Race’s Role in Predatory Payday Lending

What does it take to do business?  A degree, some understanding of balance sheets, and a little innovation are a good start.  But what if you want to do business with integrity, ethics, and justice?  Then you’re going to need to learn your history.  I’m not suggesting that an M.B.A. require a course on 14th century Russian agricultural practices.  What I am suggesting is that we must have a basic desire to understand our own contexts.  For America, this means (among many other things) having an appreciation for the role that race has played in our country from the very beginning.  It is not too much to say that race has affected every facet of our lives.  This history raises our awareness so that we begin to anticipate its effects.

One of the most egregious couplings of harmful business practices and racial predation in the United States is found in the payday loan industry. With average interest rates of 395 percent on a two-week loan, the industry is notorious for extending loans regardless of a borrowers’ ability to repay. This frequently traps borrowers in a horrible cycle of debt. In states like Missouri, where there is an astonishing rate cap of 1,950 percent APR, there are more payday loan storefronts than McDonald’s, Starbucks, and Walmarts combined. But closer examination reveals that payday loan storefronts are not randomly scattered throughout cities and states. They are heavily concentrated in poor communities, and in particular, poor communities of color.

According to a Pew Charitable Trusts report on payday lending in America, African Americans are 105 times more likely to take out a payday loan than other races or ethnicities. Further, 12 percent of African Americans have reported taking out a payday loan, compared to four percent of white Americans.

In another study, researchers looked at the concentration of payday lending in North Carolina. And the findings of the 2005“Race Matters: The Concentration of Payday Lenders in African-American Neighborhoods in North Carolina” report were painfully clear: race is a major factor in the location of payday loan storefronts.  Researchers found a strong correlation between the location of payday lenders and the percentage of black citizens in a given area.  Of course, the location of these lenders is linked to many other factors as well.  The industry would likely claim that it is based solely on the demands of the market.  But even when the research team controlled for significant factors such as population density, income, and homeownership; race still played a measurable role.  In other words, a mostly black neighborhood is more likely to have payday lenders than a mostly white neighborhood even when income, density, and homeownership are the same

“While the payday lending industry frequently describes its typical customer in detail, discussion of the role of race is noticeably absent. This report helps correct that omission,” the report explains.  Of course the industry will not say that race is a factor.  It certainly will not say that it targets people of a certain race.  But their locations suggest otherwise.  Consumers have very little reason to trust them anyway.  They also claim that they do not rely upon a cycle of customer debt – a debt trap.  And that is a lie

This disparity between races makes some sense when we consider the alarming growth of the racial wealth gap.  Even as the income gap has remained steady, the wealth gap has only increased.  Payday loans are marketed for those who need a quick fix, for those who do not have the safety net of wealth. We should be scandalized by the growing wealth gap and the strong racial correlation in payday lending. 

Perhaps we are surprised that there is a huge wealth gap. Maybe we are also surprised that a predatory product like a payday loan is offered more aggressively to black neighborhoods. This surprise is a symptom of a larger problem in our culture.  Too often we believe that we don’t have to understand the history of racial discrimination in our financial services.  We foolishly believe that we are totally free from that history, and that is doesn’t infect our present.  But this kind of injustice is nothing new and it haunts us still.

We should not be surprised.  We should be aware.

We should not be apathetic.  We should get to work. 

If we do nothing about this then we are saying that it is unavoidable or even acceptable.  And that is unacceptable.  Even if this racial disparity is proved to be the work of “market forces” then should we not have the will to change the market?  The market is vulnerable to our racialized history.  And the market should be subject to the demands of justice.  The Center for Public Justice affirms that “the market itself is part of the public domain” and“market economies exist as part of complex societies…”  The market is not sacrosanct or neutral.  It is in need of tending.  It is in need of weeding. 

Too often we believe that we don’t have to understand the history of racial discrimination in our financial services.

When predatory lenders are allowed to target a particular community, and when our history shows us how that community has been systematically taken advantage of, then government is not fulfilling its role to uphold public justice. There is an opportunity.  There is an opportunity for communities to call their government to fulfill its role to do justice in protecting the vulnerable. There is an opportunity for government to step into its higher calling of ensuring the welfare of its citizens and the economic flourishing of local communities. Meaningful consequences, laws, and regulations need to be set in place to change these patterns. Only Congress has the ability to enact a national rate cap that would reign in the predatory practices of lenders. However, many states have already enacted legislation or restrictions on the industry. Currently 16 states and the District of Columbia have effectively ended the debt trap by imposing, in most cases, a 36 percent APR.  But that leaves many states either loosely regulated, or not at all. It’s important to note that legislators have already agreed that this industry cannot prey on our military personnel. In 2006 Congress passed the Military Lending Act, ensuring that active duty members of the military cannot be charged more than 36 percent interest on a payday loan.

It is telling that our laws consider these loans unethical for a certain segment of the population, but not for others that are targeted.  We don’t want payday lenders proliferating (as they have) around military bases.  But why, in many states, can they exploit poor neighborhoods of color?  The question is convicting.  Or down right sickening. 

And we are already moved by this.  In one study, Christians chose words to describe these loans. The top three responses were “expensive,” “harmful,” and “predatory.” 94% agreed that lenders should take into account the borrower’s ability to repay. Christians have voiced their opposition to many of the aspects of payday lending. But are we moved to action? 

Christians are called not only to do the work of dismantling racist systems, but to be the joyful builders of just enterprises.  A quick analysis  of the history of racial discrimination in the loan business can totally reframe the way we create, market, and implement financial products.  What would it look like for a great wave of ethical lenders to spring up in place of these payday loans?  It would be an answer to so many prayers. So now is the time to contact your lawmakers. Learn what the lending regulations are in your state. Do a survey of your area to simply notice how many of these businesses there are and where they are located. See how you can partner with a group like Faith for Just Lending . Teach your church or small group about this issue. Find out if your denomination is already coordinating an effort. Start a cohort of like-minded business leaders who will gather and pray about how they can leverage their skills. There are resources available. And, as always, dig deep into the story of scripture to inspire your vision.

Micah 4 is known for its gorgeous vision of a world where the nations “beat their swords into plowshares.”  But less well known is the image that follows: 

Everyone will sit under their own vine

and under their own fig tree,

and no one will make them afraid,

for the Lord Almighty has spoken.

This is an image of peace.  Not just the absence of war, but economic justice.  God’s gracious rule brings such trust and stability that each community will have what they need and to reap the fruit of their labor.  This vision does not imagine the absence of work.  Plowshares are serious tools and vines take a great deal of tending.  But it boldly imagines that each person will have the security to rest and enjoy what they grow.  They do not have to fear that it will be taken from them. 

This kind of trust has been broken.  It has often eluded us as a nation.  We lack the assurance that the public square is seeking the peace and security of our most vulnerable, that it cares enough to rectify racial injustice.  Yet it is a vision of trust that is worth passionately pursuing with God’s help.  Are we ready to get to work?

-Dan Carter is a husband, father, neighbor, reader, runner, and Senior Pastor of Calvary on 8th St. located in Holland, MI.  www.calvaryreformedholland.org