By Sabrina Lynch
- African Americans are 2x as likely to take out a payday loan than other ethnicities
- Black families carry debt-to-income ratios greater than 40%
Many cash strapped minorities are being thrown back into the lion’s den as the prior Trump Administration looks to roll back consumer protections against predatory payday loans. The Consumer Financial Protection Bureau (CFPB) wants to rescind regulation that requires lenders to confirm if borrowers can afford to pay back their high interest rate loans.
Why This Matters: Rolling back Obama-era restrictions could create harmful barriers for Black communities working to close the racial wealth gap. Given the average household wealth of African Americans is $17,600 less than 15% of white households, they are twice as likely to take out a payday loan than other ethnic groups.
African Americans are twice as likely to take out a payday loan than other ethnic groups
U.S. Consumers borrow $90 billion every year in short-term small dollar loans. It’s easy to see how this type of installment lending has evolved into a profitable juggernaut, with revenue jumping from $4.3 million to $6.5 million over a four-year period. These lenders can command interest rates north of 900%.
The framework of the rule, that’s now being tossed out the window, provided a basis for evaluating the ability of customers to pay back what they borrow and reversing it would tip the scales in favor of economic inequality. Nearly 24% of African Americans are already struggling with aspects of their financial lives and allowing predatory banking of this nature to continue would disproportionately impact millions of minorities.
Situational Awareness: In order for minorities to financially thrive, there needs to be a fight from Watchdog groups to remind the CFPB why it was established in the first place, regulating practices that would purposely keep Americans in a vicious cycle of debt. So far 16 states have already banned payday loans.
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