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Native Americans disproportionately affected by predatory lending

WASHINGTON – A new study found that predatory lending practices disproportionately affect Native American families.

The findings were presented at the Native Financial Education Coalition’s 5th Annual Policy Briefing April 29. The group is composed of several Native organizations that are focused on increasing avenues of financial education and literacy.

The study, conducted by the Center for Responsible Lending and the First Nations Development Institute, found that many Native Americans utilize what are called refund anticipation loans to get money back at tax time in a way they will perceive to be faster than waiting for the Internal Revenue Service to cut them a check.

Financial advisors sometimes point less affluent clients to RALs in order to get them quick cash for a fee. Once their real tax refund comes, the loan is paid back.

“The convenience of getting a RAL comes at a high price,” said Leslie Parrish, a specialist with the Center for Responsible Lending.

She noted that fees for the loans can cost around $100 on top of a tax preparation fee of up to $150. Meanwhile, she said that many Natives are unaware that e-filing via the Internet usually cuts down on the time it used to take to get a refund – and there is no added fee if one files directly with the IRS.

The study specifically looked at Native families in 10 states who have taken advantage of the Earned Income Tax Credit. The EITC is a tax credit for certain people who work and have low wages.

One key finding was that in all but one state, there was more RAL usage among EITC recipients in Native communities. In North Dakota, for instance, 48 percent of EITC recipients from Native counties got a RAL, while only four percent did in non-Native counties.

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Another finding was that as the Native population in a state increased, RAL usage rose, often dramatically and in statistically significant ways.

The data from the study, which was based on 2005 tax return information, indicates that between five and eight cents of every refund tax dollar is drained from some Native EITC families. Thus, the loans end up costing families more in the long run.

Elsie Meeks, the outgoing Oglala Lakota director of the Oweesta financial organization, is concerned with the findings.

While groups like the NFEC have made progress in recent years in increasing financial literacy among Natives, she said “there’s still a lot of work to be done.”

She is optimistic that problems, such as those surrounding RALs, could be fixed with better federal and state policies.

Parrish suggested creating more voluntary income tax assistance sites, which offer free tax preparation and asset building opportunities. She also said rate caps could be enacted on RALs and other high cost loans.

Meeks believes that continuing public education campaigns in Native communities would also be crucial.

“As Native people, we have to build our financial literacy. Dependence is not a good thing.”

The full study and state-by-state data is available online.