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Debt Practices and the Downward Poverty Spiral

Do debt practices unfairly impact low-income communities? A new report from a four-state collaborative of nonprofits argues that the answer to that question is “yes.”

debtThe new report is entitled “Enforcing Inequality: Balancing Budgets on the Backs of the Poor,” and was compiled in partnership by the California Reinvestment Coalition, the Maryland Consumer Rights Coalition, North Carolina-based Reinvestment Partners, and the Illinois-based Woodstock Institute. According to the report, “problematic policies around both consumer debt assignment and debt collection target low-income communities, as well as communities of color.”

The collective of nonprofits reports that “Americans owe more than 26 percent of their annual income to consumer debt, which includes non-mortgage related debt such as credit cards, auto loans, and student loans.” Moreover, the report states that racial wealth gaps lead to non-white borrowers having “more consumer debts in collection, a higher debt load, and more student debt than white borrowers.” Some of the examined states also showed more debt collection actions happening in areas with large minority populations, as compared to areas with more white residents.

“The fact that county and state governments frequently use contracted third-party private debt collectors is especially troubling because private debt collectors are not subject to the same consumer protection laws as public debt collectors,” states the accompanying media statement. “Accumulated debt can spiral out of control for consumers who are unable to pay.”

"The collection of civil and court fines and fees debt can perpetuate a debt trap and a cycle of poverty for communities already disproportionately impacted by our criminal justice system," said Paulina Gonzalez, Executive Director of the California Reinvestment Coalition. "California and other states should immediately cease the use of private debt collection agencies to collect on this debt, especially since the revenue gained by this practice is minuscule, and these agencies are largely unregulated, leaving people with few, if any, protections from abuse, further impacting poor people and people of color."

Some of the report’s key findings include:

  • Racial demographics are a better predictor than income on where Maryland’s Central Collection Unit filed civic debt collection cases.
  • Vehicle tickets were 40 percent more likely to be issued to drivers from minority and low- and moderate-income zip codes than drivers from non-minority and higher-income zip codes in Chicago, Illinois.
  • In the city of Durham, North Carolina, one in five residents has a suspended driver license and over 2,000 have had their license revoked or suspended for failure to pay or comply with court costs.
  • The imposition of criminal, municipal, and civil fines and fees disproportionately impact communities of color due to systemic race and criminal justice issues that hurt communities of color, such as higher rates of economic instability, the over-policing of neighborhoods, and higher traffic stop rates. For example, 67.9 percent of the probation caseload, and the relevant fines and fees, in the California Probation System consists of people of color, overrepresented by African Americans.

You can read the full report by clicking here.

The unbalanced effects of debt collection practices against minority and low-income communities can simply add to the systemic challenges they already face in many cases. An April Zillow report found inequities among homebuying power across ethnic groups. Asian buyers fared best, able to afford 85.2 percent of homes without spending more than 30 percent of their income on housing. White buyers had the second-greatest buying power, able to afford 77.6 percent of homes for sale. Hispanic homebuyers could afford 64.9 percent of homes available. Black homebuyers, however, had the fewest options, able to afford just 55.3 percent of the homes available for purchase.

Another Zillow report from the same month found lingering effects from the decades-past practice of “redlining” certain neighborhoods as “hazardous” for mortgage lenders. Unsurprisingly, neighborhoods classified as “hazardous” very often tended to be those occupied primarily by racial or ethnic minorities, and by the poor.

During the intervening two decades, the median home value in those “best”-rated neighborhoods has risen 230.8 percent to $640,238. For the redlined neighborhoods? The same amount of time has witnessed an increase of only 203.1 percent, with median home values in those areas hitting $276,199.

About Author: David Wharton

David Wharton, Managing Editor at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has over 16 years' experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. Wharton and his family currently reside in Arlington, Texas. He can be reached at David.Wharton@theMReport.com.
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