Earlier this week, President Barack Obama stood before an excited crowd in Shaker Heights, Ohio to boldly announce his appointment of former Ohio Attorney General Richard Cordray as the first Director of the Consumer Financial Protection Bureau (CFPB).
This announcement came not a moment too soon.
For the last few years, millions of Americans have been struggling to overcome the devastation caused by the abuses of an under-regulated financial system. Hard-working men and women have struggled just to put food on their tables and clothes on their children’s backs.
In their desperation to make ends meet, many have fallen prey to payday lenders, check-cashing outlets, and fly-by-night tax refund companies. Under the guise of offering short-term help, these companies’ anti-consumer practices have pushed thousands of families further into debt.
Americans needed an advocate to stand up to these companies, and in Richard Cordray, we now have a proven leader, dedicated to doing just that.
Nowhere is Mr. Cordray’s efforts more needed than in the African-American community.
In 2010, the American Sociological Review published a study showing since the 1990s, predatory lending has specifically targeted minority communities. According to the study, which included data from the 100 largest U.S. metropolitan areas, payday and tax refund lenders, as well as check cashing outlets, have located themselves disproportionately in minority neighborhoods.
Payday loans may be easy to secure but come at a high price. With significant fees and annual interest rates of over 350 percent, families who seek these loans as a “short-term” fix frequently find themselves unable to pay bills after they cover the loan costs. As a result, they have to obtain additional payday loans against future income, resulting in a vicious cycle of despair.
It is not surprising then that, according to the Center for Responsible Lending, most individuals who take out a payday loan are still in debt to the lender 24 months later.
Tax refund anticipation loans wreak equal havoc for our community. Tax filers in African-American communities are 3.5 times more likely to use high-cost loans to get refunds. According to the Woodstock Institute, almost one in four taxpayers living in African-American communities pays hundreds of dollars to receive his or her own money a few days early.
Unfortunately, far too many in African-American communities are unaware of these financial pitfalls, which is why I have introduced the Young Adults Financial Literacy Act. This bill will help ensure that young people learn safe banking practices and other critical skills that will help them avoid unmanageable debt.
But unfortunately my bill cannot help those who are already caught in this trap. We need strong leadership to reign in predatory companies that have gone unchecked in minority communities for far too long. I commend the President on his appointment of Richard Cordray, and I am confident that with him at the helm, the CFPB can now meet its charge of ensuring that the financial markets work for the American people and that companies engaged in improper conduct are held accountable.
Rep. André Carson is a Democrat representing Indiana’s 7th District.