Prosperity Connection Celebrates Womens’ History Month: Pinklining

Prosperity Connection Celebrates Womens’ History Month: Pinklining
March 30, 2020 Prosperity Connection

Pinklining: How Predatory Lenders Trap Women in Debt, and What You Can Do About It

 Thanks to the 1974 Equal Credit and Opportunity Act (ECOA), women have had full, independent access to credit (without requiring male cosigners) for over 40 years. However, despite this step forward, women face a newer threat to their financial wellbeing: a predatory lending practice known as “pinklining.” Coined by Ohio State University professor Suparna Bhaskaran in a 2016 report, the term was inspired by redlining, a practice used by the government and financial institutions to deny African Americans and other communities of color access to mortgages and credit. Under redlining, government officials and lenders would draw red lines on maps around neighborhoods with heavy concentrations of minorities, cutting them off from wealth-building opportunities by rejecting loan applications in those areas.

Redlining was outlawed by the Fair Housing Act in 1968, but Bhaskaran’s report shows how shady businesses in the payday, student, and home loan industries use “pinklining” tactics to target women from formerly redlined communities with substandard loans that trap them in unending cycles of debt. This is also referred to as “reverse-redlining” when applied to victims who are not targeted because of their gender. Under these kinds of pinklining practices, lenders prey on women’s lower economic position compared with men, knowingly approving them for loans they can’t afford to repay.

So, how does pinklining affect women today? An area where the effect is most visible is payday loans. According to the report, 60 percent of payday loan customers are women. Since women carry higher student and medical debts than men, they’re also more likely to be denied traditional loans with better payment terms, which, once again, makes them an ideal target for fringe services like payday loans. The consequences add up quickly, especially in Missouri where the typical payday loan interest rate is 462 percent. As you can imagine, many women find themselves trapped in a debt cycle that damages their credit, strains their finances, and cuts them off from healthy wealth-building opportunities.

How can you guard against predatory lenders? In addition to joining the call to regulate and replace predatory lending industries, here are 3 basic tips for protecting yourself from lending traps:

  1. Watch out for red flags: Predatory lenders want to make as much money as possible, even if it isn’t in your best financial interest as a consumer. If a deal seems too good to be true, it probably is. Take the time to read over the terms of your loan, and never trust a lender who pressures you to sign before you’re ready. Examples of things to pay close attention to are adjustable rate mortgages; interest rates that increase after an advertised introductory period (ex: “No interest for 30 days”); and high early payment, late payment, and rollover
  2. Shop around: Many people who apply for predatory loans don’t know they actually qualify for more affordable loans from banks or credit unions. Don’t be afraid to explore all of your potential options before committing to a specific loan. If you do find yourself absolutely needing something like a payday loan, compare lenders to at least get the best terms possible. One option in the St. Louis area is Prosperity Connection’s Red Dough Money Centers, which offers installment loans and other services at a significantly lower cost and with better terms than other local payday loan centers.
  3. Explore your options: When you’re facing a crisis, sometimes a quickly approved loan seems like the only way out. This isn’t always true, and there may be options for you that don’t involve predatory loans, like negotiating a payment agreement with your creditor or seeking out emergency assistance programs in the community. If you need help building a debt management plan, you can always contact one of Prosperity Connections’ financial coaches for one-on-one coaching specific to your financial needs.

Finally, if you feel like you’ve been the victim of a lending scam, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC). Filing a complaint lets the government that a company or industry is preying on vulnerable borrowers. It can also help get money back into the pockets of women who’ve been scammed by predatory lenders. For more personalized information on managing your finances and rebuilding credit after using these kinds of loans, contact us to schedule a one-on-one financial coaching session today.

Nay’Chelle Harris

Prosperity Connection Financial Education Coach