- Jose Garcia is associate director for research and policy at Demos. He is responsible for providing statistical and policy analysis for Demos’ Economic Opportunity Program on issues such as household debt and assets. -
As the days heat up, so too has the debate in Congress over what type of consumer protection to include in financial reform legislation. Detractors have moved to take the bite out efforts to crack down on abusive lending practices while advocates try to hold the line. Should there be an independent Consumer Financial Protection Agency? Or should it be housed in the Federal Reserve? And what authority should it have?
The debate has taken place at a time when debt continues to undermine the economic mobility of many American families and how Congress resolves the issue in the next couple of weeks will be critical to the future of those families, particularly consumers of color. It’s no exaggeration to say the creation of an independent agency may be the only means for addressing generations of abusive lending that has saddled communities of color with unmanageable debt.
A new report by the Institute on Assets and Social Policy at Brandeis University shows that over the past two decades, African-American families with low asset levels — unfortunately, a disproportionate number of African-American families — have increasingly relied on credit to make ends meet. Examining longitudinal economic data collected from the same set of families over 23 years, the study found that when you subtract total debt from total assets, one in 10 African-American families owed at least $3,600 in 2007 — nearly double their debt burden, in real terms, in 1984.
The growth in debt among previously credit-starved minority communities surged as markets were deregulated and paved the way for high-cost lending, including securitized subprime and predatory loans, payday loans and check-cashing stores, the study said. With greater numbers of families struggling with growing debt that far outstrips their income and savings, many low-income and minority households have had no choice but to turn to costly lending products for immediate but expensive solutions to pressing needs.