Loans

Knoxville law director warns against ordinance for payday loan stores

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Knoxville payday loans

Over the past few years, jurisdictions across North America have established their own set of rules and regulations in an attempt to rein in the payday loan industry.

One of these initiatives includes where and how payday loan companies open up stores in specific parts of the city. These types of rules are meant to limit their reach to impoverished consumers, poor neighborhoods and impecunious residents. But one public official is warning against a city’s attempt to impose such a regulation on its own payday lenders.

Knoxville City Law Director Charles Swanson is warning city council to not pass a proposed ordinance, which would regulate where same day loans businesses can set up a store. He states that such an ordinance could cost the city millions of dollars in damages if the new zoning rule is challenged in court

Reportedly, under the proposal, city council would vote to require businesses involved in the “alternative financial services” sector – this would include businesses like payday lenders, check cashiers and pawn brokers – to stay away from each other and residential zones by a minimum of 1,000 feet. However, Swanson believes Knoxville may not have the authority for such a rule.

He did concede, however, that zoning ordinances like this have been set up across the state of Tennessee, including the cities of Memphis and Nashville. He added that none of them have been challenged in the court system to date over this ordinance.

“So the answer to the question ‘can you legally enact this ordinance and can you be confident it will be upheld by courts?’ is: I don’t know,” Swanson told council members during a workshop on Thursday. “I would rather Chattanooga find out for us; I’d rather Memphis find out for us.”

Knoxville has reportedly faced legal challenges over such rules before.

In 2007, Knoxville was required to pay $1.5 million in damages to Fantasy Video. This was over the jurisdiction’s adult business ordinance, which was considered “unconstitutionally vague” by the Tennessee Supreme Court. Swanson thinks that such an outcome could come from this ordinance, too.

However, city officials are refuting Swanson’s warning by arguing that the legal risk is worth it to protect the growth of payday loan stores.

“My constituents were fed up with it,” said South Knoxville Councilman Nick Pavlis. “If you go up and down Chapman Highway, it’s just one after the other after the other. At the end of the day, there is exposure, but there’s also exposure if we don’t do something about it.”

Critics of the payday loan industry regularly argue that these financial products take advantage of the financially destitute and lead them down a road of perpetual poverty. Proponents argue that payday loans are a necessity for the impecunious because they need the funds to pay their rent, keep the lights on and cover an emergency. Since they don’t have access to traditional forms of credit, a payday loan is sometimes necessary.

The Consumer Financial Protection Bureau (CFPB) proposed a new series of rules for the payday loan industry last month in an attempt to give the sector a substantial overhaul.

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