Payday lenders want to lure people of color into endless cycles of high interest debt. Traditional banks prefer whites as customers.
At least that’s what the university researchers concluded after reviewing the advertising and marketing materials for both industries.
In a soon-to-be-published article, researchers at the University of Houston set out to understand why blacks and Latinos make up a disproportionate percentage of customers for payday lenders and auto lenders. I got a glimpse of their work.
The researchers found that “while African Americans make up about 12% of the population of Texas, almost 35% of the photos on payday and lender websites were of African American models.”
“While Latinos make up less than 20% of payday and securities lending clients, over 30% of the photos were from Latino clients,” they found.
“On the flip side, in traditional banks almost 30% of websites didn’t have a single image of an African American model. Almost 75% of traditional banks did not show a single photo of a Latino individual. ”
The researchers said these findings are particularly noteworthy to come, as they do, months after the Black Lives Matter protests and in the midst of a nationwide campaign for greater diversity and social justice.
“Even after the outcry over racial injustice in 2020, banks have not significantly increased the representation of people of color on their websites,” they concluded. “This has to change.”
The article, which is expected to be published next month in Emory Law Review, does not innovate much. It has long been known that black and Latino clients represent a significant portion of the payday lender and auto securities market.
But this new research provides a statistical framework to help explain why this is the case – and the industry’s seemingly deliberate efforts to target people of color.
And while the results don’t necessarily portray the traditional banking industry as racist, they do indicate that more work needs to be done if banks are to diversify their customer base and, at the very least, be seen as inclusive in their marketing.
“Banks don’t think about it carefully enough,” Jim Hawkins, University of Houston law professor and co-author of the article, told me. “They are missing an opportunity to show the public that it is important to them.
Tiffany Penner, a sophomore law student and Hawkins co-author, said she was surprised faces on bank websites are so predominantly white.
“I expected to see more African Americans and Latinos,” she said. “Especially now.”
Hawkins said that while their research focused on Houston-area banks and Houston payday lender, the findings are applicable to major cities across the country.
“If traditional Houston banks under-represent people of color in their advertising, we’d be surprised if the data painted a better picture in other cities,” he told me.
A spokesperson for the American Bankers Assn. declined to comment. Consumer advocates, on the other hand, were quick to say the article’s findings were not surprising.
“It’s clear that payday lenders are targeting people of color,” said Marisabel Torres, California policy director at the Center for Responsible Lending.
She told me that her organization was troubled by “any idea that traditional banks are for white communities, while people who have historically fought for the security of the middle class are being offered predatory and stripped-down products. richness “.
Christine Hines, legislative director of Assn. consumer advocates echoed these concerns.
“The continued exploitation of minority communities with risky and expensive payday loan products is deepening the racial wealth gap that exists at a time when we should take urgent action to address it,” she said.
Infin, a trade group for payday lenders and auto title lenders, declined to comment on the document’s findings until they can be reviewed.
But Ed D’Alessio, the organization’s executive director, said in a statement that “the mission of the regulated consumer financial services industry is to ensure that all consumers have access to cost-effective financial services and credit options. and transparent “.
“Our members seek to engage their clients in a way that authentically represents and reflects their experiences and communities, which are as diverse as our country,” he said.
Annual interest rates for payday loans and auto securities can exceed 400%. Over 80% of these loans end up being knocked down in additional loans or followed in a few days by a new loan, according to the Office of Consumer Financial Protection.
Half of all payday and auto title loans result in 10 more loans to cover the original debt, the office estimates.
At best, these lenders offer credit to people who might have difficulty obtaining funds from a bank. At worst, they trap people in endless debt, making economic progress nearly impossible.
In their article, Hawkins and Penner argue that black and Latino consumers frequently turn to high-interest lenders, not only because it’s easier than applying for a bank loan, but also because businesses target aggressively these communities.
“Pushing African Americans and Latinos out of mainstream banking and into expensive, high-risk products creates second-class banking,” they say.
Hawkins and Penner told me they were in favor of changing the federal law Equal Credit Opportunity Act to explicitly ban discriminatory advertising. Currently, the law only deals with discrimination by creditors in general.
There is precedent for this change. Fair housing law prohibits any marketing “Which indicates a preference, limitation or discrimination on the basis of race, color, religion, sex, disability, marital status or national origin”.
Researchers are also asking the Consumer Financial Protection Bureau to request changes to its Regulation B, which prohibits discrimination in financial advertising by “any oral or written statement”.
They ask that Regulation B be amended so that it is “explicitly applicable to images in advertisements”.
These common sense changes shouldn’t be necessary. Businesses shouldn’t have to be told not to discriminate against anyone.
But the work of Hawkins and Penner indicates that, despite all the attention in recent months to equity and social justice, we still have a long way to go.