Modern Vectors of Economic Oppression - Finance, Banking & Credit

Modern Vectors of Economic Oppression Finance, Banking & Credit

White Economic Advantage + Black Economic Suppression = Modern Vectors of Economic Racism

"For the (racial wealth) gap to be closed, America must undergo a vast social transformation produced by the adoption of bold national policies, policies that will forge a way forward by addressing, finally, the long-standing consequences of slavery, the Jim Crow years that followed, and ongoing racism and discrimination that exist in our society today."

W. Darity, D. Hamilton, M. Paul, A Aja, A. Price, A. Moore, and C. Chiopris

Learn about each modern vector of economic racism below:

Reckoning with an Unjust Past: a Spoken Word Series by Veronica Wylie

Summary

The banking and informal credit industries formed an integral part of the structures of institutional racism since the founding of this country. Beginning with fraudulent sharecropping arrangements through payday loan schemes, African Americans were preyed upon in a variety of ways.

Personal Narratives

“There was a man had been, was working sharecrop for a gentleman and naturally, he couldn’t read or either write. And every year, regardless of how much cotton he made he would just bring him out so he would have just a little bit left. So he got kinda wise and where he would get at the harvest time. And he made six bales of cotton that year, and he took four to count on the wagon. And his white landlord that he was renting, he was sharecropping with, met him. And there are cotton bales on the street.

When the four bales of cotton was sold the amount of money they came to, they went to the bank. And naturally in sharecropping, the man that you sharecrop with, he pays for half and you pay for half. So when everything was over, he told him, he said, “You did marvelous this year, you cleared $350.” But now this 350 dollars got to last him till they start to farm again.

So the colored fellow didn’t say anything at all, but in a couple of weeks he took two more bales of cotton to town. So when he [the white owner] met him he called him up and told him he wanted to see him in town. So when he met him, he said, “I had an idea that you had been cheating me, but I didn’t have no way of knowing it.” He said, “Now you say I don’t owe you anything?” He says, “No, you paid off and you cleared $350.” He said, “Now when we sell I got two more bales of cotton. ”So, he says, “Why didn’t you tell me that at first? Now, I got to go over all these figures, and you might clear just a little something.”

So anyway from that they started a argument. And this white man jumped on him, and hitched the horses to him, like he was a wagon and drove him, and drug him through the street—in Abbeville, South Carolina—and took him down in the park, and hung him. Now that’s just as true as I’m looking at you. But you wasn’t allowed to say anything about it.” [7]

- Hughsey Childes

[7] “Drug Him Through the Street”: Hughsey Childes Describes Turn-of-the-Century Sharecropping

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"In Newark, New Jersey, an elderly African American woman named Beatrice was pushed into an abusive high-cost adjustable-rate mortgage with a fat balloon payment and a hefty yield spread premium for the broker. In Philadelphia, lenders repeatedly pressured an elderly African American woman named Veronica into more than a dozen high-cost
loans, usually worked out by brokers sitting at her kitchen table; “They make it so easy,” she said; “They tell you they are going to pay off all of your bills. And then they give you a check.
But a couple of months later you are in more debt than before.” In New York’s Bed-Stuy neighborhood, an unlicensed broker lured an elderly widow named Anna Mae into a loan with a monthly payment thirty percent more than her total monthly income. And in Akron, Ohio, an African American widow named Addie received a series of loans from Countrywide that put her in debt for more than 180 percent of her home’s assessed value. Addie, who was by then 90, fell behind on the payments and faced foreclosure. In October of 2008 Addie shot herself in her
bedroom as sheriff’s deputies pounded on the door to enforce an eviction order. When Dennis Kucinich learned about Addie, he went straight to the house floor and read the entire story into the Congressional Record, later telling a reporter, “This is a human face for a great national tragedy.” Addie survived the gunshot, but died in a nursing home six months later."[8]

[8]Anecdotes Foreclosed (ubc.ca)

Methods of Discrimination

‘Company Store’ Sharecropper Credit Schemes

After the Civil War, former slaves sought jobs, and planters sought laborers. The absence of cash or an independent credit system led to the creation of sharecropping.

Sharecropping is a system where the landlord/planter allows a tenant to use the land in exchange for a share of the crop. In the South, after the Civil War, many black families rented land from white owners and raised cash crops such as cotton, tobacco, and rice. In many cases, the landlords or nearby merchants would lease equipment to the renters, and offer seed, fertilizer, food, and other items on credit until the harvest season. At that time, the tenant and landlord or merchant would settle up, figuring out who owed whom and how much.

High interest rates, unpredictable harvests, and unscrupulous landlords and merchants often kept tenant farm families severely indebted, requiring the debt to be carried over until the next year or the next. Laws favoring landowners made it difficult or even illegal for sharecroppers to sell their crops to others besides their landlord, or prevented sharecroppers from moving if they were indebted to their landlord. [6]

Credit Duplicity in the Post-Bellum South

The roots of predatory lending are embedded in the economic and financial institutions that emerged in the post-bellum era when Black sharecroppers and other agricultural workers depended on “company stores” to provide credit until harvest. Merchants exploited Black borrowers in three ways[2].
Merchant maintained a two-tiered pricing system with one price for goods purchased with cash and a second price for goods purchased with credit.
One study compared the cash and credit prices of eleven staple articles and determined that the average credit price was 55.3 percent higher than the cash price (the price differential ranged from a minimum of 33.6 percent to maximum of 89.6 percent[2].
Merchants established an additional interest rate for goods purchased on credit.
Typically, an additional interest rate charge of eight to fifteen percent was added to the price of the advance.
Merchants added an additional interest rate charge of two to five dollars on smaller accounts ranging from ten to twenty-five dollars[2].

Contract Installment Loans:

“Overall, during the time period from 1930 to 1960, scholars have demonstrated that "fewer than one percent of all mortgages in the nation were issued to African Americans." 360 With African Americans unable to obtain the same type of financing available to whites from traditional financial institutions, they were forced to rely on less favorable, often predatory, forms of mortgage financing.”

The contract was subject to predatory abuse in a number of manners. First, the buyer often did not gain title to the property until the last installment payment was made. Second, the installment contract acted to prevent the buyer from gaining any equity in the property over the course of the agreement term. Such a contractual arrangement could be utilized in a predatory manner because if the buyer missed a single payment, the seller could take back the property without foreclosure proceedings, and the buyer would lose not only the property but all payments previously made on the contract.364 Third, usury laws and mortgage interest rate ceilings did not apply since the installment contract was a private contract between the parties, a seller could charge any interest rate that the buyer was willing to pay. Fourth, the buyer could be kept ignorant of the actual value of the property since appraisals were not necessary to finance the transaction.” [2] [pp. 185]

Payday Loans

A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a small, short-term unsecured loan with high interest rates. A 2019 study found that payday loans in the United States "increase personal bankruptcy rates by a factor of two... by worsening the cash flow position of the household.“ A second 2019 study looking at the UK found that payday loans "cause persistent increases in defaults and cause consumers to exceed their bank overdraft limits. “The likelihood that a family will use a payday loan increases if they are unbanked or underbanked, or lack access to a traditional deposit bank account. In an American context the families who will use a payday loan are disproportionately either of black or Hispanic descent, recent immigrants, and/or under-educated. These individuals are least able to secure normal, lower-interest-rate forms of credit. Since payday lending operations charge higher interest-rates than traditional banks, they have the effect of depleting the assets of low-income communities. The Insight Center, a consumer advocacy group, reported in 2013 that payday lending cost U.S communities $774 million a year. [5]

Predatory Lending in the 21st Century, A Legacy

Merchants’ predatory use of credit impeded African American economic progress by encouraging the poor to use greater and greater draws on credit; the payday loan industry is a prime example.

“Payday loans are available in 36 states, with annual percentage rates averaging 391 percent[3].”
“African-American neighborhoods have three times as many payday lending stores per capita as white neighborhoods...“This three-fold disparity remains unchanged even when we control for other neighborhood effects.[4].”

Taxation

Black Americans Are Much More Likely to Face Tax Audits, Study Finds - The New York Times (nytimes.com)

How four decades of tax cuts fueled inequality – Center for Public Integrity

Timelines of Disparity

Metrics

44.2 - 74.6 % Interest

The total interest rates charged by merchants in Georgia between 1881 and 1889 ranged from a low of 44.2 percent to a high of 74.6 percent. In contrast, the short-term interest rates in New York City at this time ranged from four to six percent, and never above eight percent. [2]

Questions for Research and Reflection:

Which myths based on white supremacy culture did you grow up with?

Anyone can get approved for credit
Rates are the same for everyone
If Black people were better with finances, they wouldn't need payday loans
Can't "they" read the fine print? Everyone should be able to spot a bad deal.
Everyone has a bank account, right?

Self-reflection:

Did any of your family members farm through the 1930s?
Did they have sharecroppers on their land? What sort of contracts did they have?
Ask a Black colleague or friend if any family stories about sharecropping have been passed down.
Is there a payday loan shop near your home? Why or why not?
Have you ever taken out a payday loan? What rate did you get? How long did it take to pay it back?
Has anyone in your family fallen prey to a predatory lending scheme?
How many big-ticket items have you been able to purchase in cash versus on credit?
Was your credit history ever tied to your parents’ when you first started building credit?
Have your parents ever had to bail you out of credit debt? Have you ever bailed your children out of debt?
How quickly have you built (or rebuilt) your 6-month “rainy day fund”?
How might differences in access to resources affect net worth over generations?