One Way We Can Help Narrow the Expanding Racial Wealth Gap

On Friday, Pew Research Center released data showing that, since the end of the Great Recession, the racial wealth gap has only gotten larger. In 2013, White households had 13 times the median wealth of Black households and 10 times the median wealth of Hispanic households – both which are higher than 2010 levels.

As Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, noted earlier this year writing for Spotlight on Poverty, payday lending regulation can contribute to narrowing that gap. According to Henderson,

“This broadening wealth gap can be attributed in no small part to predatory payday lending activity that disproportionately – and aggressively – targets minority communities. Payday loans alluringly, and often deceptively, provide a quick route to credit for consumers who might not qualify otherwise. However, they must be fully repaid in a very short period of time – often on the borrower’s next payday. This repayment structure and the lack of underwriting for affordability for the loan contributes to a hopeless cycle of indebtedness, causing borrowers to pay more in fees alone than the amount they borrowed and forcing them into even more dire financial situations. In turn, many payday loan borrowers struggle to afford necessities like food, healthcare, and education – leaving them at risk of bankruptcy and deeper levels of poverty.”

The Leadership Conference at its annual meeting in December 2013 unanimously approved a resolution urging states, Congress, and federal agencies to increase regulatory oversight and enforcement of payday lenders, and in October 2014 signed on to a letter with more than 450 other groups urging the Consumer Financial Protection Bureau (CFPB) to stop the payday loan debt trap.

As the letter states, “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. Additionally, these loans are particularly devastating to individuals with a fixed-income, such as seniors on retirement or Social Security Income.”

The CFPB’s upcoming payday lending rule, expected in early 2015, could stop this debt trap and – in the process – help to narrow our nation’s already alarming, but still expanding racial wealth gap.