The Obama Administration recently took an important step towards reining in a predatory financial practice that has sucked massive amounts of wealth from the African-American community: payday loans.
This industry and its crooked cousins – such as title loans and online lenders – have pulled the classic “okie dokie” on the African-American community.
Industry lobbyists on Capitol Hill like to call their products “short-term credit instruments,” “consumer finance” or “small-dollar loans.”
But on the streets of black neighborhoods, their stores tout the promise of “E-Z” money, no-credit loans and “quik” cash.
Don’t be fooled: Nothing is “quik” or “E-Z” about these neon-lit loan sharks.
The lure of payday loans can be difficult to resist. Many of us have been there. Money is tight. The car won’t start. Christmas is coming. The cupboard is bare. Payday lenders exploit these vulnerabilities, hooking consumers into a cycle of debt from which they may never recover.
Shouldering the interest on just one payday loan is bad enough – for a two-week loan, the interest rate (APR) can equal something like 400 percent. (Car and home loans from an established lender are typically between 3 and 6 percent.)
Payday lenders, though, aren’t happy selling just one exorbitant loan to their customers: They encourage borrowers to take out multiple loans, a practice they call “rolling over” debt.
This is where the vicious debt cycle grinds into high gear. Customers payoff loans with another loan. Pretty soon, they are paying only the sky-high interest rate – they can’t even begin to pay off the original loan amount because the fees are so outlandish.
Their credit in tatters, they can’t land a job or borrow from a traditional bank – so they have to go right back to the payday lender.
This doesn’t happen in affluent white communities. There is no “King of Kash” in Frontenac.
Regulations proposed by the Obama Administration attempt to curb some of these abuses. The new law will require payday lenders to make sure customers have the ability to repay the money they are borrowing.
It’s a small step, but one the industry’s allies in Washington are sure to fight.
Payday lenders have pushed legislation that would weaken the Consumer Financial Protection Bureau – the watchdog agency created in the wake of the 2008 fiscal crisis – by switching its leadership from a strong director to a muddled commission, whose members would be subject to a lengthy confirmation process.
Republicans also sought to derail a Justice Department crackdown on online lenders that were taking money directly out of customers’ bank accounts, without their knowledge or authorization.
That’s why it is more important than ever we elect lawmakers who will stand up to these financial charlatans, and remember that the millions in campaign donations they spread around Capitol Hill come from the pockets of those who have fallen prey to their unscrupulous practices.
When we marched in Ferguson almost two years ago, it was about more than one white police officer killing an unarmed black teenager. It was about a system of oppression that undermines the ability of African Americans to get ahead – to pursue economic opportunity and achieve financial independence.
Black lives matter, black bodies matter —and so do black bank accounts.
State Sen. Maria Chappelle-Nadal’s district includes University City, Ferguson and Berkeley. She is also a candidate for Congress in Missouri’s 1st Congressional District.
