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September 22 2017

Washington Wants Black Households to Trade Privacy for Cash

by Patrice Lee Onwuka

If Washington has its way, communities of color could be forced to give up their private information to secure cash funds when they’re in a financial pinch. And given the recent data breaches, there’s good reason to worry.

Have you ever had to borrow money to pay bills between paychecks or gotten slammed with a big unexpected expense?

When borrowing from family and friends isn’t an option nor is a bank loan timely or possible, small-dollar loans – on average about $350 – could be a viable solution.

The Consumer Financial Protection Bureau (CFPB), a federal financial watchdog agency, wants to force Americans who take out small-dollar loans to give up extensive private information. All of that data would be stored by the government to track borrower information and behaviors. Lenders would also be required to share this coveted information with credit reporting agencies.

African Americans and low-income communities are at greatest risk. Black households are more than twice as likely as people of other races to have used a small-dollar loan. These small-dollar or payday loans are lifelines to help meet day-to-day expenses.

Recent data breaches remind us that copious amounts of private data in the government’s hands is not safe. This is a bipartisan issue of concern as my colleague Carrie Lukas explains.

People from all backgrounds understand the risks to our private data in the public and private sector. That skepticism is why many Americans choose to go outside of traditional banking.

Approximately 9 million households don’t have a bank account and another 24.5 million households may have a back account but still use non-bank services like small-dollar loans. Black and Hispanic households are more likely to be unbanked and underbanked than any other group.

Unbanked Americans point to privacy and security concerns among the top reasons they use small-dollar loans and other alternatives to cash. According to an FDIC survey:

Other commonly cited reasons were “Avoiding a bank gives more privacy,” “Don’t trust banks,” “Bank account fees are too high,” and “Bank account fees are unpredictable.” Of these, the most cited main reasons were “Don’t trust banks” (10.9 percent) and “Bank account fees are too high” (9.4 percent).

Here in the U.S. alternative banking services like small-dollar loans serve an important function: They provide a cheap solution to cash shortfalls. As we’ve written about before, when lawmakers think they are doing the right thing by banning small-dollar loans, borrowers suffer.

If the CFPB institutes its plans to regulate small-dollar loans by beefing up collection of private data, communities which are trying to protect their identity may find themselves in a quandary – choosing between the short-term funds they need and they privacy they can’t live without.

 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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