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Center for Responsible Lending

Latinos and Consumer Financial Protections National Association for Latino Community Asset Builders Paul Leonard September 4, 2008. Center for Responsible Lending. Promoting policies and practices that encourage fair access to credit for low-wealth families. Self-Help.

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Center for Responsible Lending

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  1. Latinos and Consumer Financial ProtectionsNational Association for Latino Community Asset BuildersPaul LeonardSeptember 4, 2008

  2. Center for Responsible Lending Promoting policies and practices that encourage fair access to credit for low-wealth families

  3. Self-Help Creating and protecting ownership and economic opportunity for people of color, women, rural residents and low-wealth families and communities

  4. It All Starts With Wealth:Huge Gaps in Net Wealth

  5. 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

  6. Homeownership Gap

  7. 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

  8. 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

  9. 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

  10. 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% CA Payday Used Disproportionately by Minorities

  11. 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

  12. 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.

  13. What’s the Problem with Payday Loans? Borrowers can’t pay them back.

  14. What’s the Problem with Payday Loans? Los Angeles Source: CRL Analysis using California Budget Project data

  15. One third of US population lives in states without payday lending All of New England, NC, Most recently OH, AR, DC, NH, OR Many States Don’t Allow High-Cost Payday Lending

  16. What Works: Rate Caps • Cap APR at 36% vs current 400% • Federal Proposal To Be Introduced

  17. Contact Paul Leonard Director, California Office Center for Responsible Lending http://www.responsiblelending.org 510.379.5500 Paul.Leonard@responsiblelending.org

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