Dr. Martin Luther King Jr.’s life work focused on creating equality of opportunity for all Americans. In this struggle, economic injustice remained his commitment as his last days in Memphis challenged unfair wages and working conditions of sanitation workers. Many tributes this year will no doubt note how his life was snuffed out by a sniper’s bullet in Memphis.
Today much like in 1968, black Americans still lag far behind their white counterparts in income and wealth – with few or no emergency savings and equally low retirement accounts. This reality is not a coincidence but the result of deliberate public policies that favored whites over others, combined with predatory loans that destroyed decades of hard-earned savings.
Our challenge is to honor his memory by taking an active role in securing financial justice. Despite the enactment of civil rights laws spanning open housing, voting rights, equal credit and more, the Joint Economic Committee of Congress recently found that the median net worth of white households is 13 times greater than black households. By the numbers, we are talking about the difference between having $142,000 and $11,000.
While America’s well-to-do continue to partake of the nation’s financial bounty, the middle class continues to shrink, more Americans are sliding into poverty and much of Black America lives financially fragile lives.
A late 2015 a report from the Federal Reserve Bank of St. Louis found that while college education continues to boost lifetime earnings, how much people benefit from those degrees has a stark racial divide. Black college graduates’ median incomes fell 12 percent below those of their white and Asian-American counterparts. Similarly, the average median incomes for Latino college graduates fell 10 percent less as well.
Why is that?
The Federal Reserve itself noted, “The underlying factors causing racial and ethnic wealth disparities undoubtedly are complex and deeply rooted.” But certainly one of the factors is that black students are targeted and more heavily recruited by for-profit colleges than their white counterparts.
While black and Latino students make up 21 percent of all postsecondary enrollments, they represent 41 percent of students at for-profit institutions. These high cost institutions largely offer substandard education and leave graduates with massive debt and worthless degrees. Fewer job prospects lead to higher rates of default on unsustainable loans – all of which undermines their ability to secure financial stability or economic security.
The predatory practices of for-profit colleges illustrates just how much of Black America’s missing wealth is tied to high-cost credit. The cumulative high cost of predatory lending products is that our families lose the ability to save for a home, a beneficial college education, or even their own retirement.
We are witnessing a related set of abuses in auto-loan financing. The vast majority of auto loans in this country are arranged by the auto dealer. The dealers have the discretion to add to the interest rate of car buyers and keep some or all of this mark up as compensation. Many have used this discretion to charge higher rates to Black and Latino borrowers. Despite trying to negotiate better interest rates, many times black and Latino consumers wind up charged more than white consumers with similar credit profiles, according to research by the Center for Responsible Lending (CRL).
The best known tragedy is the billions of dollars of wealth lost by black and Latino homeowners who were steered to subprime mortgages. Even today, homeownership remains the surest opportunity to build financial stability for middle class families assuming the mortgage is fairly underwritten. However, during the lead up to the 2008 financial crisis, mortgage brokers received kickbacks to steer mostly minority borrowers into higher-priced loans and loans with risky and deceptive terms. Eight years after the crisis, the cost of these predatory practices is still felt in black neighborhoods across the country.
Education, transportation and housing are the three largest financial transactions for most families. The total impact predatory credit if measured strictly in dollars is in the trillions. And the lost opportunity cannot adequately be measured.
The NAACP’s Hilary Shelton recently spoke to America’s dual credit system.
“Allowing the spread of high cost credit entrenches a two-tier financial system: one group of consumers who can access a mainstream financial system and another group of consumers who are further marginalized and turn to predatory lenders selling risky products,” Shelton said.
If as a people we sincerely want to build wealth for our families, we must work to ensure an end to abusive loan practices. One immediate path to consider is to join the #stopthedebttrap coalition that is working to push the Consumer Financial Protection Bureau to regulate away the debt trap created by payday loans. While deceptively marketed as a short-term solution for a cash emergency, these triple digit interest rate loans leave borrowers indebted for more than half a year and studies have shown they can lead to increased rates of bank account closures and even bankruptcy. All communities and particularly Black America deserve safer loan products that help and not harm.
Our unique black American experience continues to show that doing the so-called “right thing” is often not enough to gain financial security or build wealth.
Whether plowing plantation fields, sharecropping, cleaning homes or raising other people’s children, we well know hard work. Millions of grandparents worked long hours in industrial plants, or stood on bus lines in all kinds of weather just to put food on the table and have a roof for families to live under. All the while, these generations were urging their children to “get a good education.”
My hope is that there will be a renewed commitment to an active, aggressive and principled fight for the causes that Dr. King fought for throughout his life. There could be no better testament than to wage a vigorous fight against the economic injustice caused by predatory lending.
Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.firstname.lastname@example.org.