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Jose A. Garcia

Jose A. Garcia

Posted March 18, 2009 | 10:17 AM (EST)

Use the Race Lens to Scrutinize Financial Products


Democratic lawmakers in Congress last week introduced legislation to create a Financial Product Safety Commission to ensure that mortgages, credit cards and retirement accounts do not pose unacceptable risks to consumers. Such a move would provide consumers with their first real protections in decades -- but the effort will be far less effective if the Commission fails to use a race lens when scrutinizing financial products.

All Americans have been affected by deregulation regardless of race or ethnicity. Stories abound of salary cuts, job losses, foreclosures and disappearing 401(k) savings in the wake of the mortgage debacle. However, the resulting recession has been particularly devastating for communities of color.

The recession hit consumers of color at a time when many are using credit cards to pay for basic necessities. In a 2008 survey of low- and middle-income Americans, Demos, a non-partisan public policy center, found that Hispanic and African-American households carried credit card debt twice the total value of their financial assets. White households, by comparison, tend to have more financial assets than credit card debt. The group United for a Fair Economy estimates that the total loss of wealth to date among households of color is between $164 billion and $213 billion thanks to subprime loans taken out during the past eight years.

With few to no assets and mounting debt, the economic insecurity experienced by communities of color has as much to do with 30 years of disinvestment in these communities as it does with today's economic climate. Social investment policies in the past have failed to provide a hand up for families of color in the United States. Policies like the Higher Education Act of 1965 and GI Bill helped to assist many in joining the middle class by funding higher education and assisting in the purchase of a home, respectively.

Sadly, these initiatives did not equally benefit all Americans and helped create a racial wealth gap that persists today -- a problem that will be addressed later this month in Washington at the "Color of Wealth" policy summit involving scholars, policy experts and advocates from communities of color and members of Congress.

That problem has only been compounded by the financial industry's less than equal treatment of consumers of color. For years, these communities were denied financial services as banks refused to extend loans or simply failed to place banking centers in communities of color. Then the industry courted these same neglected consumers, targeting them for toxic mortgages and high-cost credit card and auto loans, often even if a borrower qualified for a prime rate product.

If the proposed Financial Product Safety Commission comes to fruition, it is these past inequities that it must actively address. To do so requires moving past the notion of color blind policies as a one-size-fits-all answer. The pressing economic needs of communities of color require advocates and policy makers to ask how particular lending will directly impact communities of color. That means tracking marketing campaigns, scrutinizing products and terms, and analyzing the long-term economic impact of the products offered by race and ethnicity. Already, mortgage data is collected by race and ethnicity. By extending the collection of race data to other lending industries -- credit cards, auto loans, payday loans and so on -- the proposed Commission can better police the lending industry and its treatment of consumers of color.

It's just common sense. Consumer protections must protect all Americans equally. Failing to do so will only widen the economic gap and threaten to leave so many further behind as the nation tries to lift itself out of recession.


Jose Garcia is the Associate Director of Policy and Research at Demos (demos.org), a national public policy center. He is the author of many reports on debt and race, and is the co-author of the book "Up to Our Eyeballs: How Shady Lenders and Failed Economic Policies are Drowning Americans in Debt." He is a member of the Insight Center for Community Economic Development's "Experts of Color Clearinghouse." (www.insightexpertsofcolor.org)