This Shark Week, Let’s Look Closely at Who’s Preying on Whom
By Sarah Belton, Cartwright-Baron Attorney, and Leslie Bailey, Staff Attorney
photo credit: Grey Nurse Sharks by Richard Ling, CC-BY-2.0.
One noted impact of the Recession is the widening wealth gap between white families and families of color. This gap didn’t just emerge naturally—at least part of the gap is the result of discriminatory and predatory lending practices, which the Center for Responsible Lending calculates generate $25 billion per year. By targeting certain financial products at low-income communities of color, businesses, like payday lenders, make lots of money.
This week, activists are calling out payday lending sharks for knowingly preying on vulnerable communities. In Illinois, Iowa, and Missouri, individuals are rallying outside of payday lenders like Advance America (the Megalodon of payday lenders) to protest a business model that is dependent on keeping families in a circle of debt.
Payday lenders don’t just loan money without any regard for a borrower’s ability to repay the loan—their business model actually depends on the borrower being unable to repay. The model works: predictably, 94 percent of borrowers end up taking out another payday loan within 30 days, and CRL’s study showed that the average California payday borrower takes out 10 payday loans a year.
And who is most likely take out that fateful first payday loan? Those living in neighborhoods with the highest numbers of payday loan stores: statistically, people of color. This means that, in the longer term—the circle of debt that traps so many—those who have the most access to payday loans will end up having a harder time paying their bills, putting off seeking medical care they need, and even losing their homes because they don’t have the financial resources.
In short, it is communities of color that disproportionately suffer the short- and long-term effects of the growth of the payday loan industry.
But this isn’t the first time that dangerous financial products have been targeted to communities of color. For years, big banks like Wells Fargo were intentionally charging individuals of color higher rates on their mortgages than white borrowers. After the financial collapse and a Department of Justice investigation, these banks eventually paid out hundreds of millions of dollars for their racially discriminatory lending. Because of the discriminatory lending practices, many people of color lost their homes.
Payday loans are no less—and at least as—exploitative. Despite this past experience with the subprime crisis and the devastating effects still visible in communities of color, this same structural racism continues to exist, and the payday lending industry still targets communities of color with dangerous, confusing financial products.
Public Justice has been working for decades to hold payday lenders accountable. The continued prevalence of the industry and its ability to lend without impunity is certainly an important piece of the income inequality puzzle.
And the poverty traps that the industry creates by targeting communities of color are also integral to the perpetuation of the wealth gap between minorities and whites.
The most dangerous sharks are not in the water.
