Are Payday Loans Harming Minorities?

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While some analysts argue that the federal government’s proposal to regulate payday loans is detrimental to consumers, a policy change may be needed to prevent communities of color from slipping into debt cycles, according to a report released Thursday by the LaRaza National Council.

The Center for Responsible Lending, in partnership with the council, analyzed a decade of data relating to Florida payday lending practices. These companies have collected $ 2.5 billion in fees since 2005, according to The report.

The publication of the study comes as the Consumer Finance Protection Office seeks to regulate these types of loans. In Florida, it’s an industry that makes more money every year. Fees in 2005 totaled $ 186.5 million, compared to $ 311 million collected by lenders last year.

Payday loan companies are mostly located in minority communities, according to the report. The center found that areas where minorities live are more than twice as likely to have a concentration of these stores. There were about 8.1 stores per 100,000 people in African American and Latin American communities, while predominantly white neighborhoods had a ratio of four to 100,000.

LaRaza National Council called the current system “a failure of a state law designed to limit the negative effects of these debt-trap lenders.”

Across the country, 12 million people take out payday loans each year, according to the Pew Charitable Trusts. These loans, usually small sums of money borrowed at a high interest rate, are meant to be repaid when borrowers receive their next paycheck. To qualify for a loan, borrowers need a checking account and proof of income. Lenders do not assess whether or not the borrower has the ability to repay the loan.

This is one of the areas of interest to the Consumer Finance Protection Bureau. He is considering laws that would require lenders to actually access a borrower’s ability to repay the loan or limit the number of loans a borrower can take out. The report found that 83 percent of borrowers in Florida make seven or more loans per year.

“For clients who find themselves in desperate or emergency situations, a payday loan can seem like a lifeline,” the advice wrote in its blog post. “The reality is that these lenders trap their clients in a never-ending cycle of debt.”

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