Check Cashers Target Blacks, Poor
The San Francisco Sun-Reporter, News Reports, Staff Report, Posted: Mar 23, 2005
A new report exposes financial institutions for their check cashing outlets because too often African Americans and the poor are targeted with high fees. The racial dimension is clear from Southern California to the Bay Area.
Consider Los Angeles’ San Fernando Valley and the cities of Encino and Pacoima. Pacoima (pop. 90,000) is roughly twice the size of Encino (40,700) while average income is skewed in the opposite direction ($91,475 to $40,000). Encino has one check casher and 27 bank branches.
Pacoima has nine check cashers and two bank branches; one of which just opened last year. The cities are 12 miles apart. Encino is 3 percent African American and Pacoima is 15 percent Black.
In the Bay Area, Piedmont (pop. 10,952) is half the size of the nearby neighborhood of West Oakland (19,684) while its household income ($134,270) is more than four times that of West Oakland ($27,545). Piedmont has three bank branches and no check cashers. West Oakland has no bank branches and three check cashers. Piedmont is 5 percent Black and West Oakland is 40 percent Black.
Thirty-five miles apart on the Pacific Coast in San Diego County, the cities of Carlsbad and National City exhibit similar disparities.
Carlsbad’s population (78,000) is a little larger than National City’s (54,000); its average income ($65,145) is more than twice as high as National City ($29,826). Carlsbad has 25 banks and two check cashers compared to National City’s five bank branches and 12 check cashers. Carlsbad is one percent Black and National City is 5.6 percent Black.
Furthermore, a study of check cashing customers in New York City and Los Angeles showed 40 percent of those who mainly do check cashing are Black. A study in North Carolina showed 32 percent of payday lenders were in Black neighborhoods.
Financed by major banks, payday lenders and check cashers are pulling more than $5.7 billion in fees out of California’s low-income neighborhoods every year. Setting up in neighborhoods that have been abandoned by mainstream banks, nationally controlled chains of check cashing shops and payday lenders are expanding a two-tier system of high-priced consumer finance plaguing many California communities, according to a new study by the San Francisco-based California Reinvestment Coalition.
It exposes how bank financing has supported the growth of these high-priced lenders. The lack of competition from mainstream finance and huge profit opportunities have meant that the number of check cashers and payday lenders has increased nationally from 2,000 in 1996 to 22,000 in 2003. The study reveals extensive bank financing of these high-priced lenders by California’s largest banks, says the report.
"Traditional mainstream banks have abandoned lower-income communities and communities of color while they profit by financing predatory check cashers and payday lenders," said Alan Fisher, Executive Director, California Reinvestment Coalition. "Rather than provide banking services, traditional banks provide millions of dollars to predatory lenders like Advance America, Ace Cash Express and Money Mart. Payday lenders and mainstream banks are in fact complementary faces of the current financial system."
Residents instead must rely on check cashers charging two percent or more and payday lenders charging 500-900 percent APR to meet their needs, he said. "Those directly impacted include women, military personnel and African Americans."
"Check cashers harm communities by offering expensive financial services to those who can least afford it, preying on communities that have few resources and few alternatives," said Roberto Barragan, President, Valley Economic Development Center. "In addition, check cashers drain money away from neighborhoods with virtually no reinvestment back into the community."
"Mainstream banks would have the public believe that it is economically unsound to have a brick and mortar branch in a low-income community," said Maeve Elise Brown, founder of the Peoples Partnership Federal Credit Union in West Oakland. "Our credit union and others have proved that it is possible to charge fair prices and make a respectable profit."
The California Reinvestment Coalition studied predatory lenders and their financial links with major financial institutions in fiveCalifornia counties. In Fresno and Sacramento counties, 60 percent of the check cashers and payday lenders are supported by major financial institutions. In Alameda, Los Angeles and San Diego counties it is nearly as prevalent.
The CRC report recommends that: Financial institutions implement products and open branches to serve lower-income neighborhoods.Cities and counties should use zoning to restrict the growth of predatory finance.
The state should restrict interest rates and stop rollovers on payday loans. And, federal regulators should end bank financing of payday lenders and check cashers. CRC has also developed prototypes of check-less checking accounts and consumer loans that banks could use to under-cut predatory finance but no bank has agreed yet to offer these products.
The full report is available from CRC. The California Reinvestment Coalition is a statewide organization of more than 200 nonprofitorganizations and public agencies working for equal access to financial institutions for low income people and people of color. CRC has comprehensive community reinvestment agreements with major California banks and savings and loans.
Other reports mirror what CRC found. Michael Stegman and Robert Farris at the Center for Community Capitalism, University of North Carolina, in 2003 found that African-American households were almost twice as likely to borrow from a payday lender as white households in North Carolina.
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