High-interest loans in Chicago target black neighborhoods
Pointing out that high-interest loans are rampant in non-white Chicago neighborhoods is a bit like saying the sky is blue or the grass is green, but a group of consumers says it’s proving it for the first time with solid numbers.
Use of 2019 borrower loan data obtained from government regulators, a non-profit organization Woodstock Institute It found that the top payday loan zip codes, with the exception of the annulus, were predominantly black, including:
- 60619 and 60620 on the south side, which include parts of Chatham, Burnside, Avalon Park, Greater Grand Crossing, Auburn Gresham, and Washington Heights. These zip codes have over 16 payday loans per 100 people and they are both 95.7% black.
- 60624 on the West Side, which includes parts of West Garfield Park, East Garfield Park, and Humboldt Park that have 15.8 payday loans per 100 people. This zip code covers an area of 90.7% black.
In contrast, zip codes with minimal payday borrowers were mostly white, such as 60614 in Lincoln Park. That area had 1.1 payday loans per 100 people in a ZIP code of 84% white.
The analysis included ZIP code data for borrowers with payday loans and installment payday loans, which have largely disappeared as of March 23, when a new interest rate cap came into force in Illinois. The nonprofit group obtained the data by requesting records to the Illinois Department of Financial and Professional Regulation.
The data from 2020 — despite it being an odd year for lending due to the COVID pandemic — was similar, with the top two ZIP codes 60619 and 60620, followed by 60628, covering parts of Roseland, Pullman, West Pullman and Riverdale, which are 93.1% black.
Brent Adams, Senior Vice President of the Woodstock Institute and Director of IDFPR under former Governor Pat Quinn, described it as a “statistical indication of anabolic steroids”.
“These loans specifically target black communities,” Adams says, adding that high-interest lending perpetuates a status quo “which is riddled with racial and economic injustice.”
Studies have shown that black Americans have an average net worth About a tenth of what white Americans have, largely due to past discriminatory practices that impeded the accumulation of family wealth, including the denial of mortgage.
The industry says it provides a necessary service for people without credit history or collateral to qualify for traditional bank loans.
In Illinois, as of March 23, payday loans, property loans, and installment loans must adhere to a maximum of 36% on the annual percentage rate interest. The Illinois Loan Prevention Act also requires vehicle financing to meet the cap.
Tiffany Moore of Forest Park turned to an installment lender for the first time when the coronavirus hit and the tenant at her investment property couldn’t afford to rent. Her loan, $9,500, was for five years and had an interest rate of 35.989%.
Even with a rate of less than 36%, she knew she would pay back more than twice what she borrowed. So Moore paid it off early.
“I was like, I have to get rid of this,” she says. “How do you proceed if they are charging all this interest?”
Ed D’Alessio, CEO of INFiN, a trade group whose members include small lenders, says Woodstock’s analysis is “nothing more than a thought experiment that distracts from the real challenges facing borrowers today.”
Many borrowers, D’Alessio says, “are underserved, overlooked, or abandoned by other financial institutions.”
He says the 36% cap has already caused some payday and small dollar lenders to close their Illinois positions.
Samantha Carl of Palatine says the storefront lender she used in the suburbs has since closed. I took out a $700 loan before the 36% cap that had a 399% APR. She paid it off within months, but it cost her about $1,200, she said.
“It helped me when I needed it, but the interest rate is insane,” says Karl, who relies on monthly disability checks and has had a sudden car repair.
Ed McFadden, a spokesperson for the American Financial Services Association, which represents installment lenders but does not include payday or auto ownership lenders, says the new law could have unintended consequences.
Refers to 2015 Fed Survey Lenders said they could not break even on loans under $2,532 at 36% APR.
“The rate cap may make policy makers and interest groups feel good about themselves, but it leaves many already struggling consumers in the credit desert,” he says.