Remember subprime loans? The ones that predatory lenders hawked to people of color, stripping communities of homes and wealth and tanking the economy? Well they’ve been pretty well regulated out of existence now. But that hasn’t stopped sketchy lenders from searching out new frontiers of financial predation.
The NY Times’ Jessica Silver-Greenberg reported on Sunday that the latest target of mass predation are aging pensioners who take cash advances on their retirement income and get saddled with sky-high interest rates. Consumer advocates say that like the subprime crisis, folks of color are more likely to find themselves the target of these unregulated financial services.
“Almost as a given, for every consumer scam, for every consumer abuse out there is always a racial component to it,” Stuart Rossman, an attorney with the National Consumer Law Center told Colorlines.com. Though Rossman says there’s no good data on the racial demographics of those who rely on the pension advances, “[race and predation] go hand in hand. This abuse is bad and it’s worse when you take into account race or ethnicity.”
Silver-Greenberg reports that the advance companies advertise the services online and often aggressively target recipients of public pensioners including military veterans, teachers and others. Because people of color occupy public jobs at disproportionate rates they’re likely more vulnerable to these schemes from the start.
One of these pensioners is Ronald Govan, a 59-year-old black Marine veteran from Georgia whom Silver-Greenberg reports on. Govan needed a loan but couldn’t get one from the bank because a 2008 foreclosure and subsequent bankruptcy wrecked his credit. So he jumped when he got an email from a Delaware based pension advance company offering him $10,000 upfront against his disability pension. But with his signature, Govan agreed to pay $353 the company of his $1,033 monthly pension, according the Times. In all he was paying a 36 percent interest rate on the advance.
Others have paid interest rates as high as 106 percent, largely because the companies promise fast cash without revealing the long-term costs.
Govan’s story leads to a larger context: racial disparities in wealth are growing. A report from the Urban Institute released last week shows again that the wealth gap between white, Latino and black Americans has expanded significantly since the start of the recession. That’s in part because of the fallout of racially targeted subprime lending.
Now, some of the same people who lost generations of wealth in the foreclosure crisis may be the targets of an unregulated pension scheme. (A 2012 AARP report revealed that black and Latino elders were twice as likely as their peers to lose their homes.)
Take Govan: it was his foreclosure that killed his credit and made him vulnerable to pension advance in the first place.
This is often how structural racial inequality works: exclusion and discrimination from the past creates the conditions for new kinds of abuse in the present. That’s what happened in the subprime context where legacies of redlining that excluded black borrowers from regular financial services left the space wide open for predators to crawl in.
So why aren’t these pension loans regulated? Because the lenders pretend the loans are not loans. By calling the high interest products “cash advances” they’ve remained just outside the purview of federal regulators and credit reporting requirements and above state usury laws.
Sound familiar? It was in part because federal regulatory schemes did not cover non-bank lenders that these financial services went on a subprime feeding frenzy. In the subprime context, the securitized subprime loans tanked the market.
Now, Congress and the Consumer Financial Protection Bureau are taking notice, largely because of federal laws that make it illegal for military pensions to be written over to third parties, the Times reports. But for now, the advance companies continue the search for new borrowers.