Pointing out that high-interest credit is spreading in non-white Chicago neighborhoods is a bit like saying the sky is blue or the grass is green, but one consumer group says they are proving this for the first time with hard Numbers.
Using 2019 borrower loan data received from state regulators, the nonprofit Woodstock Institute found that the major payday loan zip codes, except for the loop, were mostly black, including:
- 60619 and 60620 on the South Side, which includes portions of Chatham, Burnside, Avalon Park and Greater Grand Crossing, Auburn Gresham and Washington Heights. These zip codes had more than 16 payday loans per 100 people and are both 95.7% black.
- 60624 on the West Side, which includes parts of West Garfield Park, East Garfield Park and Humboldt Park and had 15.8 payday loans per 100 people. This zip code covers an area that is 90.7% black.
In contrast, zip codes with the lowest number of payday borrowers were mostly white, like 60614 in Lincoln Park. In that area, there were 1.1 payday loans per 100 people in a zip code that is 84% white.
The analysis included zip code data for borrowers on payday loans and payday installment loans, which largely disappeared on March 23 when a new interest rate cap went into effect in Illinois. The nonprofit group obtained the data through a request to the Illinois Department of Financial and Professional Regulation.
The 2020 data – although an odd year for lending due to the COVID pandemic – was similar, with the first two zip codes 60619 and 60620, followed by 60628, which covers parts of Roseland, Pullman, West Pullman and Riverdale and 93 , 1 inch is% black.
Brent Adams, senior vice president of the Woodstock Institute and IDFPR director under former Governor Pat Quinn, called it “statistical significance in steroids.”
“These loans are specifically aimed at black communities,” says Adams, adding that high-interest loans perpetuate a status quo “steeped in racial and economic inequalities.”
Studies have shown that black Americans have average net worth that is about one-tenth that of white Americans, largely due to past discriminatory practices that have hampered family wealth accumulation, including home mortgage rejection.
The industry says it provides a necessary service for people who do not have the credit history or collateral to qualify for traditional bank loans.
In Illinois, payday loans, title loans, and installment loans must be limited to 36% of the effective annual interest rate starting March 23. The Illinois Predatory Loan Prevention Act also forces vehicle finance to meet the cap.
Forest Park’s Tiffany Moore first reached out to an installment lender when the coronavirus hit and a tenant of her investment property was unable to pay rent. Their $ 9,500 loan had a term of five years and an interest rate of 35.989%.
Even if the interest rate was below 36%, she realized that she would be paying back more than double the amount borrowed. So Moore paid it off early.
“I thought I had to get rid of this,” she says. “How can you get on when they charge all this interest?”
Ed D’Alessio, executive director of INFiN, a trading group that includes small dollar lenders, says the Woodstock analysis is “nothing more than a thought experiment that distracts from the real challenges borrowers face today.”
D’Alessio says many borrowers “are underserved, overlooked or left behind” by other financial institutions.
The 36% cap has already caused some payday and small dollar lenders to close their Illinois locations, he says.
Samantha Carl from the Palatinate says the shop front lender she used in the suburbs has since closed. She received a loan of $ 700 before the 36% cap that had an APR of 399%. She paid it off in a matter of months, but it still cost her about $ 1,200, she says.
“It helped when I needed it, but the rate is insane,” says Carl, who relies on monthly disability checks and was hit by a sudden car repair.
Ed McFadden, spokesman for the American Financial Services Association, which represents installment lenders but doesn’t include payday or auto title lenders, says the new law could have unintended consequences.
He cites a 2015 Federal Reserve survey in which lenders said they cannot break even in loans below $ 2,532 at 36% APR.
“The rate cap may make politicians and stakeholders feel good, but it leaves a lot of consumers already struggling in a credit wasteland,” he says.
But Adams says there are alternatives like the Capital Good Fund, which lends to underserved consumers and charges an average interest rate of 13%.