This week, representatives from more than 20 states are in Washington, D.C., for Faith & Credit Advocacy Days, an effort to launch a collective initiative by faith, financial reform, and consumer protection groups to support strong action on payday lending by the Consumer Financial Protection Bureau (CFPB).
Civil rights groups also want stronger regulation of the industry. At its annual meeting in December 2013, The Leadership Conference on Civil and Human Rights voted unanimously for a resolution urging states, Congress, and federal agencies to increase regulatory oversight and enforcement of payday lenders.
Why does the civil and human rights community care?
As the resolution notes, payday lending is similar to other discriminatory financial practices – like redlining and predatory mortgage schemes – that target minority and low-income communities. Payday loans can provide a quick route for consumers who may otherwise not qualify, but many must be fully repaid in a short period of time. In fact, payment is often due when the borrower is next paid, and many lenders require advance access to borrowers’ checking accounts.
According to a CFPB report released last year, this repayment structure and lack of underwriting creates for many consumers a cycle of indebtedness. “To the extent these products are marketed as a short-term obligation,” the report says, “some consumers may misunderstand the costs and risks, particularly those associated with repeat borrowing.”
The Center for Responsible Lending, which organized this week’s activity, notes that these consumers are disproportionately African American and Latino, and found in a 2009 study in California that “Payday lenders are nearly eight times as concentrated in neighborhoods with the largest shares of African Americans and Latinos as compared to white neighborhoods, draining nearly $247 million in fees per year from these communities.”
Last month, The Leadership Conference joined more than 450 groups in signing on to a letter urging the CFPB to stop the payday loan debt trap. “Beyond the research, all one needs to do is travel a street in a low-income community or community of color to witness the strikingly high concentration of payday and high-cost lenders,” the letter says. “Additionally, these loans are particularly devastating to individuals with a fixed-income, such as seniors on retirement or Social Security Income.”
Starting this week during Faith & Credit Advocacy Days, advocates are using the hashtag #StopTheDebtTrap to begin an online conversation around payday lending issues. To learn more about payday lending, visit Center for Responsible Lending’s resource page here.