By James Felder
South Carolina’s lawmakers are contemplating a law that would dramatically impact minority communities across the state. Senate Bill 910 – the “Predatory Trade Practices Act” – was designed to protect consumers against predatory lending, but if passed in its current form, it would cut off communities across this state from financial resources that they need the most.
I know firsthand how critical a small line of credit can be for South Carolina’s minority communities. After the passage of the Voting Rights Act, I helped run the Voter Education Project in South Carolina, where in 1967 there were only 50,000 black registered voters, and we had eight black elected officials in the entire state.
We worked with local NAACP branches and civic leagues to run voter drives that resulted in over 200,000 new black voters registered in an 18-month period. We were able to do this by giving small grants – $ 150 or so at a time – to help with registration. We would buy gas, sandwiches, and other small dollar purchases that helped continue the effort.
We had to do this because we knew there were no banks in South Carolina that would help us out. From our office on Washington Street in Columbia, I helped community organizations write one-page grants from Vernon Jordan and the Southern Regional Council’s office in Atlanta. Grants that started out as $150 then increased to $500 or $1,000
at a time, and now instead of eight black state elected officials, there are hundreds – from the Congressional delegation down to school boards.
While we’ve made a lot of progress on voter representation, the lack of access to traditional banking remains a critical problem for many black Americans. Using banks can lead to an increase in savings and better financial literacy, but not all communities access these services equally. According to a report from Yale University’s Alexander K. Zentefis and Jung Sakong of the Federal Reserve Bank of Chicago, low-income households are four times more likely to be “unbanked” and black households are two and a half times more likely to fall into this category.
This disparity has exacerbated the racial wealth gap and created “banking deserts” where alternative financial services like traditional installment lenders are often the only ones who have set up shop to provide lines of credit that communities can depend on. For years, these lenders have offered safe and reliable loans to borrowers who can’t get any help from their local bank. As recognized by the National Black Caucus of State Legislators (NBCSL), traditional installment lenders offer amortizing, small-dollar, closed-end credit that “serves as an affordable means for borrowers to establish credit” and secure smaller loans.
Loans of even $500 go a long way in our community. Yet Senate Bill 910 would upend this ecosystem and
institute an “ability to pay” requirement that does not meet the current standards that responsible installment lenders are currently following. Even worse, for some reason the proposed legislation does not mandate banks or credit unions follow its requirements, even though these institutions are offering loan products that the bill’s proponents claim are predatory, such as teaser loan rates, secured credit cards, or loans with requirements that banks or credit unions access to customers’ savings or checking accounts.
I know the South Carolina General Assembly is full of leaders with the best of intentions. I was proud to be one of them in 1971, elected along with my friend I.S. Leevy Johnson, to be the first black elected House members since Reconstruction.
Yet even the best intentions can have unintended consequences, and that’s exactly what would happen should Senate Bill 910 become law. As brick-and-mortar banks continue to close across the country, the unbanked and underbanked challenge will only get worse. This bill would not solve our state’s “banking desert” problem; it would further exacerbate our “credit desert’ problem, too.
In this environment, we should be making it easier, not harder, for minority communities to get the credit they need. But in its current form, Senate Bill 910 would do just that by driving out ethical lenders to the ultimate detriment of the communities that need them the most.