Policy Resolution BED-26-04

WHEREAS, the economic well-being of communities of color has been disproportionately impacted by systemic exclusion from traditional financial services, leading to a reliance on predatory lenders who perpetuate cycles of debt and financial insecurity among underserved populations;

WHEREAS, a study by the Center for Responsible Lending (CRL) found that payday loan storefronts are 70% more likely to be located in neighborhoods with significant Black and Latino populations, and these communities face higher instances of predatory lending compared to their White counterparts;

WHEREAS, payday loans often carry exorbitant annual percentage rates (APRs) with some states allowing rates over 400% which is causing borrowers to become trapped in cycles of debt through repeated renewals and rollovers, as documented by the Consumer Financial Protection Bureau (CFPB);

WHEREAS, the Federal Deposit Insurance Corporation (FDIC) reports that nearly 18.7 million or over 14% of households in the United States are underbanked, meaning they have limited access to traditional banking services and are forced to rely on alternative financial service providers, many of which engage in predatory practices;

WHEREAS, Black and Latino communities have historically been excluded from wealth-building financial opportunities, a trend exacerbated by predatory lending practices that target these populations through aggressive marketing and a lack of safer financial alternatives;

WHEREAS, studies from the Pew Charitable Trusts indicate that Black Americans are 105% more likely to receive payday loans than other racial groups, further demonstrating the predatory targeting of vulnerable communities with limited access to credit;

WHEREAS, according to the Federal Deposit Insurance Corporation, nationally, 3.7% of African American households use payday loans compared to 1.1% of White households;

WHEREAS, the growth of “credit deserts” in low-income areas, particularly those predominantly inhabited by people of color, has deprived these communities of access to affordable and transparent financial services, while payday lenders, pawn shops, and check cashers have proliferated, as reported by the National Community Reinvestment Coalition;

WHEREAS, research has shown that bank branch closures disproportionately affect communities of color, contributing to financial exclusion and leading to increased reliance on high-APR, predatory lenders;

WHEREAS, it is critical to distinguish between lenders who operate ethically and offer fair, transparent financial products designed to build credit and financial stability, and those who exploit vulnerable borrowers for profit;

WHEREAS, the development of a system to distinguish beneficial lenders from predatory lenders will empower consumers, improve financial literacy, and provide access to responsible lending options that foster long-term economic growth in impoverished areas and communities of color; and

WHEREAS, the National Black Caucus of State Legislators has a long history of encouraging long-term wealth creation in the United States and passed resolutions like BED-23-03 PROTECTING CONSUMERS IN A NEW FINANCIAL ENVIRONMENT, BED-25-02 PROMOTING ACCESS TO SAFE AND AFFORDABLE LENDING PRACTICES, BED-22-32 ESTABLISHING PUBLIC BANKS, and others to ensure that all communities can access and utilize financial tools needed to fight the cycle of poverty.

THEREFORE BE IT RESOLVED, that the National Black Caucus of State Legislators (NBCSL) will continue and expand its work with partners in the financial services industry, consumer protection groups, and community organizations in establishing clear guidelines and metrics for identifying beneficial lenders who prioritize fairness, transparency, and financial education and encourage the creation of a comprehensive, public-facing directory and certification system for lenders that meet these beneficial criteria—allowing consumers to easily differentiate between lenders offering ethical credit products and those engaged in predatory practices;

BE IT FURTHER RESOLVED, that such work shall employ a data-centric approach to analyzing lending patterns, borrower outcomes, and geographic disparities, providing actionable insights to policymakers and regulators to address inequities in financial access;

BE IT FURTHER RESOLVED, that the NBCSL advocates for the implementation of state and federal policies that support beneficial lending practices, encourage financial inclusion, and strengthen protections against predatory lending, particularly in communities of color; and

BE IT FINALLY RESOLVED, that a copy of this resolution be transmitted to the President of the United States, the Vice President of the United States, members of the United States House of Representatives and the United States Senate, and other federal and state government officials and agencies as appropriate.

• Resolution ID: BED-26-04
• Sponsored by: Rep. Karen Camper (TN)
• Policy Committee: Business and Economic Development Policy Committee