Amidst national calls for racial equality and justice following several police shootings of minority civilians, then retaliatory civilian attacks on law enforcement, Consumer Financial Protection Bureau (CFPB) Richard Cordray is pledging to do his part to help minority consumers realize the bureau’s goal of economic equality and justice by eradicating redlining and predatory lending practices.
The former Ohio attorney general told the National Association for the Advancement of Colored People (NAACP) at its 107th Annual Convention July 19 in Cincinnati that he hopes heightened visibility of recent tragic events involving police will spark more national conversation about increasing transparency in government, and affirmed that the CFPB equally is committed to shining a light on discrimination against minorities in the financial marketplace.
“We must recognize that police shootings of civilians, specifically African-American civilians, and even civilian shootings of police, unfortunately are not new events in the history of this country,” Cordray said. Likewise, “discrimination on prohibited grounds in the financial marketplace is by no means a thing of the past, but it is squarely against the law,” he added.
“In some instances, discriminatory practices have grown more subtle,” Cordray said. “Not until we can see that we are making every consumer count will we realize our goal of economic justice.”
African-American consumers often don’t have the same access to credit as white consumers, and they sometimes are offered more expensive or even predatory credit, mortgages and other financial products compared to their white counterparts, Cordray said. For white households in America, median income is $60,000; for African-American households, it is $35,000. White households in America have an average net worth of $134,000, but for African-American households, it is $11,000. Homeownership among white consumers is about 71 percent; for African-Americans, it is about 42 percent. And the median house owned by a white homeowner is worth over $85,000, compared with $50,000 for African-Americans.
“Communities of color have been besieged by a cycle of inequity throughout our history,” he said. “Housing policies once pushed African-Americans into segregated communities where they were shut out of the mainstream banking system. Government regulators and private lenders both literally drew red lines around these communities and turned them into banking deserts. Those who lived inside the lines were denied access to local financial institutions with connections to the community and a stake in its success. To this day, the lines of segregation remain evident and their impact persists. Names and neighborhoods still telegraph race, and lenders can use these markers to deny credit altogether or to price it on worse terms. These economic injustices deny opportunity, drain wealth and desecrate communities.”
High on the CFPB’s radar is combatting redlining, Cordray said. He noted two recent actions the bureau took against BancorpSouth and Hudson City Savings Bank for denying certain mortgage loans to African-Americans or offering them less favorable mortgages than white borrowers.
In addition, the CFPB has identified a pervasive problem related to geographic redlining, which is credit invisibility. Last year, the CFPB’s analysis of data from one of the three nationwide credit reporting companies showed that 26 million Americans have no credit history at all. The share of African-American consumers who are credit invisible is almost 50 percent higher than for non-Hispanic whites, and 30 percent of consumers who live in low-income neighborhoods complete credit invisibility, while another 15 percent have insufficient credit histories to generate a credit score of the type that lenders typically use, Cordray said.
“When consumers lack a credit report, the consequences can be profound. If you cannot access credit, it becomes nearly impossible to build wealth. It may become difficult even to pass a background check to get a job. If we are going to succeed in making every consumer count, we must understand and address the problem of credit invisibility that strands these millions of consumers on a barren shore of economic deprivation,” he said.
In 2013, the CFPB filed a joint complaint along with the Department of Justice against National City Bank for discriminatory mortgage loan pricing against African-American and Hispanic borrowers and returned $35 million in relief to borrowers harmed by the practice.
But these discriminatory credit practices aren’t limited to the mortgage industry, Cordray said. The bureau has found similar abuses in the auto and payday lending industries, he said.
“Our extensive research has indicated that unfettered discretion in pricing the markup on loans frequently leads to African-Americans and Hispanics being charged higher rates than white consumers in similar financial circumstances,” he said. “Short-term loans often pack sky-high annualized interest rates of 390 percent or more. Usually, the note comes due at the next payday. But most borrowers cannot meet the deadline, so they have to borrow again.
“Our research shows that almost four in five loans are re-borrowed within a month. About one in four borrowers slides unavoidably into a sequence of at least 10 loans, taken out in an increasingly desperate and often futile bid to stay afloat. Indeed, the very basic economics of payday lending depend on a large number of customers needing to borrow again and again at high interest rates, piling up fees all the while.”
Cordray encouraged the NAACP to work with the bureau on a proposed rule published in June that would require lenders to determine whether borrowers can afford to pay back their loans and cut off repeated debit attempts that rack up fees and make it harder for consumers to get out of debt. The proposed regulation would apply to payday loans, auto title loans, deposit advance products and certain high-cost installment loans.
“I know I am preaching to the choir here, but that is still worth doing,” Cordray told the association. “The NAACP has taken on predatory lending for many years. We look forward to continuing to work closely with the NAACP to make this change a reality. We will be taking comments on our proposed rule all through the summer, and then we will be working to finalize an effective rule that offers new federal protections to consumers for the first time.”