Billy Poplin knew his girlfriend was going to get burned. But what are you going to do when your finances are on fire?

She needed gas and groceries, and was in between paychecks. So the Maryville man with stylized, nonofficial dog tags hanging from his neck waited in a van in sweltering midsummer heat for her to secure a pay-day advance from Speedy Cash Loans on Chapman Highway. 

Cars rolled nearby along what is arguably one of Knoxville’s less attractive thoroughfares, past the shuttered Smoky Mountain Market near Fort Loudoun Lake, fast-food joints, title lenders, pawn shops, some half-empty shopping plazas. At the comparatively robust Chapman Square, a Dollar Tree and Kroger stand behind the small check-cashing place, flanked by a Buddy’s BBQ. It’s a common urban American tableau: The number of pay-day lending storefronts is on par with fast-food restaurants in the 36 states, including Tennessee, where such businesses are allowed.

Across the street, next to a company offering cheap, short-term mobile phone service, a couple, arguing loudly, left another cash-advance storefront called Easy Money. It’s right by a First Tennessee Bank. 

“It’s not like you wanna do it,” Poplin says of the lure of quick, easy, and expensive loans. “I know you can stay caught in payments forever, especially if you do refinancing. The interest is ridiculous.”

But even knowing what’s at stake hasn’t stopped many customers from using “alternative financial services.” In a 4-mile stretch of Chapman Highway, from the 3000 block to the 7000 block, there are at least seven pay-day lending storefronts registered with the state: Check Into Cash, Tennessee Title Loans, Concord Finance, Advance America, Buckeye Check Cashing, Cash Express, American Cash Advance. That doesn’t include the multitude of pawn shops and car-title lenders. And the storefronts don’t always share the same name with the entities that register with the state—Buckeye Check Cashing, for example, operates as Easy Money.  

In 2014, there were more pay-day lending storefronts (15,766) than McDonald’s restaurants (14,350) in the U.S., according to the Consumer Finance Protection Bureau, a regulatory group birthed in the financial-institution reforms that followed the Great Recession. The bureau is proposing additional, federal restrictions on the lenders. The regulations would be binding and supersede state law, but their enforcement will likely be hamstrung in Congress given the anti-regulation, laissez-faire direction of the recent national election.

Lenders are under scrutiny because such payday loans—formally called “deferred presentments” by the state—can easily approach a 500 percent annual percentage rate when fees renew over time. Poplin’s girlfriend (who did not want to be named) plans to repay her loan with an income-tax refund that is months away. And while a customer at another quick-cash joint down the street was borrowing money for car repairs, most seek money for recurring expenses such as those Poplin’s girlfriend was trying to cover, according to the Center for Responsible Lending, a North Carolina-based consumer protection, policy, and research nonprofit. Forty percent of pay-day loans default, and 92 percent of Tennessee borrowers take out another loan within 60 days, according to the center.

This is a Catch-22 system most detractors say locks already poor or undereducated people in a “debt slavery” cycle that’s nearly impossible to escape—if you can’t cover the cost of groceries, how do you expect to repay a loan that grossly inflates with interest each month? Some studies indicate that’s exactly the case: Most of those who take out such loans can’t cover the repayment, even if a typical $400 loan is offered interest-free, with only service charges that are typically about $40.

“If you borrow $300,” Poplin says, “you are going to pay back $600, $700.” He’s right: A $200 loan paid back over 12 months at 450 percent APR would mean total repayments of $720, according to Tennessee Citizen Action, a consumer-protection group that supports additional regulation of cash-advance companies. If the loans and fees are not paid back within a paycheck cycle, that is a typical interest rate—though some go higher—for such loans. Title loans, in which a borrower uses a vehicle for collateral, are also part of new federal rule-making processes, but pay-day lenders are the biggest target for federal-level reforms. 

In Knoxville, concerns about the potentially usurious nature of pay-day loans run so deep that local government has taken its own stab at regulation via zoning. And one local church is planning to launch an interest-free lending plan through a Christian finance ministry that could become a national model. Will it be enough to protect consumers in need?

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Knoxville City Council this summer approved zoning restrictions on the proximity and location of such lenders, just as federal regulators moved into the final phases of the rule that would establish stricter guidelines for the industry.

City Council’s zoning action in July on alternative lending institutions targeted pay-day storefronts as well as check cashers, pawn brokers, and title lenders; it requires them to be at least 1,000 feet from each other and residential zones. The decision came despite a cautionary note from city Law Director Charles Swanson that the city may not have explicit authority to govern the location of those businesses. Chattanooga, Nashville, and Memphis, however, have zoning restrictions against pay-day lenders and similar businesses, and that seemed to assuage any constitutional concerns of Council members. That’s about the extent of restrictions that can be imposed on the industry by municipalities, and Knoxville’s existing 54 pay-day lending storefronts, as registered with the Tennessee Department of Financial Institutions, are grandfathered under the ordinance.

The city’s zoning ordinance came after complaints from constituents that such alternative lenders were cropping up en masse along such thoroughfares as Chapman Highway, says South Knoxville City Council member Nick Pavlis, who carried the zoning amendment in Council. He says his main concern was a fear of slowly advancing blight brought on by the proliferation of such lending institutions in his district—and subsequent devaluation of nearby properties—but he also supports reforming the industry. Such reforms, however, are the purview of state and federal regulators, and local governments can do little but regulate the location of cash-advance storefronts.

“Common sense tells me it could be beneficial to the consumer to have some sort of cap on the fees and interest charged by small-dollar lenders,” Pavlis says. “It’s just a trap people can never get out of. But we can’t do it locally.”

Defenders of the multi-billion-dollar industry say it provides a valuable cash line that would otherwise be hard to come by; most banks don’t offer loans less than $1,000, and few other options exist, especially for those with a troubled credit history. Others say it is usury, and should be more strictly regulated, with more avenues to secure “small-dollar” loans. The Consumer Finance Protection Bureau tends to agree with the latter, and its Small Dollar Lending Rule would rein in, on a national level, some of the more questionable lending practices and require more prominent disclosure rules. The lending rule under consideration, which would apply to both purveyors of pay-day and title loans, would require more diligent underwriting; reduce the ability of the borrower to refinance; restrict multiple efforts to cash borrower checks; and set interest caps on some loans.

“The proposed rule would apply to certain short-term and longer-term credit products that are aimed at financially vulnerable consumers. The Bureau has serious concerns that risky lender practices in the payday, auto title, and payday installment markets are pushing borrowers into debt traps,” according to a press release announcing the rule-making process.

The regulations would also force those offering such loans to determine whether the borrower can truly afford it. A study by the Center for Responsible Lending concluded that someone making $35,000 per year simply cannot afford to repay a $350 payday loan within a two-week period, even if it is offered without interest, when average housing, food, and other consumer costs are taken into consideration. The negative income mounts along with increased APR. This drives many borrowers to social safety nets such as food stamps, and leads them to forgo child-support payments, according to the center. The bureau accepted public comment through early November. The rule would likely be in place by next summer.

There will likely be a strong pushback, especially given Congress’ recent conservative tilt, though the CFPB is a regulatory agency whose rule-making doesn’t need specific congressional approval. But opponents of increased regulation could hamper the rule via purse strings. Congressional Republicans earlier this year already rejected efforts to change language in an appropriations bill that prevents the CFPB from regulating the alternative-lending industry, which collects at least $2.6 billion in excess fees annually. Payday lenders made $23.6 billion in loans in 2015.

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Some consumer and Christian advocates are also proposing alternatives that would enable those in need to access small-dollar credit when economic catastrophe strikes. Not all loans to the poor and those in need of quick cash have to be accompanied by fees and interest, they say. Knoxville will be the site of a Crown Ministries pilot program that will offer interest-free loans in conjunction with First Baptist Church. The program is set to begin in the first quarter of next year.

Chuck Bentley, CEO of Knoxville-based Crown Ministries, a Christian-based financial planning organization, equates pay-day and title lenders to the moneychangers Jesus Christ railed against in the Bible. He says such loans promote “debt slavery.”

“Once you get into it, it’s like quicksand,” Bentley says. “The policy approach is a good approach but more needed steps include education at the grassroots level to avoid those loans and understand the trap they are getting into. We’re sympathetic to the plight of people in that trap. There is obviously a need for that type of lending.”

And that’s where communities, churches, and “faith-based alternatives” to traditional lending practices can come in. Crown, a 40-year-old nonprofit 501(c)(3), will partner with First Baptist Church—on Main Street in downtown Knoxville—to provide capital, training, and guidance on how the congregation can help people in need of emergency cash. There would be no collateral or credit checks required.

“We’re willing to take that risk for them,” Bentley says during a phone interview. “We’ll be looking at people who would need a cash loan,” to keep their electricity on, their children fed or for a residential deposit. The loans would be along the lines of $400, the amount of an average pay-day loan, he says. The Anglican Church in England has such programs in place.

The church “will look at community-based micro loans to help people (avoid) predatory lending,” says First Baptist Church Senior Pastor Tom Ogburn. The local effort could be a model for Crown Ministries to use across the country, Ogburn says.

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There has already been pushback against stricter federal rules from the small-dollar-loan industry. The Bradford Group, a Nashville public relations firm, released an op-ed piece by Robert Sherrill, the owner of a commercial cleaning agency who testified in Congress in opposition to the proposed CFPB rules. He wrote that access to small-dollar loans helped him grow his business. His commentary appeared in The Tennessean, The Hill, and on conservative websites.

“As most small-business owners know, starting your own company isn’t easy,” Sherrill wrote. “Cash isn’t always available to grow your company, and banks and credit unions don’t make loans less than $1,000 to people like me, or to anyone else for that matter…  These loans saved my business and may have saved my life.”

However, a disclaimer was appended to several of the stories (and was confirmed by Bradford): About 25 percent of Sherrill’s business is with Advance Financial, a company that operates six pay-day lending storefronts in Knoxville. 

But Sherrill raises a point expressed by others: Where and how can the working poor access credit? The Center for Responsible Lending reports that increased regulation in fact leads to a decline in the number of alternative financial services available. “The CFPB, in its commentary, has stated that it is possible that a majority of such non-bank lenders will exit the market after the application of these rules,” Tennessee Department of Financial Institutions spokeswoman Alica Owen says in an email. “It is important to then determine what financial institutions might be in a position to meet the demand of small dollar loans in Tennessee. 

“The Department believes that all credit, from whatever source, should be undertaken after careful consideration, and should be used responsibly,” Owen says. “We are mindful that many people have limited access to credit, and may have few choices in the event of unforeseen circumstances, such as a medical emergency or an unexpected vehicle repair, other than to seek an extension of credit from such licensed lenders.”

One veteran of the industry agrees that small-dollar loans can be useful, but supports more regulation, especially restricting the number of outstanding loans per customer. Dana Estep, who worked for two pay-day loan companies before retiring from the industry after 20 years, suggests creating a state database that lenders would be required to check to see how many loans a potential customer already has floating. 

“Basically, if you have a pulse, you can get a payday advance,” Estep says. Customers at most places fill out an application, provide an address, references, and a pay stub or bank statement. Credit scores don’t dissuade lenders. The lure is understandable, she says. In some cases, the fees are less than the cost of bouncing a check, provided the loan can be repaid on time. But if “you get caught in that vicious cycle” and try to ultimately walk away from the debt, collectors will come calling. Some companies are more aggressive than others in their approach, she says, citing an instance in which a lender called in a loan from the family of a dead customer. Estep says some companies pursue the bankrupt.

In some cases in which lenders require a post-dated check, multiple overdrafts can accrue if the loan and fees are not repaid on terms. The proposed small-dollar loan regulations would restrict that, and put in place an overarching set of federal rules. Meanwhile, regulations are patchwork and differ from state to state. Kentucky, for instance, has the database championed by Estep. Pay-day lending is banned in Georgia (where title-loan shops proliferated after the ban), North Carolina, and Arkansas. Alabama only allows a total of $500 in outstanding loans, and loans can only be renewed once. Tennessee allows three simultaneous outstanding small-dollar loans, but has no tracking database. Virginia caps interest at 36 percent, and restricts fees to 20 percent.

“Are their practices deceitful? No. Are they questionable? Yes,” says Estep, who lives in Powell and now sells vintage clothing on Etsy. “When I walked away from it, I thought, ‘This is pretty crappy.’”

Bentley, of Crown Ministries, sees reforms of the quick-cash industry as a moral imperative, and community groups and churches should take up the fight. If the pilot program with First Baptist is a success, it could serve as a model for other such community-based credit resources.

“We see it as a Wilberforce-type movement,” Bentley says in reference to early English abolitionist William Wilberforce. This “debt slavery,” he says, “is a pandemic on a greater scale.”