Center for Responsible Lending

http://www.responsiblelending.org

Latinos and Consumer Financial Protections

National Association for Latino Community Asset Builders

Paul LeonardSeptember 4, 2008

http://www.responsiblelending.org 2

Center for Responsible Lending

Promoting policies and practices that encourage fair access to credit for low-

wealth families

http://www.responsiblelending.org 3

Self-Help

Creating and protecting ownership and economic opportunity for people of color, women, rural residents and low-wealth

families and communities

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It All Starts With Wealth:Huge Gaps in Net Wealth

$88,651

$7,932 $5,988

0100002000030000400005000060000700008000090000

100000

White Households Latino Households African-AmericanHouseholds

2002

med

ian

net

wo

rth

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Latinos: Financial Insecurity

Poor or No Credit: 22% had poor or no credit score, compared to 4% Whites, 3% African Americans

Limited Use/Access to Mainstream Banking: Survey finds 35% without bank accounts Rises to 42% for foreign-born

http://www.responsiblelending.org 6

Homeownership Gap

75.2

49.7 47.2

0

20

40

60

80

100

White Households Latino Households African-AmericanHouseholds

2007 H

om

eo

wn

ers

hip

Rate

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Basic Banking: Beware of Excessive Overdraft Fees

“Courtesy” Overdraft: $17.5 Billion Annually $34 fee for a $5 Big Mac ABA: Concentrated in 20% of Account Holders

Growing Use of Debit Cards for Routine Transactions

Federal Reserve Considering New Rules: Require Opt Out Option Would Prefer Opt-In

7

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Credit Cards: Necessary but Frequently Misused

Underutilized by Latinos: 80% for all Americans vs. 56%.

But likely to pay high rates: 12.9% pay >20%, compared to 7.1% for whites, 14.9% for African Americans

Greater likelihood to have challenges managing debt: higher proportions maxed out, 1 of 4 late or missed a payment

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Credit Cards: Reform is in the Air

Federal Reserve is Issuing Rules U.S. House Will Take Up HR 5244 Key Provisions:

Ending Retroactive Rate Increases unless more than 30 days late

Ending Universal Default Prohibits Double Cycle Billing: charging interest

on balances repaid during grace period Ends Unfair Late Fees

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CA Payday Used Disproportionately by Minorities

Percent unbanked

California adult

population 

California adult population eligible for

payday loan(must have a

checking account)

Payday loan borrowers

African Americans

19.4% 6.4% 5.2% 18.4%

Latinos 19.4% 28.1% 22.6% 36.2%

White 4.5% 62.6% 59.8% 35.7%

http://www.responsiblelending.org 11

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What is a Payday Loan?

Two-week loan secured by a post-dated check

CA: $15 fee per $100 borrowed up to $300 (equates to rates beginning around 459% APR)

To qualify, borrowers only need: personal identification a checking account an income from a job or government benefits

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Payday Lending in California (2005)

Approximately 2,500 shops $2.5 billion 9.8 million loans 1.0 million borrowers 10 loans per borrower per year 2.6% of total loan volume charged-off Borrowers pay $365 million in excess fees.

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What’s the Problem with Payday Loans?

Borrowers can’t pay them back.

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What’s the Problem with Payday Loans? Los Angeles

Single Single Parent (1 school-aged child)

Annual Income $60,000 $40,000

Bi-Monthly Pre-Tax Income $2,500 $2,917

Taxes $370 $435

Bi-Monthly After-Tax Income $2,130 $2,482

Bi-Monthly Expenses: Housing, Child Care, Food, Transportation, Health Care, Miscellaneous

$2,005 $1206

Money left over $125 $169

Payday loan balance $294 $294

DeficitDeficit -$170-$170 -$125-$125

Source: CRL Analysis using California Budget Project data

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Many States Don’t Allow High-Cost Payday Lending

One third of US population lives in states without payday lending

All of New England, NC, Most recently OH, AR, DC, NH, OR

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What Works: Rate Caps

Cap APR at 36% vs current 400%

Federal Proposal To Be Introduced

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Contact

Paul LeonardDirector, California Office

Center for Responsible Lending http://www.responsiblelending.org

510.379.5500 Paul.Leonard@responsiblelending.org