The Payday Loan Target On The Minority Pocketbook
By Ginna Green
Los Angeles may be a bustling metropolis that covers more than 460 sprawling square miles, but payday lending largely gets confined to the city’s black and brown neighborhoods. At last count, Los Angeles had more than 313 payday lenders, storefronts where all you need to get a $255 loan at 459 percent APR is a checking account and a regular source of income.
Those 300-plus payday stores, often with bright neon signs to attract the attention of passers-by, tend to be packed into neighborhoods populated with large numbers of African Americans and Latinos, like Boyle Heights, Van Nuys and South Central L.A. But this phenomenon is not limited to the Los Angeles. A recent study of payday store location in California by the Center for Responsible Lending showed that payday lenders here are nearly eight times as concentrated in neighborhoods with the largest shares of African Americans and Latinos as compared to white neighborhoods. As a result, these communities— that often have the least money to lose in the first place—are more likely to get caught in the debt trap.
This amplifies the importance of African-American and Latino elected officials—both in California and in Congress—to show leadership in protecting their constituents from abusive payday lending. In the last few months, one bad payday lending bill after another has been introduced in Sacramento or Washington to preserve the payday lending’s industry status as the financial service provider of choice in minority neighborhoods.
In Sacramento, lawmakers are considering AB 377, a bill that would make it even easier to get a predatory payday loan, and make the debt larger by increasing the loan amount without increasing the payback period. In Washington, lawmakers are considering two faulty payday bills—one that would lock in usurious 400 percent interest rates and one that would pre-empt stronger state laws. More than one-third of Americans are protected from predatory payday loans, now that some 15 states, Washington, D.C., and the military have capped interest rates at 36 percent or less for these populations.
But so many Latinos and African Americans remain trapped. Data shows that payday lenders consistently prey on these communities in particular. Californians lose $450 million annually to service payday loans, and $247 million of it comes from the pockets of working-class African-American and Latino borrowers who can least afford it. If AB 377 is successful, expect that number to approach $380 million.
Faced with the danger that triple-digit interest rates pose to the economic wellbeing of many hard-working families, legislators should lead the charge against payday loans and the debt in which they trap their constituents.
While some lawmakers claim to be protecting their constituents’ access to credit by making payday loans available, we learned from the sub prime mortgage fiasco that not all credit is created equal. The terms on which credit is offered are as important as access to the credit itself. Recent polling indicates that nearly 75 percent of Americans agree that a triple-digit interest rate is by no means a good term. In fact, it’s hard to call a product that is designed to trap borrowers in debt “credit” of any sort.
In this case, no reform is better than bad reform—and AB 377 is bad reform. And in the case of payday lending, the only reform that will end its cycle of debt is ensuring a reasonable 36 percent interest rate cap on all small consumer loans.
It will take strong leadership to defy the powerful and moneyed payday interests that spend millions of dollars to oppose meaningful reform, but that is what California's consumers deserve.
New America Media granted permission to reprint “Payday Loans Target Latinos, African Americans.” Cesar Castro and Ginna Green are both on staff at the Center for Responsible Lending.
