Measuring proximity to payday lenders, from pawn shops to black adults

The data for this article comes from a survey of 2,000 black adults measuring attitudes on a variety of social, political and economic issues.

As the Black Lives Matter movement highlights the ways in which racial inequality runs deep in black neighborhoods, financial policy and consumer advocates have drawn attention to the targeting of black Americans by short-term lenders. at high interest rates, such as pawn shops and convenience stores. lenders, as one of the most prevalent.

Trump administration regulators make it easier for payday lenders to exploit black communities, consumer advocates say, noting the Consumer Financial Protection Bureau’s elimination of the “”repayment capacityPayday loan rule, which required these lenders to ensure borrowers can afford a loan. Consumer advocates, who say these loans are predatory, argue that the CFPB’s pullback makes it easier for these lenders to trap borrowers in a cycle of debt.

Data from New Morning Consult highlights the lingering problem that consumer advocates and some financial regulators are trying to address – the prevalence of expensive, low-quality financial services in black communities.

Black adults (11%) are 6 points more likely to say they live within a mile of a payday lender than white adults (5%), data shows. Black adults (15%) are 7 points more likely to say the same about a pawnshop, which can also be used as a quick but expensive way to get a small loan, compared to white respondents ( 8%).

The data is taken from two surveys: 2,000 black adults from June 18 to 26, and the other 2,200 American adults, which includes 1,772 white adults, from June 18 to 21. Both have margins of error of 2 percentage points.

These numbers narrow in the middle distances (between 1 and 2 miles, and between 3 and 5 miles). White adults were more likely to say they lived more than 10 miles from payday lenders (by 5 points) and pawn shops (by 8 points).

“Payday lenders and pawn shops are an extremely expensive way to borrow money,” said Jesse Van Tol, executive director of the National Community Reinvestment Coalition, a grassroots coalition that advocates for equal access to services. banking, housing and other financial services. “Targeting people of color for more expensive products is what we call a ‘reverse red line’. “

The subject of unequal access to financial services is being discussed more now not only because of the upheaval around the police killings – it is also increasingly important as the economy weakens due to the coronavirus pandemic, putting pressure on it. thousands of people unemployed and hitting black communities particularly hard.

“Especially now, with the COVID-19 crisis, we know that payday lenders have presented themselves as friendly neighborhood characters in black and low-income communities,” Charla Rios, researcher at the Center for Responsible Lending said. focusing on payday loans and predators. debt practices. “It’s things like that that exacerbate the racial wealth gap.”

In a statement to Morning Consult, the Community Financial Services Association, the trade group that represents payday lenders, said without alternative financial services their clients would not have access to short-term, low-dollar credit.

“We are located in communities across the country, including those that are often unserved or underserved by banks,” said D. Lynn DeVault, President of CFSA. “By being close to our customers, we get to know them on a deeply personal level and understand their financial needs. “

The National Pawnbrokers Association did not respond to a request for comment.

Historically, data on proximity to financial services has been skewed by the fact that blacks are more likely to live in urban areas than whites. A black person who lives in an urban area, for example, is more likely to live a few miles from a bank branch than anyone of any race in a rural area.

“A mile in a city is very different than a mile in a rural area,” said Terri Friedline, a professor of social work at the University of Michigan who studies financial system reform and consumer protection. “There are levels of scale that mean different things in different geographies. ”

Morning Consult broke down the data by urban, rural and suburban respondents to better understand financial services in black communities at all levels.

In urban areas, 13% of black adults reported living within a mile of a payday lender, and 19% said the same about a pawnshop. This is compared to 8 percent of all adults in an urban area who reported living within a mile of a payday lender and 13 percent for pawn shops.

The trend is the same for rural respondents: 10 percent of black adults who reported living in a rural area also reported living within a mile of a payday lender, compared to 3 percent of all rural adults. . Fourteen percent of rural black adults said they lived within a mile of a pawnshop, compared to 8 percent of all rural adults.

This is particularly striking because payday lenders and pawn shops are considered less common in rural areas, Friedline said.

“So even in rural areas where the population density is lower, payday lenders and pawn shops will still predatorily target black and brown communities,” she said.

In urban, rural and suburban communities, there is not much difference between the responses of all adults and black respondents near banks. Credit unions, which can offer small, short-term loans at a better price than a payday lender or pawnshop, vary depending on the proximity of different communities.

During the Trump administration, some banking regulators suggested that allowing banks to offer low-value loans could offer those in need of a small amount of credit another option – an idea that regulators Obama era have largely been avoided. In March, as the COVID-19 crisis shut down much of the US economy, the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp. and other regulators have issued guidelines allowing banks to grant small loans. .

Regulators have also recently come up with ways to address economic inequalities. In an interview this month, Brian Brooks, chief of the OCC, said that reduce regulatory hurdles for FinTech companies could increase financial service options for black and low-income communities, while FDIC President Jelena McWilliams called for changes to encourage bank to grant small loans.

Yet consumer advocates believe these measures either do not go far enough or are counterproductive. Van Tol said fintech products could prove to be just as predatory if not regulated properly, and Friedline said digital banking efforts won’t go far in rural areas, where internet access and telephone service are a major problem.

And while banks usually offer better loan terms than, say, a payday lender, they still have predatory products and can be discriminatory, Friedline said.

“There is a continuum of racialized financial services, so banks are also doing things that are predatory,” she said. “Ultimately, things like the highlighting of predatory contractual agreements, segregation and even the bombings of the 1950s and 1960s forced blacks and browns to join these precise, geographically defined communities, which which makes it easier for payday lenders, pawn shops and other financial services. target them.

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