At one time or another, we’ve all had to pinch pennies to make ends meet. But for some households – too many of them minority households – access to credit when times are particularly tight can mean the difference between putting food on their table and watching their family go hungry.
Millions of Americans across the country have been helped by short-term lending to deal with periodic, unexpected expenses. Short-term lenders are important and valued members of our community, and their services support Americans who turn to short-term credit when their electric bill comes in higher than they expected – often the case in Arizona during the summer months – or when their car breaks down. Without access to short-term credit, many of these households must weigh incurring overdraft fees on their checking accounts that put them even further in the hole or face desperate decisions about healthcare, necessary repairs or childcare.
I am the president of Humanity Organized Promoting Equality (HOPE), a group formed in the advocacy tradition of the Rev. Martin Luther King, Jr. HOPE, like Operation PUSH and NAN before it, works to protect, defend and gain civil rights by leveling the economic and educational playing fields and, in effect, to give a voice to the voiceless. The responsibility of serving underprivileged citizens has shown me the difference that access to short-term credit makes in their lives. In Arizona, one of 18 states that currently prohibit some forms of short-term lending, I have also seen the detrimental effects that lack of access to short-term credit can have on disadvantaged minority populations that have systemically, historically and continually, been discriminated against on the basis of race by major banks. Settlements for discrimination by traditional banks against people of color seeking short-term unsecured or signature loans, this year alone, have already reached the 9-figure mark.
A 2009 FDIC survey found that minority populations are more likely to be under-banked or lack access to the type of banking services as the average American family. According to the survey, 31.6 percent of African-Americans and 24 percent of Latinos are under-banked, compared to 14.9 percent of white Americans. The same survey conducted in 2011 showed that 65 percent of under-banked households had used nonbank alternative financial services – including small dollar loans, money transmittal, cash checking and prepaid cards – in the past year because of their lack of access to the same quality of banking services available to average households. Why hasn’t Congress or consumer advocacy groups addressed the driving forces behind this lack of access? Could it be that they are satisfied with the headlines that result from the “fine and forget” model. Headlines don’t fix cars, they aren’t babysitters, they won’t regulate blood-pressure, and you certainly can’t eat them. Until substantive programs are in place guaranteeing equal access to all, we must expand and encourage other lending models that open the doors to lines of credit and other products that minorities cannot currently access and that other’s take for granted.
But the Consumer Financial Protection Bureau (CFPB) has released proposals that would impose crippling federal regulations on the short-term lending industry nationwide and cause many lenders to go out of business. If these far-reaching proposals were enacted, studies show that more than 80 percent of short-term lenders – largely small businesses around which their owners have built their lives – would be forced to shut down and lay off employees. Employees who themselves use the product they provide and who themselves are people of color that reside in communities serviced by short-term lenders and not, intentionally, by traditional banks.
In addition to the damage that these regulations would cause to small businesses across the country, these restrictions would also leave people who rely on their services with nowhere to turn. Research has shown that individual and family finances suffer when they are left without access to short-term credit. If the federal government takes away this crucial service, those who need it most may be forced to turn to unregulated online lenders or other unscrupulous sources, where they risk coercion, identity theft or worse. We must give responsible borrowers of color options. It is both cruel and unusual to limit their ability to access credit when discrimination is so frequently exposed and so regularly punished – but not remedied by meaningful reforms – in our banking system.
By deciding to attack short-term lenders rather than addressing real problems impacting the financial lives of all Americans, such as the continued red-lining of minorities and double-standards for people of color applying for signature or unsecured loans that have resulted in innumerable and embarrassing of multi-million dollar fines levied against large traditional banks, the CFPB has made it clear that they aren’t listening to those who have actually grown to appreciate the benefits of short-term loans. In fact, borrowers are overwhelmingly satisfied, and less than 1.5 percent of complaints received by CFPB have been about payday lending products. If the CFPB truly wants to live up to its name and protect consumers, it would focus its efforts on products that actually need reform rather than those that make Americans happy.
Last week, when CFPB Administrator Richard Cordray testified in front of Congress, he stated that these “reasonable interventions” are necessary because some Americans are taking out “8 to 12 loans per cycle.” That couldn’t be further from what is actually and reasonably needed with respect to financial reforms. The “reasonable” thing for government bureaucrats in Washington, D.C. to do is not to construct roadblocks that prevent ordinary Americans from accessing the credit on which they rely. It is to reform traditional banking by enacting policies that eliminate and punish racism and the two-tiered systems for issuing signature and unsecured loans. Until that is done, how can we justifiably limit options for people of color seeking to participate in the credit-lending market? The citizens of Phoenix, Salt Lake City, Denver, Los Angeles and other cities and towns across the country know what is best for them, and it’s time for Cordray and his colleagues to start listening to them.
– The Rev. Jarrett Barton Maupin Jr. is the president of the civil rights organization Humanity Organized Promoting Equality (HOPE), pastor of the historic Fellowship Baptist Church, and a former Democratic candidate for the U.S. House of Representatives.