Addressing racial inequalities in pay day lending; California’s state-run bank plan puts people before profits

This Wednesday, June 29, join a zoom conference call from 3-4 p.m. on racial discrimination in pay day lending and how some faith communities in Mankato are responding.

Photo by Taber Andrew Bain

Pay day lenders are the lenders of last resort for low-income individuals and families. These are short-term loans with high interest rates to help people with immediate needs, such as an unexpected car repair or rent. They are called “pay day loans” because sometimes a borrower will write a postdated check to the lender expecting to cover the loan with money from his or her next paycheck. It’s become a generic term used for any such loan, regardless of whether there’s a link to a paycheck.

Taking out pay day loans can result in a debt spiral, with interest costs piling up.

Here’s the event description provided by organizers:

In Mankato, nearly $3 million/year of payday lending occurs. Small-dollar loans are offered regardless of whether the borrower can repay, so borrowers incur more in fees than the loan itself, with an average APR [annual percentage rate] in Blue Earth County of 259%.

That’s not a typo. It’s 259 percent! Say someone took out a $300 loan for a car repair and couldn’t repay it for three months. The amount owed at 256 percent annual interest would be roughly $490 — the $300 loan plus roughly $190 in interest after the three months.

The announcement continues:

According to a survey from the Pew Charitable Trust, African Americans were 105% more likely than other races or ethnicities to have had a payday loan. Payday lenders have profited from the history of racial discrimination within our country’s banking system, which persist today. Learn about God’s protection of the poor then, using Jesus’ mustard seed sayings from the gospel of Matthew, be reminded that a little faith can do big things, and sometimes it only takes a small seed of justice to begin a bigger movement.

Register here for a Zoom call featuring Exodus Lending, Greater Mankato Diversity Council, three Mankato clergy, and the Minnesota Council of Churches.

Project partners are: Sara Nelson-Pallmeyer, Exodus Lending; Bukata Hayes, Greater Mankato Diversity Council; Pastor Collette Broady Grund, Bethlehem Lutheran Church; Pastor Maurice Staley, House of Worship; and Nancy Altmann, Minnesota Council of Churches, Mankato

In related news, California is poised to create a state-run bank to address pressing public needs. Last year, California become only the second state to allow public banking. North Dakota was the first state, dating back to 1919. The Bank of North Dakota offers basic checking and savings accounts to state residents, its website says. Bank policy prohibits it from competing with private banks for retail deposits.

California is eying something much more ambitious, according to a recent email from the Romero Institute. A bill in the state senate would “establish a fully-fledged state bank—one that is accountable to people over corporate profits.”

The Bank on California Bill (AB 310), currently debated in the Senate Governance and Finance Committee, would launch the bank with a  $10 billion reserve.

This money would then be used to aid COVID-19 economic recovery to the municipalities and small businesses in greatest need: specifically [People of Color]-owned, women-owned, and immigrant-owned businesses that have been historically marginalized and denied credit by traditional financial institutions. …

This is a huge, historic opportunity to establish a public banking system that works to right the wrongs of redlining and other restrictive financial practices, and places the lives of in-need Californians over the profits of private banks. Furthermore, the benefits of public banking extend far beyond the COVID-19 crisis. AB 310 will enable increased investments in municipal infrastructure to decarbonize our society and address climate change in a just, inclusive manner.

Click here for a Romero Institute blog on this proposal.

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