Just as the annual holiday season of shopping and celebrating nears, a major federal financial regulator released new research detailing how communities of color not only are targeted by well-known types of predatory lenders, but new forms of fraud seek to exploit consumers in the throes of the COVID-19 pandemic.
Published by the Federal Trade Commission (FTC), “Serving Communities of Color” summarizes the agency’s five-year effort focused on the financial ills imposed upon communities of color. Since 2016, the FTC filed more than 25 actions alleging conduct that either targeted or disproportionately impacted communities of color. Cases challenged unlawful practices by auto sellers, for-profit schools, money-making opportunities, student debt relief schemes and more.
Beyond these financial transactions, the report also notes that many of the payment methods used by Black and Latino consumers, such as debit cards, cash, and money orders, provide fewer fraud protections. Although credit card payments afford greater consumer protections, very few complaints filed with FTC by people of color involved this type of payment.
For example, this June, FTC and the State of Arkansas jointly filed a lawsuit against a scam operation that explicitly appealed to Black applicants who were suffering financial hardship as a result of the COVID-19 pandemic. The lawsuit alleged that the “Blessings in No Time” program was in fact a pyramid scheme that falsely promised members investment returns as high as 800%. The alleged scam’s minimum “investment” required $1,400, but some members paid as much as $67,700. The Texas-based defendants also falsely assured participants they wouldn’t lose money and could withdraw at any time with a full refund.
When these financial losses are combined with the effects of a national racial wealth gap that has Blacks owning only 22 cents for every dollar of wealth held by whites, it becomes disturbingly clear how deceptive and predatory lending significantly diminishes the ability of Black consumers to effectively manage their financial lives. Just as redlining limited where Black people could live, today’s predatory lending, like fringe financial services, restricts the ability of Black communities to build wealth.
For example, approximately twice as many consumers in predominantly Black communities, compared to white consumers, purchased student debt relief programs and payday loans. But the two top complaints filed by Black consumers with FTC were credit bureaus (21%) and impersonator scams (12.5%). In 2020 alone, the FTC filed or resolved seven debt collection cases against 39 defendants and obtained $26 million in judgments for harmed consumers.
Other types of predatory and deceptive lending include debt collection, bank lending, and auto sales and financing. The agency also found evidence of fraud in health care, identity theft, as well as alleged jobs and money-making opportunities.
For many consumers, car purchase and financing represents the second-largest consumer transaction, after housing costs. Ample evidence of blatant discrimination against Black, Latino and Native American car buyers included false information on the applications and contracts, and deceptive ads in Spanish.
During the past five years, FTC has brought multiple enforcement actions against auto dealers for deceptive tactics that include advertised prices that were never available to prospective buyers, falsification of financial information in sales, false and/or misleading information and unfair practices.
For consumer advocates, these and other recent findings on financial abuses confronting consumers of color deserve even more aggressive enforcement, particularly at the federal level.
The evidence of financial abuses is ample. The nation needs a new reckoning to correct the wrongs
Charlene Crowell is a senior fellow with the Center for Responsible Lending.
