This week, the Consumer Financial Protection Bureau (CFPB) turns 6 years old. In an op-ed on Univision.com, my colleague Vijay Das and I consider the vital ways the agency stands up for the interests of American consumers, even as its independence and authority are continually under fire from financial services lobbyists and their congressional allies. As we note, the CFPB’s work has been especially critical to communities of color, which are disproportionately targeted for predatory financial services, from the deceptive, high-interest mortgages that caused the last financial crisis to payday loans, fee-laden prepaid cards, and much more.
Predatory lenders both exploit the existing racial wealth gap and fuel its growth by stripping more wealth from communities of color.
In research I conducted with scholars at the Institute on Assets and Social Policy at Brandeis University, we find that the median white household possessed $13 in net wealth for every dollar held by the median black household in 2013. That same year, the median white household possessed $10 for each dollar held by the median Latino/a household. As we note, these wealth disparities are rooted in historic injustices, but are carried forward today by practices and policies that fail to reverse inequitable trends and may even deepen them. The policy decision to weaken financial protections and give financial services companies free rein to cheat consumers is a sure-fire way to deepen the wealth gap.
One reason the wealth gap makes communities of color more vulnerable to predatory financial services is because households with less wealth have little or no financial cushion to fall back on in the event of a financial shock. If a breadwinner suddenly loses her job, the car needs an expensive repair, or a medical emergency produces surprise bills, a family living paycheck-to-paycheck will have few good options. They may turn to a predatory financial product, like a payday loan or car title scam. Or the family may fall behind on bills and develop increasingly flawed credit as they struggle to keep up. With a poor credit history, high-interest financial products may be the only ones a household qualifies for. Poor credit can also lock job seekers out of the very employment opportunities they need to get back on their feet financially. And with unpaid bills, the household must also contend with the abusive practices of debt collectors.
To be clear, low-income, low-wealth families of all races and ethnicities find themselves in this position, but the racial wealth gap, and the persistence of employment discrimination and occupational segregation, mean that households of color are disproportionately likely to be trapped in a cycle of growing debt and worsening credit. Evidence suggests that there remains plenty of overt racial and ethnic discrimination in lending, but as long as shady lenders and debt collectors are free to prey on disadvantaged households, under-regulated lending will deepen the racial wealth gap even without intentional bias.
Enter the Consumer Financial Protection Bureau. By regulating financial practices and cracking down on violators, the agency is creating a more fair financial marketplace for all of us—good news for anyone who wants to cash a check, have a bank account, get a credit card, buy a car, go to college, save for retirement, send money to relatives abroad or simply stop a debt collector from harassing you about a bill you never owed. By preventing practices that disproportionately extract wealth from communities of color, the CFPB also slows the growth of the racial wealth gap. Efforts to weaken and undermine the power and independence of the CFPB are precisely the type of ostensibly race-neutral policy decisions that have deepened racial disparities in the past. We cannot allow it to happen again.