On the streets of Memphis, dozens of small stores advertise “the cash you need, fast,” in big letters, “free money” painted onto the windows in neon colors, or “flexible payment options” plastered onto the front door.
These payday loan stores lend several hundred dollars to people who often can’t afford to repay them. What the shops market as flexible payment options can turn into debt at an annual percentage rate as high as 600 percent.
“Memphis is known as the payday loan capital of the world,” said Travis Moody, founder and CEO of Forward Memphis, a Christian nonprofit helping borrowers pay off debt in the Tennessee city. “There are more payday loan stores in Memphis than Starbucks and McDonald’s combined.”
More than 12 million Americans borrowed payday loans in 2022 alone, and according to Moody, the short-term fix often turns into a cycle of debt.
This year, some restrictions on payday lenders have loosened.
Tennessee recently raised the cap on the interest rate for a payday loan to 36 percent. Because that interest applies per installment, that means the annual percentage rate for these loans went from 459 percent to over 500 percent, Moody told CT. It’s the first time Tennessee has raised the cap since 2017.
Tennessee allowed higher interest rates “to allow those companies to still be able to survive, even though they were taking very high risk loans for folks,” said Republican House Majority Leader William Lamberth, according to NewsChannel 5 Nashville.
The state has a significant payday lending industry partly because it is where two of the country’s biggest private payday lenders began, according to the Chattanooga Times Free Press.
In the $8 billion industry, payday loans are small, typically $500 or less, and are meant to be short-term solutions for financial needs and repaid on the borrower’s next payday. On average, however, borrowers fall into debt five months of the year, according to The Pew Charitable Trusts.
With an average annual income of around $25,000, most payday borrowers can’t afford to repay the loans within 14 days and have to renew or reborrow, trapping themselves in a debt cycle that is hard to escape. Eighty percent of payday loans are rolled over because the borrower can’t repay them, and around four out of five borrowers get at least 11 payday loans in a row.
Christian organizations like Forward Memphis are responding by helping the victims of predatory lending. Moody, the CEO, has himself struggled through mountains of debt. He said many Christians are still unaware of the negative impact of payday loans.
“In the Christian world, we’re not talking about how this impacts poverty and the poor,” said Moody, who is also stewardship pastor at The Life Church of Memphis.
“You can’t read the Bible without Jesus talking about the poor,” he continued. “Even when he announced himself, he said, ‘I came to preach to the poor.’ And it’s like every word was dealing with people who were distressed.”
Oversight of the payday lending industry may be shifting at the federal level too.
The Trump administration tried to shut down the work of the Consumer Financial Protection Bureau (CFPB) earlier this year and lay off its staff. The bureau provides the main federal oversight for payday lending, filing lawsuits against lenders like All American Check Cashing for “unfair, deceptive, and abusive practices while providing payday lending and check cashing services.”
In March, a federal judge blocked the administration’s plan to shutter the CFPB, but recently, the US Court of Appeals for the DC Circuit allowed the dismantling of the agency to go forward pending further proceedings.
“The administration’s attempts to dismantle the nation’s only consumer financial protection watchdog will expose millions of households to excessive fees and financial predators and increase risks to the nation’s financial system,” said Mike Calhoun, president at the Center for Responsible Lending, in a statement responding to the appeals court ruling.
The White House also issued an executive order in March threatening to eliminate the Community Development Financial Institutions (CDFI) Fund, which provides financial and technical assistance to institutions certified as CDFIs.
CDFIs—of which Forward Memphis is one—are local organizations that help low-income borrowers with affordable loans and coaching services.
In response, the Treasury Department conducted a review of CDFI Fund programs and reported that the law requires them. Credit unions also supported CDFIs.
“CDFI Fund programs deliver an exceptional return on investment, bringing in more than $12 of private capital for every federal dollar,” wrote Jim Nussle, president and CEO of America’s Credit Unions, in a letter to the Treasury secretary.
Moody said Forward Memphis has not been significantly affected.
“No one believes [the CDFI Fund] is going away,” Moody said. “CDFIs are a better way to support the needy and the people in poverty than any type of welfare system. … What we do in community development is, we’re trying to help people move their lives forward, which in turn benefits the economy.”
Forward Memphis offers coaching and training for those in financial distress.
“The solution is not just giving people money,” Moody said. “What we have to do is help people reframe how to manage money. Some people didn’t learn it growing up.”
The organization helped Jillvona McJefferson, a single mother who moved to Memphis in 2021 so her daughter’s brain tumor could be removed at St. Jude Children’s Research Hospital.
Facing eviction and carrying a $450 payday loan, McJefferson asked her pastor at The Life Church of Memphis for help, and then the pastor connected her with Forward Memphis.
“I felt shameful,” she told CT. “I didn’t want people to know what I was dealing with, because I felt like I put myself in the situation. … I’d hit rock bottom.”
But she found the process at Forward Memphis “wasn’t judgmental.” The organization connected McJefferson with her first-ever financial coach, who taught her how to manage her money better.
“I was always living check to check,” she said. “I was never a person that did not have a job; I was just mishandling my money. It was to the point that I needed Forward Memphis to redirect me.”
Her financial coach introduced her to concepts like the “snowball strategy.”
“The snowball effect is what really helped me out,” said McJefferson. “You put your least amount of debt first and try to eliminate that, then go from there. So I’ve been eliminating my debt, and I’m really debt-free.”
She hopes to buy a home soon for her and her daughter.
The borrower’s inability to pay is “what the predatory lenders are banking on,” Moody said. Because of the cycles of debt borrowers often fall into, advocates against payday lenders often refer to them as predatory.
Moody grew up in a primarily Black, working-class community, the kind of neighborhood where payday lenders tend to concentrate, he said.
“They’re only in financially distressed communities,” he said.
Faith-based organizations have a history of being an alternative to these lenders.
Historically, people founded credit unions in order to help low-income borrowers, and there are still several faith-based credit unions, according to The Christian Century. They offer things like “grace loans” with low interest rates, credit limits to prevent borrowers from overborrowing, and stricter eligibility requirements than payday lenders have.
Twenty-one states have laws strictly regulating payday loans, often through setting low interest rate caps that tend to drive payday lenders out of the state.
Compared to Tennessee’s 500 percent cap, Minnesota recently lowered the annual interest rate cap to 36 percent in 2023, closing the doors of even the top payday lenders. Exodus Lending is a faith-based nonprofit a local church founded in Minneapolis. It advocated for tighter state regulation of these lenders and also helped Minnesotans get out of debt.
“Since we passed the rate cap in 2023, all storefront payday lenders have chosen to close their doors rather than comply with a 36 percent interest rate cap,” Meghan Olsen Biebighauser, cofounder and policy and partnership director of Exodus Lending, told CT.
But predatory lending “always seems to pop up again,” she added.
States with few safeguards, however, like Tennessee, rely on CDFIs as one of the main counterbalances to payday lending.
“We need to figure out systemically how to remove barriers that allow people to have pathways to financial equity and financial freedom,” Moody said.
Moody still sees a lack of financial literacy among distressed borrowers as a key hurdle, and that’s an area where Forward Memphis can help regardless of the level of state or federal regulation.
“You need people like us that are focused on developing people,” said Moody. “We can fill the gap.”
