Pointing out that high-interest loans are spreading in non-white Chicago neighborhoods is a bit like saying the sky is blue or the grass is green, but a consumer group says it proves it for the first time with hard numbers.
Using 2019 borrower loan data obtained from government regulators, the nonprofit organization Woodstock Institute found that the best zip codes for payday loans, except Loop, were black, including:
- 60619 and 60620 on the South Side, which includes parts 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 which had 15.8 payday loans per. 100 people. That zip code covers an area that is 90.7% black.
In contrast, zip codes with the lowest incidence of payday lenders were mostly white, such as 60614 in Lincoln Park. This area had 1.1 quick loans per. 100 people in a zip code that is 84% white.
The analysis included postcode data for borrowers with quick loans and installment-free loans, which largely disappeared per. March 23, when a new interest rate cap came into effect in Illinois. The nonprofit group obtained the data through a registration application to the Illinois Department of Financial and Professional Regulation.
Data from 2020 – though a strange year for lending due to the COVID pandemic – were similar, with the top two zip codes 60619 and 60620, followed by 60628, which covers parts of Roseland, Pullman, West Pullman and Riverdale, and which is 93 , 1% sort.
Brent Adams, senior vice president of the Woodstock Institute and IDFPR director under former Gov. Pat Quinn, called it “statistical significance on steroids.”
“These loans are very specifically targeted at black communities,” Adams says, adding that high-interest loans maintain a status quo, “filled with racial and economic inequalities.”
Studies have shown that black Americans have an average net worth of about one-tenth of white Americans, mainly because of past discriminatory practices that prevented the accumulation of family wealth, including the denial of home loans.
The industry says it provides a necessary service to people who do not have credit history or security to qualify for traditional bank loans.
As of March 23 in Illinois, payday loans, real estate loans and installment loans must meet a ceiling of 36% of the annual interest rate in percent. The Illinois Predatory Loan Prevention Act also forces car financing to comply with the ceiling.
Tiffany Moore of Forest Park approached a principal for the first time when coronavirus struck and a tenant on her investment property could not pay rent. Her $ 9,500 loan had a maturity of five years and an interest rate of 35.989%.
Even with an interest rate below 36%, she realized she would pay back more than double what she borrowed. So Moore paid for it early.
“I was like, I have to get rid of this,” she says. “How can you move on if they charge all that interest?”
Ed D’Alessio, CEO of INFiN, a small dollar lending trading group among its members, says the Woodstock analysis “is nothing more than a thought experiment that distracts from the real challenges facing borrowers” day.”
D’Alessio says many borrowers are “underpaid, overlooked or left behind by other financial institutions.”
The 36% ceiling has already caused some small dollar lenders and lenders to close their locations in Illinois, he says.
Samantha Carl of Palatine says the storefront lender she used in the suburbs has since closed. She got a loan of $ 700 before the 36% ceiling, which had an APR of 399%. She paid it off in a few months, but it still cost her about $ 1,200, she says.
“It helped when I needed it, but interest rates are crazy,” says Carl, who is dependent on monthly disability checks and was hit by a sudden car repair.
Ed McFadden, a spokesman for the American Financial Services Association, which represents installment lenders but does not include payday loans or auto-title lenders, says the new law could have unintended consequences.
He points to a 2015 study by the Federal Reserve in which lenders said they could not balance loans below $ 2,532 at 36% APR.
“The rate cap may make politicians and interest groups feel comfortable, but it leaves many consumers already struggling in a credit crunch,” he says.
But Adams says there are alternatives, such as the Capital Good Fund, which lend to non-bank consumers and charge an average interest rate of 13%.