Targeting Borrowers of Color Only Widens the Racial Wealth Gap

The California Department of Business Oversight (DBO) published a new research report this week that shows payday loan stores in the state are disproportionately located in heavily African American and Latino neighborhoods (PDF). Combined, African Americans and Latinos make up almost 44% of the state's total population--and in those communities, on average, nearly 60% had six or more payday loan stores compared to white communities at 28%.

DBO's research reflects a 2009 report by the Center for Responsible Lending (CRL) that shows even after controlling for income and a variety of other factors, payday lenders are 2.4 times more concentrated in African American and Latino communities.

CRL California Policy Director Graciela Aponte-Diaz released the following statement:

Targeting borrowers of color only widens the racial wealth gap and strips wealth opportunities for families. In California, payday lenders can charge up to 459% APR, and more than 76% of payday loans in the state are due to repeat reborrowing. These high cost loans too often result in bank penalty fees, checking account closures, damaged credit, and even bankruptcy, which prevents future access to affordable and safe loans needed for emergencies, tuition expenses, or a home purchase.

CRL applauds the DBO for further bringing to light the effect of payday lending on California's communities and for its interest in using its authority to protect consumers from harmful payday loan practices. We urge the agency to move forward with its proposed rulemaking so that payday loan laws can prohibit lenders from seizing money, electronically, from people's bank account.

If we truly want to tackle this problem head on and create an environment that doesn't strip away wealth-building opportunities for families of color, then California lawmakers must work together to adopt a 36% APR cap on payday loans. It's the most effective way to stop the wealth drain in our communities.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at