Payday loans strip wealth from communities of color


Center for Responsible Lending
October 2, 2008

Prop 200 will entrench an industry that preys on Arizona's working families

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As Arizona citizens consider a measure the payday lending industry, based out of state, has paid to put on the ballot this November and spent millions marketing, they should know the facts about Proposition 200 and payday lending, say national experts and state advocates. A new report from the Center for Responsible Lending sheds some light on the measure and its expected impact.

First, Prop 200 offers no reform of the predatory practice of payday lending. Second, it would, in fact, make 400 percent interest legal in the state indefinitely, canceling the real reform scheduled for 2010. And third, payday loans by their nature target people who need cash before their next paycheck and trap them in a cycle of long-term debt. This means that members of communities with historically low levels of savings and wealth are vulnerable to being caught in this trap, and those communities risk further shrinking of resources as a result of the predatory lenders clustering in their neighborhoods.

"Payday lending has always been about reverse redlining," said Keith Corbett, executive vice president. "Once lenders avoided our communities altogether, now they set up shop on every corner and try to pass themselves off as legitimate, while they're skimming the cream off the top of their customers' paychecks every week. With no way out for the borrower except default."

Studies in several states show payday lending impacts people of color disproportionately. In Arizona, where the Latino population is now near 30 percent, this is a problem that is vital to the community.

"The national economy is facing collapse largely because of predatory loans that consumers could not pay back," said Aracely Panameño, director of Latino Affairs at the Center for Responsible Lending. "It is immoral to take advantage of our most vulnerable communities in these times of need. Arizonans can put a quick stop to this form of predatory lending in their state by voting No on Prop 200."

Dozens of individuals, elected officials, business, civic and religious organizations have joined the fight to defeat Prop 200. Bishop Henry Barnwell is a leader in the United Against Usury Action starting this weekend at faith communities around the state, where faith leaders will correct the deceptive marketing messages of the industry and ask their members to Vote No on 200.

"This practice is of grave concern to all of us," said Barnwell. "But for communities who have long faced obstacles to building financial self-sufficiency, this is a scourge in our neighborhoods. We want predatory lenders to know, we are on to you, and we will vote No on Prop 200."

AARP has also worked to defeat the proposition, as older Americans on a fixed income can find it impossible to escape the payday lending debt trap.

"In the past, a lender would not make a loan unless they had a pretty good idea that the borrower could pay it back," said Lupe Solis of AARP Arizona. "But these payday loans turn that idea on its head; they are made to customers who the lenders know can't afford them.

For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; or Carol Hammerstein, 919-313-8518 or carol.hammerstein@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.