SAN FRANCISCO, March 9 /PRNewswire/ -- Financed by major banks, payday
lenders and check cashers are pulling more than $5.7 billion in fees out of
California's low-income neighborhoods every year. Setting up in neighborhoods
that have been abandoned by mainstream banks, nationally controlled chains of
check cashing shops and payday lenders are expanding a two-tier system of
high-priced consumer finance plaguing many California communities.
A new study by the California Reinvestment Coalition exposes how bank
financing has supported the growth of these high-priced lenders. The lack of
competition from mainstream finance and huge profit opportunities have meant
that the number of check cashers and payday lenders has increased nationally
from 2,000 in 1996 to 22,000 in 2003. The study reveals extensive bank
financing of these high-priced lenders by California's largest banks including
Bank of America, Union Bank of California, U.S. Bank, and Wells Fargo Bank.
"Traditional mainstream banks have abandoned lower-income communities and
communities of color while they profit by financing predatory check cashers
and payday lenders," said Alan Fisher, Executive Director of the California
Reinvestment Coalition. "Rather than provide banking services, traditional
banks provide millions of dollars to predatory lenders like Advance America,
Ace Cash Express and Money Mart. Payday lenders and mainstream banks are in
fact complementary faces of the current financial system."
In lower-income California communities like West Oakland or Pacoima or
National City, banks are scarce and fair-priced alternatives are even scarcer.
Residents instead must rely on check cashers charging two percent or more and
payday lenders charging 500-900 percent APR to meet their needs. Those
directly impacted include women, military personnel and African Americans
-- In Los Angeles' San Fernando Valley, wealthier Encino has one check
casher and twenty-seven bank branches while lower-income Pacoima has nine
check cashers and two bank branches.
-- In Alameda County, the lower-income neighborhood of West Oakland has
three check cashers and no bank branches while wealthy Piedmont has three bank
branches and no check cashers.
-- In San Diego County, wealthy Carlsbad has 25 banks and two check
cashers compared to lower-income National City's five bank branches and twelve
check cashers.
"Check cashers harm communities by offering expensive financial services
to those who can least afford it, preying on communities that have few
resources and few alternatives," said Roberto Barragan, President of the
Valley Economic Development Center, 818-907-9977. "In addition, check cashers
drain money away from neighborhoods with virtually no reinvestment back into
the community."
"Mainstream banks would have the public believe that it is economically
unsound to have a brick and mortar branch in a low-income community," Maeve
Elise Brown, founder of the Peoples Partnership Federal Credit Union in West
Oakland, 510-703-5328. "Our credit union and others have proved that it is
possible to charge fair prices and make a respectable profit."
The California Reinvestment Coalition studied these predatory lenders and
their financial links with major financial institutions in five California
counties. In Fresno and Sacramento Counties, sixty percent of the check
cashers and payday lenders are supported by major financial institutions. In
Alameda, Los Angeles and San Diego Counties it is nearly as prevalent. In
addition to those mainstream banks listed above, Westamerica Bank, Banco
Popular, Hanmi Bank, Saehan Bank, and Merchants Bank finance check cashers and
payday lenders in these counties.
"In San Diego, predatory financial businesses prey on military families.
They capitalize on the turmoil of military life. While a young Marine is off
fighting on foreign soil, a payday lender is stripping his financial assets
from his family at home," said Jim Bliesner, Director of the San Diego
Reinvestment Task Force, 619-515-6148. "It is especially a problem that the
state of California and the legislature allow payday lenders to charge
exorbitant rates of interest and exploit military personnel."
The CRC report recommends that 1) financial institutions implement
products and open branches to serve lower-income neighborhoods, 2) cities and
counties use zoning to restrict the growth of predatory finance, 3) the State
should restrict interest rates and stop rollovers on payday loans, and 4)
federal regulators should end bank financing of payday lenders and check
cashers. CRC has also developed prototypes of check-less checking accounts
and consumer loans that banks could use to under-cut predatory finance but no
bank has agreed yet to offer these products.
The full report is available from CRC. The California Reinvestment
Coalition is a statewide organization of more than 200 nonprofit organizations
and public agencies working for equal access to financial institutions for low
income people and people of color. CRC has comprehensive community
reinvestment agreements with major California banks and savings & loans.
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