Britton Loftin
+ FollowPredatory Lending: Targeting Minority Neighborhoods
The prevailing thought among people in urban areas is that unfair and deceptive lending practices are prevalent in minority neighborhoods. Lenders coerce and persuade targeted minorities to agree to unfair loan conditions. A Center for Responsible Lending Study estimates that almost $25 Billion dollars is generated yearly from predatory lending practices.
Many such institutions often impose excessive fees and offer extremely high-risk based pricing. They may also suggest credit insurance and fail to clearly disclose terms and conditions of the loan agreement.
According to Immergluck and Wiles, “the financial institutions that do exist in minority areas are likely to be predatory—for example, pawn shops, payday lenders, and check cashing services that charge high fees and usurious rates of interest—so that minority group members are accustomed to exploitation and frequently unaware that better services are available elsewhere.”
A recent study by the American Sociological Review suggests that predatory lending does not only occur in the small cash lending locations of American communities which charge high interest rates, but also with larger mortgage companies. It’s no secret how terrible sub-prime mortgages were during the past and present foreclosure crisis in states like Michigan and Arizona.
In order for a loan to be classified as sub-prime, the loan agreement originated when the borrower’s FICO score was below 640. Other factors such as auto loans and credit card accounts are considered in determining the sub-prime loan status. Sub-prime mortgages rose from 2% to 18% in minority neighborhoods from 1993-2000, according to the American Sociological Review. The Review concluded that “Hispanic and black home owners, not to mention entire Hispanic and black neighborhoods, bore the brunt of the foreclosure crisis.”
In a fact sheet on loan discrimination, the NAACP states, “subprime lending is five times more prevalent in African American than white neighborhoods.”
The U.S. Department of Housing and Urban Development provides on its website that “in upper-income African-American neighborhoods one is one-and-a-half times as likely to have a subprime loan as persons in low-income white neighborhoods.”
Organizations like AARP, NAACP, and ACORN advocate for policies that stop predatory lending. ACORN targeted H&R Block and HSBC for their predatory lending policies, forcing them to change their lending practices.
One of the larger lenders, Wells Fargo, is being sued by four former employees for engaging in discriminatory lending practices. One employee said the company’s thought process when dealing with African Americans was to target them for sub-prime loans because they were “less sophisticated and intelligent and could be manipulated more easily into a sub-prime loan.” She also says elderly African Americans were “thought to be particularly vulnerable and were often targeted for subprime loans with high interest rates.”
On the other side of the coin, the National Home Equity Mortgage Association, states that what is considered “predatory” is actually “risk-based pricing.”
In either case, as the country struggles back from economic downturn, communities of color still remain vulnerable in the wake of longstanding predatory lending practices.
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4 Responses to Predatory Lending: Targeting Minority Neighborhoods
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Pingback: Anonymous
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These places are pretty disgusting. If you can't help but get a payday loan, by all means do not use the services of W. Allan Jones, owner of Check Into Cash.
Why? Just read this terrible article about him by Gary Rivkin and decide for yourself:
http://www.huffingtonpost.com/gary-rivlin/portrai…
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Pawnbroking is the oldest form of consumer credit. It is also the only form of consumer credit that does not create debt. Predatory? Think again. It is actually a lifesaver for many consumers, especially in this economy.