Payday lending and Redlining
You rent an apartment in Fruitvale and you run a small business that makes barely enough money to pay rent, but you manage to scrape by. Then one day, you get caught in a car accident. You now have medical bills to pay, but you can’t borrow money from friends or family. You can’t take out a loan from a bank, because you don’t have the credit score. What can you do?
You can take out a payday loan. You find a place just down the street. They say they will give you $300 with a fee of $45 that you will have to pay back in two weeks. However they take the fee from the original loan they give you.
And then in two weeks you will have to pay it all back.
If two weeks ago you couldn’t pay $300 why would you be able to now. So what can you do? You can take out another payday loan. And in two weeks when you can’t pay that one back what do you do? Take out another loan, and another loan, and another, and another. This is how payday lenders trap you in a predatory cycle.
What do you think someone from Alameda or Montclair would do if they needed $300? They could get a loan directly from a bank, or borrow money from their parents. This is because their family will have built up wealth and bank credit. And, the area where they live happens to have
more banks. Why does Alameda have more money than Fruitvale? Why does it have more banks? Why does Fruitvale have more predatory lenders?
The answer goes back to redlining. The term redlining comes from President FDR’s 1932 plan called the New Deal. The New Deal was a piece of economic legislation designed to help the country get more money after ww1. During the New Deal, the government run Home Owners Loan Corporation made maps of places where they would give out cheaper mortgages.
This is a picture of a map of Oakland with the district colored out in literal red lines. The green areas are the places where it was considered safe or desirable to give out cheap mortgages, and the red areas are the places where it was considered high risk.
If you look at this map, you will notice that the areas redlined were, and still are, places that have high Black, Asian, and Hispanic populations.
You will notice that Fruitvale is redlined, Alameda is mostly yellow lined, and Montclair is greenlined.
What effects does redlining still have on our communities today?
When we walked around International Blvd in Fruitvale, Park street in Alameda, and Mountain Blvd, in Montclair. We found that in Fruitvale there were no banks and two rather untrustworthy financial institutions, in the same amount of space on Park street there were no banks and no predatory lenders, and in Montclair, a green lined area, there were nine banks in a seven block shopping area. However we didn’t see any payday lenders or other financial institutions.
So, what can you do to avoid predatory lending? You can prepare, prepare, prepare. You can make sure to build good credit with your bank. You can create savings accounts to make sure you always have a backup supply of money. When you need a loan you can make sure you are lending money from a bank or other trustworthy financial institution. And most importantly always be careful with your money.