Post on 01-Jan-2016
description
http://www.responsiblelending.org
Latinos and Consumer Financial Protections
National Association for Latino Community Asset Builders
Paul LeonardSeptember 4, 2008
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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
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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
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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%
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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