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Payday Loan Stores Too Prevalent in Black Community
Date: Monday, March 30, 2009, 3:53 pm
BlackAmericaWeb.com
Payday loan shops in California are eight times as likely to be located in communities where a majority of black and brown people live, often luring them into a cycle of debt, according to a study released Thursday by the Center for Responsible Lending, a nonprofit and nonpartisan advocacy organization.
“They’re all over the place in urban centers. It’s like an oasis,” said Harold Dees, a 57-year-old general manager for a social service agency in Oakland, California. “You need money, and there they are.”
Back in the fall, Dees borrowed $255 with an interest fee of $45 for two weeks. But that was the beginning of a hole that got bigger and bigger, Dees told BlackAmericaweb.com.
Over six months, he paid about $540 in interest on a loan of $255.
Once you borrow the money, unless something happens to change your finances, you stay in the hole, he said. “You go in and pay off one loan for $300, but you need another loan to make the ends meet.”
According to the CRL:
- Black and Latino communities in California lose $247 million in wealth annually to service payday loans.
- Even after controlling for income and a variety of other factors, payday lenders are 2.4 times more concentrated in African-American and Latino communities.
- Racial and ethnic composition of a neighborhood is the primary predictor of payday lending locations. This differs with an analysis of mainstream financial institutions such as banks, where deciding factors for locations are not tied to race or ethnicity.
In addition to work for a social service agency, Dees is a handyman. He was able to get enough money a few weeks ago to pay off the loan without having to get another one.
Dees' story is like thousands of others in California and other parts of the country, according to CRL. Several states are considering regulating payday loans, while others in recent years have put stiffer regulations in place.
In California, CRL representatives say they want to convince lawmakers to put a cap on interest payments for the loans because of the devastating drain on the finances of blacks and Latinos who often live in urban areas.
“Once you pay off the loan, there isn’t enough money to pay your other bills,” said Leslie Parish, one of the co-authors of the CRL study. The average payday loan lender in California pays 459 percent interest on a typical loan, she said. And most of the loans are made because a borrower couldn’t pay the first loan back.
Generally, payday loans are small and are secured by a personal check, usually for two weeks. The loans are appeal to borrowers because they are advertised as a quick and easy way to deal with unexpected expenses, Parish said.
“And many of the people we talked with obtained a payday loan simply because it was convenient, and they could walk in and get one,” she said.
People who get payday loans have checking accounts, and they have a stream of income to repay the loan. That means they have access to banks, Parish said. They opt for payday loans possibly because banks are not providing the products they need, she said.
The best solution, says Parish, is to place a reasonable interest rate cap of around 36 percent on all small loan products.
“Already, 15 states and the District of Columbia have caps in place to protect their residents from high-cost payday loan debt traps,” Parish said in a web conference that included BlackAmericaweb.com.
Several states currently are considering reforms to payday lending.
In South Carolina, lawmakers are considering a bill that would limit loans to no more than $500 or one-fourth of a person’s gross paycheck. ..... Lawmakers also are considering requiring a cooling-off period between the times a person can acquire another payday loan.
Some Texas lawmakers want to place a 36 percent cap on payday loan interest or ban payday lending all together. In that state, lawmakers say payday lending is a problem in both urban and rural areas.
The West Virginia Attorney General Darrell McGraw is trying to work through the courts to prevent some payday lending companies and collection agencies from doing business in that state.
An industry group for the payday lenders said it too wants to see changes, according to its website.
The Community Financial Services Association of America, established in 1999, has launched a consumer education campaign on responsible use of payday advances.
It also is encouraging its members to offer customers an option for repaying their payday loans over time without additional penalties.
When he got his loan in California, Dees said there was little education available. All he knew was that some money he expected didn’t come through, and he needed to get some temporary help.
“Once you use a payday loan store, it’s easier to go back to the same one and get another loan because they know who you are,” Dees said. “But if more people knew about the cycle payday loans create, they wouldn’t get them.”
Date: Monday, March 30, 2009, 3:53 pm
BlackAmericaWeb.com
Payday loan shops in California are eight times as likely to be located in communities where a majority of black and brown people live, often luring them into a cycle of debt, according to a study released Thursday by the Center for Responsible Lending, a nonprofit and nonpartisan advocacy organization.
“They’re all over the place in urban centers. It’s like an oasis,” said Harold Dees, a 57-year-old general manager for a social service agency in Oakland, California. “You need money, and there they are.”
Back in the fall, Dees borrowed $255 with an interest fee of $45 for two weeks. But that was the beginning of a hole that got bigger and bigger, Dees told BlackAmericaweb.com.
Over six months, he paid about $540 in interest on a loan of $255.
Once you borrow the money, unless something happens to change your finances, you stay in the hole, he said. “You go in and pay off one loan for $300, but you need another loan to make the ends meet.”
According to the CRL:
- Black and Latino communities in California lose $247 million in wealth annually to service payday loans.
- Even after controlling for income and a variety of other factors, payday lenders are 2.4 times more concentrated in African-American and Latino communities.
- Racial and ethnic composition of a neighborhood is the primary predictor of payday lending locations. This differs with an analysis of mainstream financial institutions such as banks, where deciding factors for locations are not tied to race or ethnicity.
In addition to work for a social service agency, Dees is a handyman. He was able to get enough money a few weeks ago to pay off the loan without having to get another one.
Dees' story is like thousands of others in California and other parts of the country, according to CRL. Several states are considering regulating payday loans, while others in recent years have put stiffer regulations in place.
In California, CRL representatives say they want to convince lawmakers to put a cap on interest payments for the loans because of the devastating drain on the finances of blacks and Latinos who often live in urban areas.
“Once you pay off the loan, there isn’t enough money to pay your other bills,” said Leslie Parish, one of the co-authors of the CRL study. The average payday loan lender in California pays 459 percent interest on a typical loan, she said. And most of the loans are made because a borrower couldn’t pay the first loan back.
Generally, payday loans are small and are secured by a personal check, usually for two weeks. The loans are appeal to borrowers because they are advertised as a quick and easy way to deal with unexpected expenses, Parish said.
“And many of the people we talked with obtained a payday loan simply because it was convenient, and they could walk in and get one,” she said.
People who get payday loans have checking accounts, and they have a stream of income to repay the loan. That means they have access to banks, Parish said. They opt for payday loans possibly because banks are not providing the products they need, she said.
The best solution, says Parish, is to place a reasonable interest rate cap of around 36 percent on all small loan products.
“Already, 15 states and the District of Columbia have caps in place to protect their residents from high-cost payday loan debt traps,” Parish said in a web conference that included BlackAmericaweb.com.
Several states currently are considering reforms to payday lending.
In South Carolina, lawmakers are considering a bill that would limit loans to no more than $500 or one-fourth of a person’s gross paycheck. ..... Lawmakers also are considering requiring a cooling-off period between the times a person can acquire another payday loan.
Some Texas lawmakers want to place a 36 percent cap on payday loan interest or ban payday lending all together. In that state, lawmakers say payday lending is a problem in both urban and rural areas.
The West Virginia Attorney General Darrell McGraw is trying to work through the courts to prevent some payday lending companies and collection agencies from doing business in that state.
An industry group for the payday lenders said it too wants to see changes, according to its website.
The Community Financial Services Association of America, established in 1999, has launched a consumer education campaign on responsible use of payday advances.
It also is encouraging its members to offer customers an option for repaying their payday loans over time without additional penalties.
When he got his loan in California, Dees said there was little education available. All he knew was that some money he expected didn’t come through, and he needed to get some temporary help.
“Once you use a payday loan store, it’s easier to go back to the same one and get another loan because they know who you are,” Dees said. “But if more people knew about the cycle payday loans create, they wouldn’t get them.”