New Report Suggests Payday Lenders Choose African-American Neighborhoods

DURHAM, N.C. – A new report has suggested that where payday lenders set up shop may be as much a race issue as a financial one. The Center For Responsible Lending, a subsidiary of the Durham based Community for Self Help, researched the report which charges that African-American neighborhoods in North Carolina are three times more likely than non-African-American neighborhoods to have payday lending stores. “This study shows in the starkest terms that African-American neighborhoods bear the brunt of predatory payday loans – loans that are not even legal in North Carolina,” said Mark Pearce, CRL president. “This confirms that the abusive loans made by payday lenders are not just an issue of fair and responsible lending, but are a civil rights issue as well.” The Center, which is a subsidiary of the same organization affiliated with the $195 million Self Help Credit Union, found that there were more than 385 payday lending outlets in North Carolina, all of whom exist through an arrangement with a bank based outside the state. The increased numbers of payday lenders among African-American neighborhoods existed even when the researchers controlled for the neighborhood characteristics of income, homeownership, poverty, unemployment rate, urban location, age, education, share of households with children, and gender. The Center charged that while the payday loan industry says it makes these loans primarily for emergency reasons, most of the loans in fact go to individuals who are “trapped in a cycle of debt.” “The reality is that these loans are gateways to further indebtedness, not bridges across a rough time on the way to greater financial independence,” Pearce said. He contrasted payday lenders’ loans with payday loan alternatives offered by credit unions and finance companies which offer longer repayment terms and which were not so easily renewed. “If payday lenders were really serious about helping consumers meet financial emergencies the loans would carry longer terms,” Pearce said. “A family might recover from an emergency in 90 days, but who can recover from a financial emergency in two weeks?” The CRL included the account of Stephanie Singleton, a worker in hospital administration in Charlotte, North Carolina and mother of two. Singleton had needed $500 to meet an emergency car repair bill and soon found herself paying $800 per month in just interest payments and fees on a number of payday loans. “I was paying the fees, but still coming up short on bills. So I got a loan from another lender just to pay the fees on my other loans,” Singleton told reporters attending a press conference called by the CRL. “I ended up with several loans from different payday lenders, struggling to pay the interest every two weeks so I wouldn’t default, because if I did they would have passed my check to the bank.” Singleton said that all her payday lenders had been in African-American neighborhoods and said their location had contributed to her decision to use them. Her experience appeared to violate the industry’s “best practice” standard which limits the numbers of times a person can “roll over” a payday loan (continue from pay period to pay period) to no more than four times. Lyndsey Medsker, a spokesman for the Community Financial Services of America, an industry trade group representing payday lenders, said that the best practices of the industry were difficult to uphold if a borrower used more than one payday lender. She also contended that the vast majority of the industry’s customers “borrowed responsibly.” She said that the CFSA was still studying the research underpinning the CRL study but argued that the claims should be viewed skeptically. “This is an organization which is on the record as trying to shut down this industry,” Medsker said, “I don’t believe they can conduct unbiased research.” She pointed out that the industry believes that only 296 payday lenders operate in the state, based upon the number who the industry group knows have agent relationships with banks, not the 385 that CRL alleged. The discrepancy, Medsker said, may have arisen from CRL counting check cashers as payday lenders, an oversight she said that CRL had made in the past. [email protected].