCARTAlines.ReferencingthemarketsegmentationdatafromIBISWorld,40.9%ofpaydaylenderborrowershaveanincomeunder$25,000.Whileanecdotal,thissegmentmightbethemostlikelytonothaveaccesstoreliabletransportationandmightrelyonpublictransportation.FourmajorCARTArouteswereidentifiedwherepaydaylenderswerelocated,BrainerdRoad,Highway58,23rdStreet,andRossvilleBoulevard.

Afterlookingatthelocationsandpublictransportation,theylookedatthetotalpopulationbycensustractandthepopulationdensitypersquaremile(seebelow).Thereisadefinitecorrelationbetweenhigherpopulationdensityandlowermedianhouseholdincome.MostofthepaydaylendinglocationsinChattanoogaareinhigherdensityareas,whichinturnsmeanstheyareinthelowersocioeconomicareasaswell.

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LegislativeActioninotherStates

In2012,thePewResearchCentercompleteditsSafeSmallDollarLoanResearchProject.Thisprojectincludedareviewofall50states’paydaylendingstatutesandclassificationofeachintothecategoriesofrestrictive,permission,andhybrid.Thesedefinitionsfromtheprojectarefoundbelow:

• Restrictivestateseitherdonotpermitpaydaylendingorhavepricecapslowenoughtoeliminatepaydaylendinginthestate.Thisratecapisoften36percentAnnualPercentageRate(APR).Generally,paydayloanstorefrontsarenotfoundinthesestates.Thiscategoryincludesstateswheredeferredpresentmenttransactions(post-datedchecks)arenotauthorized,arenotspecificallyexemptedfromgeneralstatelawsonusury,orareexplicitlyprohibitedbystatestatute.Twenty-ninepercentofAmericansliveinthe14statesandtheDistrictofColumbiathathaveaRestrictivepaydayloanregulatorystructure.

• Hybridstateshaverelativelymoreexactingrequirements,withatleastoneofthefollowingthreeformsofregulation:(1)ratecaps,usuallyaround10percentoftheborrowedprincipal,whicharelowerthanmoststatesbutstillpermitloanstobeissuedwithtriple-digitAPRs;(2)restrictionsonthenumberofloansperborrower,suchasamaximumofeightloansperborrowerperyear;or(3)allowingborrowersmultiplepayperiodstorepayloans.Storefrontsthatofferpaydayloansexistinsubstantialnumbersinthesestates,thoughthemarketmaybemoreconsolidatedandper-storeloanvolumemaybehigherherethaninlessrestrictivestates.SixteenpercentofAmericansliveintheeightHybridstates.

• Permissivestatesaretheleastregulatedandallowinitialfeesof15percentoftheborrowedprincipalorhigher.Mostofthesestateshavesomeregulations,butallowforpaydayloansdueinfullonaborrower’snextpaydaywithAPRsusuallyintherangeof391to521percent($15to$20per$100borrowedforatwo-weekloan).Paydayloanstorefrontsarereadilyavailabletoborrowerslocatedinthesestates.MostAmericans—55percent—liveinthe28Permissivestates.11

Pew’scategorizationprovidessummarizedevidenceastotherangeofpolicyapproachesstatescantaketoregulateandrestrictpaydaylending.Somestates,likeneighboringGeorgiaandNorthCarolina(restricted),haveprohibitedpaydaylendersfromphysicallyoperatingintheirstates.Otherstates,likeVirginia(hybrid),haveplacedonlylimitedrestrictionsonthelenders.Finally,mostofthecountry’sstatesarelikeTennessee(permission)withverylittle,ifany,regulationenactedtoprotectconsumers.

ForTennesseelegislators,thekeytakeawayfromPew’sanalysismaybethattherearemanyopportunitiestoregulatepaydaylendinginamannerthatbetterprotectsconsumersandmaintainsitasacredit“choice,”areasonoftencitedforitsexistence.Alistoftheseregulatoryapproachesisincludedbelow(listedinorderofmostrestrictivetomostpermissive):

11http://www.pewtrusts.org/en/multimedia/data-visualizations/2014/~/media/data%20visualizations/interactives/2014/state%20payday%20loan%20regulation%20and%20usage%20rates/report/state_payday_loan_regulation_and_usage_rates.pdf

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• Prohibitpaydaylending• Capinterestratesat36%orless• Prohibitpost-datecheckuse• Paybackperiodextension• Capinterestratesbasedonapercentageoftheloan• Restrictionsonnumberofloansorloanfrequency• Feelimitations• Limitthedurationofpost-datecheckuse

Beforereviewinghowthreesoutheasternstateschoosetolimitpaydaylendingintheirstates,itisimportanttonotethatthefederalgovernmentuniquelyprotectsonegroupofAmericans–ActiveUSMilitary–fromhigh-interestpaydayloans.

TheMilitaryLendingActof2006(JohnWarnerNationalDefenseAuthorizationAct)cappedinterestratesat36%forpaydayloans,vehicletitleloans,anddepositadvanceproducts.TheActwasextendedin2015toincludemoretypesofconsumercredit(effectiveOctober3,2016),includingcreditcards12.ThismeansthatforactivemembersoftheUSmilitarythefollowingpaydaylendingrestrictionsareinplace:

A36%interestcap,whichincludesthefollowingcostsincalculatingtheinterestrate(withsomeexceptions):financecharges;creditinsurancepremiumsorfees;add-onproductssoldinconnectionwiththecredit;and otherfeeslikeapplicationorparticipationfees,withsomeexceptions.13

TheMilitaryLendingActitselfwasanencouragingdevelopmentasitsetamorereasonableinterestrateforasizablesegmentofthepopulation(estimatedtobemorethan5millionindividuals14)thatmayfacefrequentshorttermcreditneeds,inherentlyacknowledgingthepotentiallypredatorynatureofmoreaggressiverates.TheAct’sexpansionprovidesevengreaterprotectiontothisconsumersegment.

TherearealsofederaleffortstoaffordconsumerprotectionfromaggressivepaydaylendinginterestratestoallAmericans.AftertheDodd-FrankWallStreetReformandConsumerProtectionActgrantedpaydaylendingoversightauthoritytotheConsumerFinancialProtectionBureau(CFPB)in2010,theCFPBproposedaruleinJune2016thatwouldcapinterestratesat36%forallloans.

However,thefateoftheproposedrule,forwhichthepubliccommentperiodclosedonOctober7,2016,15remainsinlimboinpartbecausethecommentshavenotbeenaddressedandtherulerevisedasnecessarybutmoreoverbecausetheTrumpadministrationthreatenedtoweakentheDodd-FrankAct.

12https://www.consumerfinance.gov/askcfpb/1785/what-types-loans-are-covered-under-military-lending-act.html;https://www.federalreserve.gov/bankinforeg/caletters/Attachment_CA_Letter_16-6_MLA_Exam_Procedures.pdf;https://www.fdic.gov/news/news/financial/2007/fil07083.html;https://www.fdic.gov/news/news/financial/2015/fil15037.html13https://www.consumerfinance.gov/askcfpb/1783/what-are-my-rights-under-military-lending-act.html14https://library.nclc.org/military-lending-act-dramatically-expands-coverage-oct-3-201615https://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/notice-proposed-rulemaking-payday-vehicle-title-and-certain-high-cost-installment-loans/

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RegardlessofthefuturetheCFPBoritsproposedrule,itisclearthatpaydaylendingrestrictionsarenecessarytoprotectconsumers.Manystateshavelongacknowledgedthisneedandtakenlegislativeactiontoensuretheirstates’citizensareprotected.Thefollowingsectionprovidessimplifiedcasestudiesofalternativeapproachestoprotectingresidentsfrompredatorylendingpractices,allundertakenbysoutheasternstatesthatshareaborderwithTennessee.

Georgia

Uniquely,Georgiafirstprohibitedpaydayloansviaa1955law,theGeorgiaIndustrialLoanAct.However,enforcementoftheActwaslaxandpaydaylendersoperatedwithinthestate.Afterrecognizingtheproblempaydaylendingpresents,fourStatesenatorssponsoredthePaydayLendingActof2004,whichmadepaydaylendingacriminaloffense.16TheActwouldgoontoweathernumerouslawsuitsfromlendersandpaydaylendingcontinuestobeprohibitedinGeorgia.

Georgia’sActhadsponsorsfromboththeRepublicanandDemocraticparties(SenatorDonCheeks[R],District23,SenatorCaseyCagle[R],District49;SenatorBillStephens[R],District51;SenatorTerrellStar[D],District44)andreceivedbipartisansupportinitspassage.ItwassignedintoeffectbyGovernorSonnyPerdue[R]in2004.17

Georgia’sstategovernmentwebsitedescribesthepaydaylendinglawsasfollows:“TheGeorgiaIndustrialLoanActof1955essentiallymadepaydaylendingillegalbyrequiringstatelicensingandregistrationandbyimposingstrictusurylimitsonsmallloans.In2004,theGeorgiaGeneralAssemblyincreasedthefinesandcriminalpenaltiesforpeoplemakingsmallloansatillegalratesofinterest.ThelawwentintoeffectinMay2004,andhassurvivedchallengesinfederalcourt.ReferredtoasthePaydayLendingActof2004,thislawauthorizesmisdemeanorchargesagainstviolators,aswellasfinesofupto$5,000perviolationandapossiblejailsentenceof1year.”18

NorthCarolina

LikeGeorgia,NorthCarolinaprohibitspaydaylending.However,theState’sapproachtoarrivingatincreasedprotectionforNorthCarolina’sconsumerswasdifferent.Afterenactingalawthatpermittedpaydayloansin1997,theNorthCarolinalegislatureallowedtheNorthCarolinaCheckCashingActtoexpire2001,choosingtonolongerpermittheselawsintheState.Theparagraphsbelow,fromaUNCLawandNorthCarolinaBankingInstitutepaper-PaydayLendinginNorthCarolina:NowYouSeeIt,NowYouDon’t–succinctlyexplainsNorthCarolina’spathtopaydaylendingprohibition.19

16http://www.responsiblelending.org/payday-lending/policy-legislation/states/pa-GeorgiaPayday-0606.pdf17http://www.legis.ga.gov/legislation/en-US/display/20032004/SB/15718http://www.consumer.ga.gov/consumer-topics/payday-loans19http://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=1224&context=ncbi

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PriortoOctober1,1997,NorthCarolinalawdidnotexpresslypermitthemakingofpaydayloans.Duringthisperiod,allshort-termloansweresubjecttotheNorthCarolinaFinanceActandNorthCarolina'susurylaws.OnOctober1,1997,theNorthCarolinaGeneralAssemblypassedtheNorthCarolinaCheckCashingAct(NCCCA).ThisActpermittedpaydayloansinNorthCarolinabutrequiredthattheybenomorethan$300includingfees,containamaturitydatenotmorethanthirty-onedaysaftertheloanwasissued,andrequiredthatthetotalfeesnotexceed15%ofthefacevalueofthecheck.Furthermore,theNCCCArequiredthatallpaydaylendersbelicensedbythestateofNorthCarolinaascheckcashers.TheNCCCAcontaineda"sunsetdate"ofJuly31,2001.TheNorthCarolinaGeneralassemblyextendedthisdateuntilAugust31,2001;however,theNCCCAwasallowedtoexpireonAugust31,2001.

Duringthisfour-year"experiment'withpaydaylending,paydaylendersoperatedunderthe"standardbusinessmodel."Underthestandardbusinessmodel,paydaylenderswereproperlylicensed,usedtheirownfundstoloanmoney,andactedinaccordwiththeregulationssetforthintheNorthCarolinaCheckCashingAct.Theexpiration,onAugust31,2001,oftheNCCCAdidnotputanendtothepaydaylendingindustryinNorthCarolina.

AftertheNCCCAexpired,NorthCarolinacontinuedtofacechallengeswithpaydaylendersoperatingoutsideofstandardbusinessmodels.A2003courtrulingputanendtoanalternativemodelthatsawthelenderpurchasepropertyfromtheborrowerandthenleaseitbacktohimorherinexchangeforaloan.In2005,theNorthCarolinaCommissionerofBanksprohibitedtherent-a-charteroragencymodelsforpaydaylendingthatproliferatedinNorthCarolinafollowingtheNCCCA’sexpiration.

Virginia

Virginiapermitspaydayloans.However,in2008,thestateaddedrestrictionstoincreaseconsumerprotection.TheVirginiaPaydayLoanActof2008,whichwasanupdatedversionofa2002law,includesthefollowingprovisions20:

§ OnePaydayLoanatatimeperborrower§ Databaseestablishedtotrackanddetermineeligibilityforpaydayloans§ Longerrepaymenttermforpaydayloans.TheduedateforaVirginiapaydayloanfroma

licenseewillnowbebasedontwotimesyourpaycycle.Thus,ifyougetpaidonceaweek,youwillhavetwoweekstorepaytheloan.

§ Changeinfees,charges&interest:§ Interest–amaximumsimpleannualrateofupto36%§ LoanFee–upto20%oftheamountoftheloan(maximumof$100loanfeeona

$500loan)§ VerificationFee–upto$5.00(databasefee)

20https://www.scc.virginia.gov/bfi/files/10vac5_200_notice.pdf;https://www.scc.virginia.gov/bfi/files/pay_guide.pdf

15

§ Paydayloanshallnotbemadeonthesamedayoneispaidinfull§ ExtendedPaymentPlanmaybeavailableonpaydayloansobtainedafterJanuary1,2009.§ ExtendedTermLoanmaybeavailableona5thpaydayloanina180-dayperiodobtained

afterJanuary1,2009.

TheVirginiaPaydayLoanActof2008wassponsoredby14PatronsfromboththeRepublican(9Patrons)andDemocratic(5Patrons)parties,withDelegateG.GlennOder[R],HouseDistrict94,astheChiefPatron.21

ExistingCommunityResources

TheFinancialIndependenceworkgroupreachedouttononprofitorganizationswhooffersomeformoffinancialliteracy,whetheritispreventiveorasupportservice.With28responses,thegrouplearnedthatthereisagapinservicesforpaydaylendingalternatives.Thesurveyrespondentsidentifiedadditionalgapsincluding:inequalityingenderpay,availabilityofmicro-lending,particularlytowomen,minoritiesandnon-Englishspeakers,lackofjobsandworkforcedevelopment,predatorylendingregulations,paydayandtitleloanalternatives.

Thereareseveralcurrentcommunityprovidersofdifferentaspectsoffinancialindependenceresources.Theirmissionsandtargetaudiencesarevastlydifferent,butthereisanexistingnetworkofresourcesbothonthepreventiveandsupportiveresourcetargets.

Thereareveryfewviablealternativestopredatorylending.Therearetwolistedbelow–bothofwhicharepartofaCreditUnionprograms.

Thisisnotanexhaustivelist.

PreventiveResources

AStepAheadChattanooga

BankOnScenicCity

Boys&GirlsClubofChattanooga

BrightBridge

CatholicCharitiesofEastTennessee

ChangeYour$tory

ChattanoogaAreaChamberofCommerce

21https://lis.virginia.gov/cgi-bin/legp604.exe?081+mbr+HB12

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ChattanoogaNeighborhoodEnterprise(CNE)

ChattanoogaRoomintheInn

CommonCentsFinancialLiteracy

ConsumerCreditCounselingServices(CCCS)–PartnershipforFamilies,Children,andAdults

FamilyPromiseGreaterChattanooga

Girls,Inc.

NeighborhoodUniversity(attheFamilyJusticeCenter)

NorthsideNeighborhoodHouse

OperationHOPE

ProsperityUnlimited

SoutheastTennesseeAreaAgencyonAgingandDisability(SETAAAD)

SoutheastTennesseeDevelopmentDistrict(SETDD)

TheCaringPlace

TheChalmersCenter

UniversityofTennesseeExtension

UTCFinancialWellnessCenter

SupportServices

BethanyChristianServices

BreastCancerSupportServices

BrightBridge

BrightBridgeWomen’sCenter

CatholicCharitiesofEastTennessee

ChangeYour$tory

ChattanoogaAreaFoodBank

ChattanoogaHumanServices

ChattanoogaNeighborhoodEnterprise(CNE)

ChattanoogaRoomintheInn

Children’sAdvocacyCenterofHamiltonCounty

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ConsumerCreditCounselingServices(CCCS)

Faith&Finances-TheChalmersCenter

FamilyPromiseGreaterChattanooga

Goodwill

green|spaces-EmpowerChattanooga

HabitatforHumanityofGreaterChattanooga

HomelessCoalition

LaPazChattanooga

MetropolitanMinistries

MomentumNetwork

NorthsideNeighborhoodHouse

OperationHOPE

ProsperityUnlimited

SalvationArmy

SoutheastTennesseeAreaAgencyonAgingandDisability(SETAAAD)

SoutheastTennesseeDevelopmentDistrict(SETDD)

TheCaringPlace

UnitedWayofGreaterChattanooga-211SupportServiceCenters

UniversityofTennesseeExtension

UrbanLeagueofGreaterChattanooga

WewouldencouragetheCitytocreateopportunitiesformorecommunicationamongthesepreventiveandsupportserviceproviders.Coordinationandmeaningfulinteractionwouldbenefitboththeserviceprovidersandtheirclients.Whilethe211systemisagoodstart,wewouldliketoseeexpandedhoursandcoordinationofthereferralsmadethroughthesystem.

LoanAlternatives

BlueCrossBlueShieldofTennessee

TennesseeValleyFederalCreditUnion

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Whilethesecreditunionsofferlendingalternatives,theirreachislimitedandbyadmissiontheprogramsarenotwidelymarketed.

ProposedGoals/Outcomes

1. ReducethenumberinChattanoogausinghighinterestloans

OurgoalistoreducepredatorylendingusageinChattanoogatothreepercentorbelowthroughacombinationofstrategies:preventiveeducationtostemthedemandforfuturepredatorylendingusage,makingalternativestopredatoryloansmoreavailable,andleveragingacommunitynetworktoprovideongoingsupporttopreventrecurringusageofpredatorylending.

2. Increasethenumberofindividualsthathaveaccesstotraditionalfinancialservices.

Chattanoogaisaparticipantinthe“BankOn”program.Severallocalfinancialinstitutionsareparticipatinginthecontinuedgrowthofthisprogram.

BankonScenicCity

BankOncoalitionsarelocally-ledpartnershipsbetweenlocalpublicofficials;city,state,andfederalgovernmentagencies;financialinstitutions;andcommunityorganizationsthatworktogethertohelpimprovethefinancialstabilityofunbankedandunderbankedindividualsandfamiliesintheircommunities.TheBankOnnationalinitiativebuildsonagrassrootsmovementofdozensofcoalitionsincitiesacrossthecountry;thesefirst-generationbankingaccessprogramshavealreadyconnectedtensofthousandsofpeopletosafeandaffordableaccounts.Inadditiontoconnectingunbankedindividualstoaccounts,BankOnprogramsraisepublicawareness,targetoutreachtotheunbanked,andexpandaccesstofinancialeducation.

3. CreatepathforTennesseetoreduceand/orlimitpredatorylendersthroughlegislativeaction,informedbyactioninotherstates,aslistedpreviouslyinthisreport.SupporttheeffortstocaptheinterestratesatthelevelsetbytheMilitaryLendingAct.

4. EncourageTennesseetocreateopportunitiesfortraditionallenderstoofferabroaderproductmix,allowingmoreloanalternativestomoreborrowers.

5. Fundingsupportwillbecrucialintheearlyyearsofbuildingaviablelongtermsolution.WewouldencouragetheCitytosupportpublic-privatepartnershipsintheirreviewofviablealternatives.WewouldalsosupportthecreationofacommunitybasedtaskforcetocreatesynergybetweenexistingresourcesandinitiativessuchasChattanooga2.0,ChattanoogaChamberofCommerce,andtheexistingresourceslistedinprevioussections.

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ProposedLendingAlternative

Thisteamhasreviewedseveralcommunitysolutionsfromacrossthecountry.Aftercarefulreview,wearerecommendingthatChattanoogacreateaprogrammodeledfromBrownsville,Texas.

ThisprogramismadepossiblethroughagreementsbetweenaCommunityDevelopmentFinancialInstitution(CDFI),andlocalemployers.HereinChattanooga,ourlocalCDFIisChattanoogaNeighborhoodEnterprise(CNE).TheyhavehadrepresentativesparticipateinthisFinancialIndependenceteamandhaveaddedthisalternativetotheirorganization’sstrategicplan.

Hereisasummaryoftheprogram,ashighlightedontheCommunityEconomicDevelopmentAssociationofMichigan22:

Iflow-to-moderateresidentsneed“quickcash,”whynotbeatpredatorylendersattheirowngame?TACDCandCitiCommunityDevelopmentresearchedalternativestopaydaylendingthatcouldbebroughttoscale.TheyfoundoneprogramatalocalCDCinBrownsville,Texas,adaptedit,usedstartupfundsfromCitiandpilotedtheCommunityLoanCenterSmallDollarLoanProgram.

It’samarket-basedapproach.Thereisnostorefront.It’sanemployer-basedloantoworkers.Theyarefairlypricedsmall-dollarloanswithreasonableterms.Itwillofferdirectcompetitiontohighcostlenders.It’snonprofitdriven;that’sthekeycomponent.

Thesesmallloansworkasfollows:TexasCommunityCapital,anonprofitloanfundTACDCstarted10yearsago,operatestheprogramanddistributesthecopyrightedloansoftware.TACDCthenrecruitslocalnonprofitstoparticipateintheprogram.Eachnonprofitisinchargeofloanorigination,processingandservicing.Thenonprofitsrecruitlocalcompaniestoparticipateintheprogram.Participatingemployersoffersmallloanstoemployeesviapayrolldeduction,whichisalldonethroughcomputersoftware.Employeescanapplyonline.

Loanterms:

• Max$1,000loan(orupto½ofborrower’smonthlygrosspay)• Oneyearloanterm,withnoprepaymentpenalty• 18%interest• $20originationfee• Repaymentsare$23/weekor$94/month• Mayonlytakeoutoneloanatatime• Can’trefinanceuntilsixmonthslater

22http://cedam.info/2014/12/payday/

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Nocredithistoryisrequired,approvalsarequick,thereisnocollateralandtheloanmoneyisplaceddirectlyintotheemployee’sbankaccountusuallywithin24hours.Freefinancialcounselingisavailabletoanyonetakingaloanthroughtheprogram.

Whilethisprogramhasbeenasuccess,itisstilllimitedbybeingdependentuponemployerparticipation.ItisaviablealternativethatcanbelicensedandimplementedthroughtheBrownsvillegroup.Weseethisasanimportantsteponthepathtocreatingamorefinanciallyindependentcommunity,notanendstategoal.

CommunityWellbeing

Uponreviewofthedataabove,itiscleartoseetheneedformoreexpansivelendingalternatives,andfortheCityofChattanoogaandtheStateofTennesseetoacttoimproveourfinancialwellbeingasacommunity23,24.Therearemany‘spotremedies’withveryfewcompletesolutionstoourcurrentstateoffinancialinstability.

Thereisacorrelationbetweenfinancialargumentsamongfamilymembersanddivorce25.Ifwewantstrongfamilies,wewantthemtobefinanciallystable.Ifwewantathrivingbusinessdevelopmentenvironment,wewantmorefinancialindependence.Ifwewantmorealoyal,productive,andengagedworkforce,wewantmorefinancialindependence26.

Wecannotaffordforourcurrenttrendstocontinue.Financialindependenceandwell-beingareaboutfarmorethandollars.Itisaboutthecreatinganopportunityforfamiliesandourcommunitytothrive!

23http://info.healthways.com/hubfs/Gallup-Healthways%20State%20of%20American%20Well-Being_2016%20Community%20Rankings%20vFINAL.pdf?t=148886353843924http://info.healthways.com/hubfs/Well-Being_Index/2014_Data/Gallup-Healthways_State_of_American_Well-Being_2014_Financial_Rankings.pdf?t=148886353843925http://www.k-state.edu/media/newsreleases/jul13/predictingdivorce71113.html26https://www.consumerfinance.gov/data-research/research-reports/financial-wellness-at-work/

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WorkgroupMembership

DominaAlford

JenniferHarper

DawnHjelseth

JenniferHolder

TraceeSmith

WithSpecialThanksto:

TheUniversityofTennesseeatChattanoogaSolutionScholarsclassofFall2016

LizaSoydanofVisionario

NelsonGosnell