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


Self-Help

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

families and communities


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


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


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

http://www.responsiblelending.org

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


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


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


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%



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


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.


What’s the Problem with Payday Loans?

Borrowers can’t pay them back.


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


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


What Works: Rate Caps

Cap APR at 36% vs current 400%

Federal Proposal To Be Introduced


Contact

Paul LeonardDirector, California Office

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

510.379.5500 [email protected]

Documents

Center for Responsible Lending