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After the death of her daughter, Wanda Hopkins was forced to take out a payday loan to cover some of the funeral costs and bills that were left when her daughter passed away. It took her 7 years to repay that initial $300 loan which set her on a financial spiral that has been nearly impossible to recover from.

Sadly, Wanda’s story is not an isolated case according to a report recently released by National People’s Action: “Credit Segregation.” Wanda Hopkins is the prime target for predatory payday lending shops since she is African American and lives in Chicago’s inner city. Alarmingly, the report shows that communities of color are targeted at three times the rate by payday lending shops, leaving them with less access to credit and trapping them in a vicious cycle of long-term debt at high interest rates. The report also revealed that neighborhoods in major U.S. Midwestern cities with relatively large populations of African Americans or Latinos have on average two payday lending locations within one mile and six payday lenders within two miles. By comparison, predominately White communities on average have only two payday lenders within two miles.

Since the mortgage meltdown big banks have pulled back from lending to communities of color, creating credit have and credit have-nots, leaving the people they bankrupted credit unworthy. That was the case with Wanda, who approached the bank where she had banked the past 18 years but was turned down for a small loan. That same bank, incidentally, is known to bankroll payday lenders. Like many others Wanda was left with no recourse but to turn to a high-interest loan at a payday lender. That is just what she did – drove less than 5 minutes to her nearest payday lending shop where she was given a loan for $300 at a 400% interest rate to cover her immediate and short-term debt.

Unfortunately, instead of providing viable borrowing solutions for Americans, the nation’s major banks and TARP recipients, including Wells Fargo and Bank of America contribute to the credit crisis in communities of color. They fund approximately 38% of the payday lending operations in the Midwest study area, according to the report from National People’s Action. Furthermore, the research reveals that the nation's four major banks made 60% more refinance loans to White homeowners, while they extended 73% fewer refinance mortgages to African-Americans from 2006 to 2009.

Additionally, the report showed that across the spectrum of consumer credit products, conditions are the most troubling in the Midwest’s communities of color. The analysis shows that many African-American and Latino communities in Chicago, Peoria, IL, Detroit, Kansas City, and St. Louis, MO have been increasingly abandoned by mainstream credit markets during the financial recession and are being targeted with wealth-stripping credit products like high-fee cash advance.

This raises the question of how a community is to recover and prosper when they are left in a sort of credit Siberia and targeted by products that are not intended to build wealth but instead strip it by prolonging the financial turmoil these communities face on a daily basis. These unregulated products don’t allow communities to thrive, which would ultimately help society and the economy as a whole.

The “Credit Segregation” report offers some recommendations that would help communities of color and people who find themselves in situations like Wanda; Congress should institute a nationwide cap on small dollar loan interest rates, state governments should regulate the payday lending industry, but most importantly the Consumer Financial Protection Bureau should implement comprehensive regulation of the industry.

Finally, American tax dollars bailed out the banks that finance this industry so it’s only reasonable that they stop profiting from the communities they pillaged by ceasing to finance this sector, which has become a parasite and like a parasite threatens the well being and financial future of its residents. Since tax dollars helped bail out these banks and provided them the boast they needed to get them started on the right foot, they should reciprocate by implementing viable alternatives to loan products that are responsible and affordable and serve a short-term need. This would have saved Wanda Hopkins from seven long years of financial agony and set her on a path to financial recovery after a personal tragedy.

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