Pointing out that high-interest loans are proliferating 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 precise figures.
Using 2019 borrower lending data obtained from state regulators, the nonprofit Woodstock Institute found that the top payday loan zip codes, excluding Loop, were predominantly black, including:
- 60619 and 60620 on the south side, which include 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 both are 95.7% black.
- 60624 on the West Side, which includes parts of West Garfield Park, East Garfield Park and Humboldt Park and had 15.8 payday loans per 100 people. This postal code covers an area that is 90.7% black.
In contrast, the ZIP codes with the lowest incidence of payday borrowers were predominantly white, such as 60614 in Lincoln Park. This area had 1.1 payday loans per 100 people in an 84% white ZIP code.
The analysis included zip code data for borrowers with payday loans and payday loans, which largely disappeared on March 23, when a new interest rate cap took effect in the Illinois. The nonprofit group obtained the data through a Records Request with the Illinois Department of Financial and Professional Regulation.
Data for 2020 – although an odd year for lending due to the COVID pandemic – was similar, with the first two ZIP codes 60619 and 60620, followed by 60628, which covers parts of Roseland, Pullman, West Pullman and Riverdale, and who is 93.1% Black.
Brent Adams, senior vice president of the Woodstock Institute and director of the IDFPR under former Governor Pat Quinn, called it “statistical significance on steroids.”
“These loans very specifically target black communities,” Adams says, adding that the high-interest loans perpetuate a status quo “that is riddled with racial and economic inequality.”
Studies have shown that black Americans have an average net worth that is about one-tenth that of white Americans, largely due to past discriminatory practices that have hindered the accumulation of family wealth, including the denial of loans mortgages.
The industry says it provides a necessary service to people who don’t have a credit or collateral history to qualify for traditional bank loans.
In Illinois, effective March 23, payday loans, title loans, and installment loans must meet a 36% cap on the annual percentage interest rate. The Illinois Predatory Lending 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 coronavirus hit and a tenant in her investment property was unable to pay rent. His loan, in the amount of $9,500, had a term of five years and an interest rate of 35.989%.
Even with a rate below 36%, she found that she would repay more than double what she had borrowed. So Moore paid him early.
“I was like, I have to get rid of this,” she said. “How can you go ahead if they charge all this interest?”
Ed D’Alessio, executive director of INFiN, a trade group that counts small lenders among its members, says the Woodstock analysis is “nothing more than a thought experiment that distracts from the real challenges facing borrowers today”.
D’Alessio says many borrowers are “underserved, neglected, or left behind by other financial institutions.”
The 36% cap has already caused some payday and small-dollar 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 $700 loan before the 36% cap with an APR of 399%. She paid it off in a few months, but it still cost her about $1,200, she says.
“It helped me when I needed it, but the interest rate is crazy,” says Carl, who relies on monthly disability checks and suffered a sudden car repair.
Ed McFadden, spokesman for the American Financial Services Association, which represents installment lenders but does not include payday or auto title lenders, said the new law could have unintended consequences.
He points to a 2015 Federal Reserve survey in which lenders said they could not break even on loans below $2,532 at 36% APR.
“The rate cap may make policymakers and interest groups feel good about themselves, but it leaves many already struggling consumers in a credit desert,” he says.
But Adams says there are alternatives, like the Capital Good Fund, which lends to underserved consumers and charges an average interest rate of 13%.