Flooded: How Natural Disasters Lead to Predatory Lending in the Rio Grande Valley

The devastation that communities in the Rio Grande Valley face is twofold: the initial destruction of the floods and the cycle of debt and poverty as a result of predatory loans.

colonias. Stock image shows house collapsed from flood damage
Photo by Christine via Flickr, CC BY-SA 2.0

The Rio Grande Valley, the southernmost tip of the Texas-Mexico border has made headlines for poverty, immigration and, more recently, the outsized impact of COVID-19 on an already vulnerable population. What is more rarely discussed, however, are the systemic issues at play that mire the Rio Grande Valley, and particularly the informal settlements known as colonias, in a cycle of destruction from which it is difficult to break free. These systemic issues include vulnerability to environmental hazards, especially flooding, ignorance (or apathy) on the part of the federal government, and a model of housing rehab finance that harms those that desperately need support.

In December 2019, I collaborated with local nonprofit organizations as part of my master’s thesis research. I facilitated focus groups and conducted interviews with those who had suffered from floods in the colonias of the Rio Grande Valley. Colonias are informal communities along the U.S.-Mexico border characterized by high poverty rates, low-quality housing and little public infrastructure. These communities are often developed illegally by predatory housing developers that build on semi-rural land in floodplains and the people who live in them are overwhelmingly Mexican and Mexican American.

Historically, colonias developed in the 1980s and ’90s as an affordable way for low-income families to buy land outside of large border cities; now, colonias continue to develop as population pressures increase the cost of housing along the border. The vast majority of colonias are in Texas, and the Rio Grande Valley is home to thousands of them. My research reveals an interconnected system of marginalization in which families, seeking to repair and replace flood-damaged property, turn toward predatory lenders, including payday lenders and car title lenders. As a consequence of these small yet high-interest loans, families are unable to fully recover from these all-too-common floods. This forces many to prioritize bare necessities over repairs. The damaged and destroyed homes commonly produce negative public health effects.

How is this possible?

Left Behind in the Floods

The unique experience of flooding in the Rio Grande Valley is a combination of environmental racism, failed policy, and a financial system that excludes the poor. Indeed, flooding isn’t uncommon, especially in the era of a rapidly changing climate. I spoke with almost 40 individuals and families across the Rio Grande Valley, from whom I learned that they not only experience flooding seasonally, but that the flooding is becoming worse. Unfortunately, there is very little data on the number of floods or flood victims annually in the Rio Grande Valley, nor is there up-to-date FEMA floodplain data along the Texas-Mexico border; this lack of data availability impedes research in colonias.

The Rio Grande Valley, overall, sits off the Gulf of Mexico and is highly susceptible to heavy downpours. While that may not be an issue for places with adequate drainage, it’s a problem for the thousands of colonias, with an estimated 500,000 people, that dot the Texas-Mexico border. These communities lack infrastructure such as paved roads, street lighting, and adequate drainage. This is a failure on the part of the local and state government—part of this failure is due to jurisdiction as counties are relatively less powerful than cities in Texas. There are two principal ways that counties are badly positioned to support colonias: the first is a state-imposed limitation on the power of counties to tax residents, thus limiting infrastructural projects. The second is that counties lack the ability to enforce zoning laws, preventing them from stopping nefarious housing developers. Yet the state of Texas has actually cut funding to colonia infrastructure projects under the guise of increasing fiscal responsibility and decreasing bureaucratic red tape.

The failure to support colonias, however, goes all the way up to the federal government: FEMA has been sued by local organizations for its refusal to provide aid to post-disaster families based on evaluations from private contractors who declared that their homes had “deferred maintenance” that contributed to its damage at the time of the natural disaster. This essentially denied aid to those seeking to rebuild their homes because they were too poor to keep their home up to standards in the first place. While FEMA promised to stop the practice, many of the colonia residents that I spoke with said that they were still being excluded from FEMA funds.

[Related: How a Dozen Organizations are Fighting Persistent Poverty Together]

Given the lack of support from local and federal institutions, families with flooded homes have limited options. Using savings to fix damaged property may be a stretch for even middle-class Americans, let alone low-income families on the border. In fact, according to the Milken Institute, families in the Rio Grande Valley are severely un/underbanked. A 2017 FDIC study showed that 6.5 percent of the US population lacked a checking or savings account; of the almost 40 families and individuals I spoke with, only 4 had a checking account, while 1 had a savings account. This means that acquiring a traditional home rehab loan is next to impossible. Instead, families with flooded property turn to one of the plethora of payday lending or car title loan establishments across the Rio Grande Valley in order to fix and replace their damaged and destroyed property.

“We applied for a loan but didn’t get approved for much money and they asked us for too much in the interest rate,” says one woman who was forced to use a predatory loan to fix her home after a flood.  “I didn’t have another option than to take the smaller loan with the larger APR. So, we had to fix the home part by part because we didn’t get a large loan. We had to get the money together little by little in order to begin to fix the bathroom.” While I don’t know the specifics of the loan this woman took out, the average payday loan in Texas was $476 in 2015 and had an APR of 463 percent: in other words small, and expensive.

Predatory loans are problematic for a variety of reasons. First and foremost, they have high interest rates and lead to a cycle of debt in which the borrower is forced to refinance the loan for ever increasing interest rates, often upward of 400 or 500 percent. In addition, the size of the loan is often much smaller than what a traditional bank would offer, meaning that it is rarely able to cover the entire cost of the damaged property. Given the inability to cover the recovery cost, families are forced to address only immediate needs. For example, a family might decide to replace a flooded car rather than fix a moldy floor. A car is a necessity for traveling to work, school, and buying groceries in a transit-sparse place like South Texas. Alternatively, a moldy floor is a problem, but one with long-term, rather than short term, consequences.

The Rio Grande Valley has a history of health issues ranging from obesity to COVID-19, and unhealthy housing—caused by a combination of poverty, natural disasters, and predatory lenders—has severe health costs. According to one study, almost half of colonia households are overcrowded, 97 percent report having pest issues, and half of homes have mold issues.

But flood damage and destruction adds another level of vulnerability to an already disenfranchised community. According to the interviews and focus groups I held in December of 2019, families with flooded homes experienced a variety of health issues following a flood.

They include asthma and allergies related to mold, vermin infestations connected to warped floors with exposed crawl spaces, contaminated water, and injury from crumbling homes.

One mother described how her family was forced to prioritize bills over health after a flood in the summer of 2019: “Our situation was made worse by our health problems. We had to decide if we pay the doctor to get medicine, or buy food, or pay for light, or pay for water, or leave and pay for a different place to live. It was a very bad situation. Sometimes we tried to drink tea instead of going to the doctor to help with our allergies and asthma.”

Another mother explained how she and her children became sick after a recent flood, “When it rains too much … the house gets wet and the roof leaks all the time. The house has a lot of mold and we are starting to get sick. My children have a lot of allergies, asthma and lung infections all the time…I have a little girl who is 1 year old, she has a lot of allergy problems because of the mold in the house. We’ve fixed some things, but we can’t afford to fix the whole house because it’s so old.”  As the Rio Grande Valley is largely Mexican and Mexican-American, the outsized health impacts experienced by this community are yet another example of the environmental racism that COVID-19 has illuminated. Furthermore, the national call to “stay home” may put many at additional risk to the negative health of effects of moldy, flooded homes.

The Path Forward for the Colonias

To truly combat this multifaceted problem, there needs to be comprehensive and holistic policy change with the goal of supporting equity. A key component of this would be ensuring adequate infrastructure in the colonias, including proper drainage, septic tanks that won’t overflow with sewage, and paved roads that are passable after a flood. Additionally, there needs to be a total transformation of the way that FEMA approaches flood recovery in the colonias. One possible model is akin to the Small Business Administration (SBA) loans that are provided to business owners affected by disasters. SBA loans are essentially low-interest microloans for small businesses that have been struck by disaster. Making similar loans available for residents would enable them to receive the post-disaster financing they need, but at a heavily reduced APR. Furthermore, these SBA-style loans would enable unbanked and underbanked families to build a credit history.

We need regulations on payday lending and car-title lenders to protect borrowers from inordinate fees; because this industry is largely unregulated these loans can have interest rates of more than 400 percent. Interest-rate caps would limit the cycle of debt and poverty many low-income families in Texas experience after a disaster.

For those who have already experienced flooding in the Rio Grande Valley, there needs to be more large-scale support in renovating and replacing their property. Currently colonias are particularly vulnerable due to their location (rural and in floodplains), their poverty, and their lack of infrastructure. As a result, the federal and state governments need to support these communities to the extent that no family is burdened with the extra cost of recovery and negative health consequences.

Furthermore, these policies and practices should be based on local knowledge and understanding of the issue. One program, The Lower Rio Grande Rapid Recovery Housing Program (Rapido) a multi-organization collaboration that helps families recover from flooding by rebuilding homes in a sustainable and safe way, does just that. Their model enables the family themselves to take part in the reconstruction, which is a prevalent form of self-help housing seen throughout the colonias. While programs like RAPIDO are inspiring, the problem persists.

To solve this problem federal and state governments need to fundamentally change their policies towards the colonias through providing adequate water infrastructure, financing flood recovery efforts that work for colonia residents, and ensuring that Texas’s most vulnerable communities are protected from predatory lenders. 

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