Latinos and Consumer Financial Protections National Association for Latino Community Asset Builders Paul Leonard September 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

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

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 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% Latinos19.4%28.1%22.6%36.2% White4.5%62.6%59.8%35.7%

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12 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

13 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.

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

15 What’s the Problem with Payday Loans? Los Angeles SingleSingle 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 Deficit-$170-$125 Source: CRL Analysis using California Budget Project data

16 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

17 What Works: Rate Caps  Cap APR at 36% vs current 400%  Federal Proposal To Be Introduced

18 Contact Paul Leonard Director, California Office Center for Responsible Lending