California’s economy may be in a state of recovery, but we are not out of the woods yet. Since last year, the state economy has regained less than half of the roughly 2.7 million jobs lost due to the coronavirus, disproportionately affecting communities of color.
What those communities need is a helping hand to bounce back from the pandemic recession. Not only are racial minorities more likely to bear the public-health consequences of the virus, but they are also more likely to face the poverty stemming from it.
What communities of color don’t need are government barriers to poverty alleviation. First and foremost, the state government needs to assist consumers who are climbing out of debt. Unfortunately, Assembly Member Buffy Wicks recently introduced AB 1405, which would effectively eliminate the valuable option of debt settlement for those seeking relief in the midst of a global pandemic.
Proposed by my fellow Democrats and headed to the full assembly floor next month, AB 1405 all but ensures that thousands of Californians will be forced into bankruptcy or default, which is especially devastating for marginalized and under-served communities.
I have worked with California Democrats for decades, including many who currently back AB 1405, and their hearts are in the right place. However, AB 1405 represents a solution in search of a problem, saddling the state with a wide range of unintended consequences. According to the Consumer Financial Protection Bureau, the debt settlement industry is largely ethical and self-policing, with debt settlement companies representing less than one percent of all consumer complaints.
Attacking the debt settlement industry ultimately hurts those who rely on its services. Communities of color suffer less access to financial services and consequently are forced to rely on high-interest lenders. Minority communities should be given greater access to debt relief options, not face exclusion from such empowering opportunities.
Look at it this way: Debt settlement protects the 43 percent of Latino families who use credit cards to pay for basic living expenses. It protects the third of all Latinos putting off marriage in order to pay down high interest debt. And it protects the 15 percent of Latinos who dropped out of school to pay for credit card debt.
Yet it’s not only the Latino community at stake. Debt settlement protects the 99 percent of Black-owned small businesses that are financed with credit cards, not to mention the Black business owners who have had their income wiped out by the pandemic. Similarly, debt settlement protects the more than 40 percent of Black households who use credit cards to pay for basic living expenses. In many communities, debt-laden consumers cannot afford to patronize their local bodegas and neighborhood stores, perpetuating a vicious and depressing economic cycle.
This is what systemic discrimination looks like: Communities of color disproportionately forced to choose between schooling, family, education, and high interest debt. With the pandemic already exacerbating household debt among minority communities, AB 1405 either relegates consumers to ever-increasing cyclical debt or pushes them into bankruptcy. Whatever the outcome, the end result of AB 1405 is a bleaker economic future for those in need.
Debt settlement isn’t just a matter of economic opportunity or fairness. It is a consumer rights issue. The wealthy and powerful will always have the ability to renegotiate their debt, but AB 1405 would effectively remove the same option for communities of color across California.
No progressive should support AB 1405.
Nestor E. Valencia is founder of Economic Justice Now and former Mayor of the City of Bell.