The Place of Race in Debt

Imagine the mayor of your hometown. Whether you grew up in a small-town hamlet or a sprawling metropolis, the mayor is by definition a leader, perhaps even a trailblazer. What you likely don’t imagine is a mayor being sued by a debt collector.

But that’s exactly what is happening to Yolonda Fountain Henderson. As ProPublica’s Paul Kiel and Annie Waldman detail in a recent article, she’s a single mother and the first black mayor of Jennings, Missouri (a suburb of St. Louis). And as the defendant in a debt collection lawsuit, she’s losing a quarter of her paycheck to a garnishment from the local sewer utility, to whom she owes missed payments built up during a period of unemployment a few years back.

Kiel and Waldman’s story, “The Color of Debt: How Debt Collection Squeezes Black Neighborhoods,” builds on Kiel’s first-ever national estimate of garnishment rates among workers. “The Color of Debt” places the experiences of Henderson and many others into a stark context: how race and debt collection impact Americans from all walks of life trying to get by. Four million workers, or three percent of the workforce, had wages seized because of consumer debt in 2013. Published last month and already being hailed as a groundbreaking analysis of available data about consumer debt lawsuits, Kiel and Waldman’s exhaustive article—for which they spent a year investigating and analyzing over 500,000 cases from St. Louis, Chicago, and Newark—also reveals that debt collection lawsuits are more common by far in predominantly black communities than in predominantly white ones, even when controlling for income.

The typical black household has a net worth of just over $10,000, while that of a typical white household has just over $100,000. Even within similarly low-income groups, white families have more than three times the liquid assets than black families, said Waldman at a recent event at New America with Kiel, Closing the Racial Wealth Gap Initiative director Anne Price, the New Republic’s Jamil Smith, and Jeanette Quick, senior counsel to Senator Sherrod Brown (D-OH), who serves on the Banking, Housing, and Urban Affairs Committee.

Although ProPublica didn’t have access to data about the race of the suits’ defendants, they were able to use the debtors’ location of residence and census tract data to extrapolate and map racial and economic variables. “Looking at where someone lives is a good proxy for race” in historically segregated cities like the ones they studied, observed Kiel. While Kiel and Waldman’s findings suggest the possibility of implicit or overt racial bias by lenders or collectors, they propose another explanation: that years of systemic discrimination have left black families with far fewer financial resources to rely on in unexpected “financial shocks”—pressure situations like medical emergencies, car repair, or job loss. Without a reserve or safety net, black families are statistically much more vulnerable to getting behind on bills and being sued by debt collectors.

“There is a spotlight that is now trained on issues contributing to the racial wealth gap,” observed Justin King, policy director for New America’s Asset Building Program. Stories with rigorous historical and data analysis like “The Color of Debt” or Ta-Nehisi Coates’ “The Case for Reparations” are powerful drivers of conversation. For example, both illustrate the lack of financial security and flexibility in communities of color reflected in a Pew survey of American Family Finances that Waldman cited: “Black families who do not experience a financial shock,” she said, “say that they feel as secure as white families who do experience a financial shock.”

Among the crucial themes in “The Color of Debt,” said Price, is the significance of geography and generations. “The report really brings home the point about how place and race intersect and how much that matters,” said Price. It also documents and highlights deep-seated racial discrimination enforced via mechanisms like housing policies that have prevented black families from accumulating and transferring wealth to their children. “Over time, when you are not able to buy that home and build up that equity, you think about the next generation, that this goes generations deep.”

Federal law allows debt-collecting plaintiffs to take up to a quarter of a defendant’s paycheck, while garnishment percentages and limits on interest rates vary widely state by state. And while Kiel and Waldman’s analysis illuminates an urgent need for consumer protections when it comes to lending and debt collection, implementing structures of accountability remains an elusive challenge for lawmakers. Quick mentioned a bill that Brown introduced in July to address zombie debt and the Consumer Financial Protection Bureau’s planned national database as promising initiatives, but pointed out that “in the Banking committee, the focus has not been so far this year on consumer protection issues.” Instead, “most of the hearings that we’ve had have been focused on rolling back Dodd-Frank reforms.” Passing “legislation will be difficult, so I think to the extent that there are informal policy levers that can be looked at,” such as further empowering regulators and enforcement agencies, “those are important tools in the toolbox.”

A journalist who has reported from Ferguson and St. Louis, Jamil Smith reflected on the fact that the racial disparities in debt collection suits aren’t happening in a vacuum but against the backdrop of a broader national conversation about race that’s been unfolding over the past year. Jennings, where Henderson is mayor, borders on Ferguson. “We could just as easily have been hearing about Jennings for the last year as Ferguson,” said Kiel. Michael Brown attended school in Jennings and was fatally shot by Darren Wilson about 200 yards from the Jennings border.

Both Quick and Price acknowledged that “The Color of Debt” is a reminder of the power of storytelling. “Nothing’s very quick on the Hill,” Quick quipped, but “continuing to highlight these issues is supremely important… when it comes to the Hill, the more members who hear about it, the more they’ll continue to pay attention.” In the absence of long-term legislative change, said Price, “we also have to continue to push the discourse and dialogue around these issues.” When it comes to debt, she continued, “we have a huge narrative to overcome around personal responsibility—particularly in communities of color and how that really undermines our ability to be effective on a policy front. So we need these kinds of reports and we need these conversations to be pushed out there so they can support the policy pieces that we’re working on.”

When it comes to making real changes to policy and culture that will have a tangible impact on racial disparities in debt collection suits, said Kiel, “there are a lot of common sense fixes. It’s just a matter of it being a priority in a state house or in Congress.” Price concurred, arguing that “we’re going to have to think really big and bold about this type of inequality that has been so pervasive over the last several hundred years.” Price also identified both consumer protections and student debt as immediate problems that are “bringing down multiple generations,” and noted that “if we can make some headway and reforms there I think we’ll have an immediate impact on young people today and for young people down the line.” Improving the financial outlook for people “down the line” matters because, as Kiel described, “once a creditor gets a court judgment, this is part of someone’s life for a long time.” Judgments are typically good for 10 years, becoming “something that can provide an invisible drag” on families in communities of color. As Kiel and Waldman quote Henderson as saying in their piece, “We’re all in the same boat…it’s the black community.”