March 7, 2016
Small-Dollar Debt Shouldn’t Mean Big Profits for Predatory Lenders
By LeeAnn Hall and Glenn Harris
LeeAnn Hall
Glenn Harris
(TriceEdneyWire.com) - How can a corporation get rich off people who have almost nothing? That’s the business model for a predatory debt industry targeting African Americans, raking in billions by exploiting economic vulnerability.
It’s time we stop this parasitic industry and demand the Consumer Financial Protection Bureau (CFPB) institute tough rules to end the small-dollar debt trap.
The debt trap catches people where they live, work, study and drive. With one-quarter of Black families having only $5 in reserves, people have no financial breathing room. One domino falls – a cancelled shift at work – and everything else falls, too.
When that happens, the payday and car-title lenders come calling with false promises. Instead of tossing a lifeline, they strip communities of over $10 billion annually in interest and fees, trapping families in debt.
The toll on African-Americans is steep. According to the New York Times, “If you are black, you’re far more likely to see your electricity cut, more likely to be sued over a debt, and more likely to land in jail because of a parking ticket.”
Conventional wisdom tells people the debt trap is their fault. That’s untrue, but it’s a convenient way for predators to trap customers in shame along with debt.
The debt trap is a systemic problem hurting people of all races but hitting African-Americans especially hard. That’s because African-Americans have been specifically and historically shut out of policies that helped white families build nest eggs.
Take the housing segregation that blocked many Black families from home investments. The policies behind this segregation excluded African- Americans from the country’s most important source of family wealth.
The result is a racial wealth gap leaving Black families with 6 percent the wealth of white families. Along with this gap comes economic distress in Black communities that, as described by the Washington Post’s Emily Badger, “extends out the door of a family's home and occupies the entire neighborhood around it, touching the streets, the schools, the grocery stores.”
Next to shops in Black communities you’ll likely find a predatory payday lender that jacks up loans at interest rates near 400 percent. In Midwest cities, payday lenders bunch in African-American and Latino neighborhoods at three times the rate they’re found in other neighborhoods.
Payday lenders aren’t the only problem. African-Americans are also getting crushed under student loans, mortgages, medical debt and the fines cities charge to finance operations instead of taxing equitably.
Our financial system is segregated by race and class. Affluent White communities count on banks offering wealth-building credit. Black communities have to count on debt predators that tap the few assets people have – or hope to have someday.
Once the industry ties people to debt, it sends debt collectors that call day and night, harass family members, and grab dollars they’re not entitled to – leading to thousands of complaints at the CFPB against companies profiting in the hundreds of millions.
This points to a debt-industrial complex straddling Black communities. The debt of African-Americans is that industry’s wealth.
We can dismantle the racial wealth gap and achieve widespread economic equity. This requires dismantling structural racism and the segregated financial system, and providing true economic equity in everything from education to jobs, health care and income.
But we cannot wait until that work is done to tackle the back-of-the-bus credit system preying on families now.
The CFPB is currently writing rules that, done right, will stop the debt trap in small-dollar lending by ensuring every loan is a loan that can actually be repaid – eliminating abuses like serial roll-overs and refinances, or lenders holding cars or bank accounts hostage.
The CFPB needs to hear from us all to counter pressure from predators and their congressional mouthpieces. Let’s tell predatory lenders they have no business in African-American communities.
LeeAnn Hall is executive director of the Alliance for a Just Society, a national network of community organizations working for economic, racial and social justice. Glenn Harris is president of the Center for Social Inclusion, a nonprofit that advocates for racial equality.
