How predatory race-motivated loans hurt us all

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Predatory lending practices don’t just drag families and individuals into the cycle of debt they create. These loans end up hurting the economy. This is the main conclusion of a report published Tuesday by the Center for Responsible Lending, a non-partisan research group.

In the report, Status of loans, the researchers found that borrowers who are caught in some form of predatory lending are more vulnerable to other predatory lending institutions. In other words, if you have a subprime mortgage, you will likely also have credit card debt, payday loans, among other forms of debt.

In recent years, the predatory lending industry has grown rapidly. In 1996, there were approximately 2,000 payday loan centers in the United States. In 2010, there were nearly 20,000 these centers, which have issued more than $ 29 billion in cash advance loans.

The effect of this growth has been particularly evident in the mortgage industry. In 2012, Wells Fargo Bank accepted a regulation over $ 200 million after a Justice Department lawsuit found the bank discriminated against black and Latino borrowers and disproportionately directed them into subprime loans. A year earlier, Bank of America paid $ 335 million to settle nearly identical Justice Department claims that the bank targeted borrowers of color with subprime loans.

So why should you care? This network of consumer debt has a profound impact on black and Latino communities. Ultimately, all Americans will pay the price: High debt levels make it difficult for people to buy cars and homes, invest in education, put money aside for retirement and, in some cases, finding a job. In short, consumer debt threatens the entire economy.

Predatory lending centers are often concentrated in low-income, predominantly black and Latino neighborhoods. Borrowers of color are two to three times more likely to receive a “predatory loan” with problematic terms than their white counterparts, according to the report. The cost of these debt cycles spills over to the economy at large. The report found that payday lenders and auto title loans in particular often correspond to an individual’s reliance on government support or charitable assistance. Of course, unpaid student debt falls on taxpayers. Highly indebted graduates are also less likely to pursue less lucrative careers such as teaching, the researchers found, in part because they require more spending on higher degrees.

The foreclosure crisis of the past decade is another example of how the debt cycle is fueling wider wealth disparities and wreaking havoc in the communities where they are concentrated. According to the report, overall housing wealth fell by $ 7 trillion between 2005 and 2011. Foreclosed homes effectively reduce the value of the homes around them. Homeownership is directly correlated with the wealth gap between white and non-white Americans. Homeowners of all races have a higher median wealth than renters, and owning a home over a long period increases a person’s wealth. This means that abusive lending practices such as subprime mortgages, which disproportionately impact people of color and contribute to foreclosure, are intensifying the racial wealth gap.

The Obama administration created the Consumer Finance Protection Bureau in part to regulate the predatory lending industry. The report also cites the Credit Card Liability, Liability and Disclosure Act 2009 as another example of a law that effectively protects consumers. The CCA limits certain credit card fees and requires credit card companies to advertise interest rates more transparently, saving credit card consumers an estimated $ 12.6 billion per year. year. Twenty-one states and the District of Columbia have passed laws to curb predatory lenders and, in some cases, cap the interest rates they are allowed to charge. These laws provide roadmaps for states that have yet to put in place these kinds of reforms to protect consumers, and they suggest a path forward for broader federal reform.

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