Payday loans have long been a topic of controversy and scrutiny. Now, some statistics indicate that payday loan lenders may bear part of the burden in driving the racial wealth gap.
According to The Cap Times in Madison, Wisconsin, nationally the typical white family has approximately $131,000 more in net worth than the average black family. Likewise, only 44 percent of Americans have less than three months worth of income in savings, while 67 percent of blacks and 71 percent of Hispanics have minimal savings.
Even more staggering is that in Wisconsin, the median household income for whites is $53,000, while the median household income for black families is only around $26,000. So, what does that have to do with payday loans and payday loan scams?
Paul Kiel, a ProPublica reporter, has reported that three times as many blacks as whites resort to taking out high-interest rate payday loans, further contributing to a major racial wealth gap.
Kiel says, “Desperate consumers turn to these loans as a way to catch up on bills, but often get tripped up by unaffordable interest payments.”
Similarly, Black Enterprise cited a study that found nearly 42 percent of Millennials surveyed took out a payday loan, title loan, used a pawn shop, or purchased a rent-to-own product within the past five years.
In an industry that’s notorious for charging interest rates upwards of 500 percent or more, these statistics are startling. Sadly, not much has been done in the way of payday loan regulation, despite a major need for overhaul in the industry.
Some states have voted on legislation regarding the payday lending industry, but more reform is clearly needed. In South Dakota, the issue of putting a 36 percent cap on payday loan interest rates is being put on the voting ballot, but not without resistance from the payday lenders themselves. According to Keloland Television, the payday lenders argue that such a measure would kill their business.
In the meantime, what can consumers do to avoid falling prey to payday loan scams? And how can the ever-increasing racial wealth gap between black and white communities be minimized?
“Everyone is pushing a boulder up a steep hill, but for African-American and Latino families it’s a much steeper climb,” said Jeremie Greer, the vice president of policy research at the Corporation for Enterprise Development in Washington, D.C.. He said, those families “are less financially secure than they’ve ever been.”
“It’s sobering because it just shows the kind of shoestring that everyone is living on.”
At least part of the problem may be linked to the fact that a larger percentage of blacks and Hispanics live in large cities such as Washington, D.C., New York, and Los Angeles; which tend to have less affordable housing and over-inflated rental prices.
As far as avoiding payday loans, financial experts suggest to work diligently on paying down long term debt and saving a rainy day fund.
Writer and financial expert Stacey Tisdale wrote this suggestion for Millennials and minorities trying to save money.
“As far as debt reduction, focus on intentionally paying off one bill at a time, of course while staying current (paying the minimum) on all other bills. Once that particular bill is paid off, take the monthly amount you are accustomed to paying and add that amount to the next bill. Essentially it’s a snowball effect.”
In addition, alway use common sense when searching for a lender, and never give your personal information or money upfront to a company you don’t know.
Hopefully someday in the near future payday loans won’t be so predatory on minorities and Millennials who are already laden with student loan debt and increasing rent prices.
[Photo credit: Getty Images/Richard Nowitz]