(NNPA) – Despite several laws designed to ensure equality, when it comes to access to fair credit, being black in America still imposes an undeniable financial burden. Whether shopping for groceries, a car, a home, or insurance, African Americans often pay what should be illegal mark-ups.
Moreover, a range of predatory products such as payday lenders, pawn shops and auto title loans are often more visible than any other retail operation.
According to Center for Responsible Lending research, each year, $5 billion is taken from the pockets of working families to pay for interest on loans from one of 24,000 payday lenders now in operation. (This figure surpasses the number of McDonald’s or Burger King Restaurants nationwide.) The average payday borrower has nine repeat loans per year, which means he or she pays $450 in interest on a $300 loan.
In a recent edition of the NAACP’s Crisis Magazine, Keith Corbett, executive vice-president for the Center for Responsible Lending (CRL), put payday lending a historical context.
“I think payday lending is the Jim Crow issue of our time” said Corbett. “The payday lenders come in, and they charge the minimum of 400 percent interest. They borrow money from banks at cheap rates, then they loan it to people in the community at really high rates.”
The irony is that despite 17 states and the District of Columbia having enacted double-digit interest rate caps, the payday industry continues to find ways to evade state laws and continue its predatory lending – even in the face of resounding voter mandates to the contrary.
For example, in 2008 voters in two states from different regions and distinctly different populations – Arizona and Ohio – rejected payday lending by wide margins. Yet in 2010, payday lending remains a contentious issue in both states due to the industry’s efforts to circumvent laws.
This year in Arizona, the payday industry-sponsored bills in both chambers. Neither version gained enough support to pass out of committee. As a result, state advocates celebrated the pro-consumer victory but quickly pledged to remain watchful even as the July 1, 2010 sunset took effect.
According to Bishop Henry L. Barnwell, pastor emeritus of First New Life Baptist Church in Phoenix, “It was a people’s victory, supported and fought on moral high ground. It was a victory supported by several members of the Valley’s clergy, who spoke to the immorality of 400 percent interest rates.”
Bishop Barnwell’s sentiments mirror those that Ohio consumer advocates face. Despite a 2-1 voter mandate in 2008 against payday where voters said no to payday lending, payday lenders continue doing business as usual by posing as check cashers and loan brokers.
Ohio’s HB 486 was crafted to close the loopholes in the law. If enacted, HB 486 would stop predatory payday lending and restore the intent and will of the Ohio General Assembly and the Ohio voter.
On May 12, HB 486, the Small Loan Consumer Protection Act, passed the Ohio House 61-37 with bipartisan support. Yet it is still stalled in the Senate Insurance, Commerce and Labor Committee and will have to wait until full-time legislators return from their summer recess. Beyond these two states, several others this year also addressed payday lending.
Maryland Governor Martin O’Malley signed legislation that cracked down on payday lenders’ attempt to act as “credit repair” agencies. These lenders were charging over 600 percent annual interest, far in excess of Maryland’s legal limit of 33 percent.
In Colorado, Governor Bill Ritter recently signed a bill that takes effect August 11 and will reduce the total costs of payday loans in Colorado by two-thirds. The new law also extends the amount of time a borrower has to pay back the loan to at least six months.
When Wisconsin Governor Jim Doyle received a bill that offered no rate cap protection for payday lending, he used his unique veto authority to effectively ban auto title lending and significantly strengthen an otherwise weak bill.
Real financial reform will only occur when legislation and regulation is available at both the state and federal levels of government. In the meantime, states are well-poised to enact legislation that addresses the core abuse of payday products.
According to Hilary Shelton, NAACP Senior Vice-President for Advocacy, “The answer, really, is usury caps. You have to limit the amount of the annual percentage rate. There are states that cap the APR at 36 percent, which is the amount charged to members of the military.”
Charlene Crowell is the Center for Responsible Lending’s communications manager for State Policy and Outreach. She can be reached at: Charlene.crowell@responsiblelending.org.
