Image source | Digital vision | Getty Images
For many minorities in America, this is an all too familiar scene.
An applicant who is a person of color and applies for credit is either refused or given much worse terms than a white borrower.
In reality, investigation by the National Fair Housing Alliance, a Washington DC-based nonprofit, found that 60% of the time applicants of color – and far more financially qualified than their white counterparts – were nonetheless offered more expensive car loans , which cost them an additional $ 2,662 each over the life of the loan.
Senator Bernie Sanders (I-Vt.) And Representative Alexandria Ocasio-Cortez (DN.Y.) joined forces in May to present the Usurers Prevention Act to “combat the predatory lending practices of major US banks and protect consumers already burdened by exorbitant credit card interest rates.”
The legislation would cap interest rates at 15%, which would likely benefit many consumers of color.
It remains to be seen whether these actions can undo the financial damage that minorities have long suffered in America.
Decades of discrimination by the federal government and US financial institutions have caused an almost traumatic reaction, leading many people of color, especially African Americans, to engage in self-protective behavior similar to a post-traumatic stress reaction. .
The paradox: This defensive behavior, where the cause of injury is avoided, often pushes people of color away from the institutions that provide the credit they need to thrive.
The ramifications of this can be devastating, as good credit impacts everything from mortgage rates to employer hiring decisions.
Consider the plight of Sherry Long, 68, who witnessed racism when she was just 10 years old, an experience that continues to impact her financial well-being.
On a hot summer day in 1959, Long and his mother walked the 2.5 miles from their log cabin to the municipal building in Rawlins, Wyoming, twice in one day, the second time to ask why the town had cut the water.
On their first visit, they had paid their water bill in cash.
“I just gave you $ 300,” Long’s mother, an African American, told the town worker, a white woman.
“You didn’t give me any money,” Long said, the clerk replied.
Sherry Long avoided seeking credit due to childhood racial trauma.
Lori Teresa Yearwood
Long’s mother, a nurse’s aide and housekeeper who lived paycheck to paycheck, pleaded with her employers for emergency loans and then worked overtime to pay off debts.
That day, Long made a wish to herself that she would avoid traditional white institutions that reminded her of the one that had robbed her mother.
A soft-spoken woman, Long holds back tears as she recounts how she hoped that at this point in her life, after earning her bachelor’s degree in psychology and working for almost 30 years in the nonprofit sector, she would own a home. and have good credit.
Instead, after paying annual interest rates of up to 700% on emergency payday loans to cover rent and living expenses, she fell behind and was kicked out of her apartment. bedroom apartment in an upscale neighborhood of Salt Lake City.
After surfing on a couch with friends for over a year, she now rents a one-bedroom apartment above a busy restaurant, across from a massage parlor in a high-crime neighborhood.
Long’s credit score remains well below the average FICO score of 695.
She says she never considered seeking help from a white-owned institution. “They just didn’t seem to be meant for people like us,” Long said.
Jacqueline Scott, an associate professor of philosophy specializing in racial theory at Loyola University in Chicago, understands that traumatized people put themselves in a “kind of defensive position.”
In fact, this PTSD-like response is so prevalent that Scott coined a term to help his students understand it: “meta oppression”.
“It’s the depression that comes from having already faced oppression for a long period of time,” Scott explained.
Ricki Lowitz, Managing Director of Work credit, a Chicago-based nonprofit that helps customers in seven states navigate the credit system, believes the way to help disenfranchised consumers is to first help them overcome “their fear. deep credit ”.
Almost 80% of Working Credit clients are people of color.
There has been a long-standing debate as to whether the algorithms that govern the credit scoring system are racially biased.
Joanne Gaskin, vice president of scores and analysis at credit rating company FICO, says the company does not use age, address, occupation, income, gender or race to generate its scores.
“The fact that race is not factored into a credit score is perhaps the greatest opportunity we have to help people of color level the playing field,” Lowitz said.
When her clients learn how the credit system works, many are upset that they didn’t have the information sooner, she says.
“We meet people who have been beaten by the system,” Lowitz said. “In some cases, we contradict their parents and grandparents who told them to stay away.”
The median credit score of participants in the 18-month Working Credit program increased by 45 points for Hispanic participants and 44 points for African Americans.
Stanley Fenelon, of Boston, is one of the graduates of the program.
In 2016, the 26-year-old African-American spent about a year sleeping in his car while doing a paid internship.
Stanley Fenelon is a business analyst at Harvard University.
Rose Lincoln | Harvard University
After overcoming this difficulty and finding a job, Fenelon faced another challenge: cleaning up his credit history. His low scores disqualified him from the affordable car loans and secure apartment rentals he needed to stabilize his life.
“As with just about any African American or minority that I know, my parents didn’t know about credit,” he said. “I was taught to be very careful with this, everyone was so scared.”
Instead of seeking credit, Fenelon’s family repeatedly urged him to be “independent.”
As a result, Fenelon ended up with little savings or access to credit, which contributed to his plunge into homelessness.
Even when he managed to land a job as a business analyst at Harvard University, Fenelon said he was repeatedly turned down for apartment rentals by landlords looking for “more candidates. qualified “.
Baffled, he enrolled in a Working Credit workshop, where he learned to negotiate with creditors, to settle debts strategically and to appease his fear of banks.
His credit score went from 400 to 600 and Fenelon moved into an apartment in a middle class neighborhood.
His perspective on credit has changed dramatically.
“Okay, you accept that they made the rules,” he said. “And you say, ‘Okay, whatever, great.’ But then you turn around and beat them at their own game. “
Lori Teresa Yearwood is a freelance journalist specializing in collapse and post-collapse recovery. A collaborating editor at Draft report on economic difficulties, his work has appeared in The Washington Post, The San Francisco Chronicle, and The American Prospect, among other publications.