2008 Symposium Proceedings
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Building Wealth in a Troubled Economy
The Annie E. Casey Foundation
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The National Council of La Raza (NCLR)—the largest national Hispanic civil rights and advocacy organization in the United States—works to improve opportunities for Hispanic Americans. Through its network of nearly 300 affiliated community-based organizations (CBOs), NCLR reaches millions of Hispanics each year in 41 states, Puerto Rico, and the District of Columbia. To achieve its mission, NCLR conducts applied research, policy analysis, and advocacy, providing a Latino perspective in five key areas—assets/investments, civil rights/immigration, education, employment and economic status, and health. In addition, it provides capacity-building assistance to its Affiliates who work at the state and local level to advance opportunities for individuals and families. Founded in 1968, NCLR is a private, nonprofit, nonpartisan, tax-exempt organization headquartered in Washington, DC. NCLR serves all Hispanic subgroups in all regions of the country and has operations in Atlanta, Chicago, Los Angeles, New York, Phoenix, Sacramento, San Antonio, and San Juan, Puerto Rico. Copyright ©2008 by the National Council of La Raza Raul Yzaguirre Building 1126 16th Street, NW Washington, DC 20036 (202) 785-1670 Printed in the United States of America All rights reserved
Symposium Proceedings
Building Wealth in a Troubled Economy A SYMPOSIUM ON LATINO WEALTH-BUILDING OPPORTUNITIES
Symposium Proceedings Thursday, June 26, 2008
NCLR
The Annie E. Casey Foundation
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Session I “A Fresh Perspective: The Status of Asset-Poor Communities” Moderator Aracely Panameño, Director of Latino Affairs, Center for Responsible Lending Panelists ▪ Christian Weller, Senior Fellow, Center for American Progress ▪ Barbara Robles, PhD, Faculty Director, Latino Financial Issues Program, Center for Community Development and Civil Rights, Arizona State University ▪ Deepak Lamba-Nieves, Research Director, Center for the New Economy Moderator Aracely Panameño opened this session by discussing the hardships Latinos encounter in the wake of recent economic woes. A subprime market implosion has severely impacted Hispanics. From 2005 to 2007, approximately 40% of Latino families purchased their homes with a subprime loan. Even worse, 61% of them qualified for prime loans. Many others qualified for better subprime terms than they received.
“Instead of securing the American dream, subprime mortgage lenders have been securitizing it, wking loans to people who couldn’t afford them, and meanwhile, federal regulators were looking the other way. And that’s just the tip of the iceberg when it comes to unscrupulous lending practices.”
Being poor is expensive. Today, many are struggling to stave off loan default. Many modest-income Latinos are paying too much in credit card interest rates and fees. A lack of market transparency also makes consumer rights difficult to decipher. All of these factors are compounded by the cruel realities of daily life—expensive milk, high gas prices, and having to sacrifice even basic necessities.
Panameño launched the panel discussion with a directive to discuss ways Latinos can participate more fully in the —Senator Robert Menendez (D–NJ) financial mainstream during times of economic trouble. The experts responded with solutions: watching trends in the Latino community, highlighting the various types of capital that families bring to the table, and watching Puerto Rico’s small-island economy as a reflection of what occurs on the mainland. ▪ Christian Weller focused on economic trends in the Latino community and pointed out that we have had decades of persistent inequity in wealth distribution. While employment trends have been positive for Latinos, increased employment has not translated into increased wealth. To remedy market failings, we need to follow three directions of policy: income policy (new jobs should equate to better benefits and increased wealth); efficiency policy (vulnerable populations should be protected from price spikes or health care inflation); and wealthcreation policy (assets should be developed through homeownership; Individual Development Accounts [IDAs] should be used to give moderate-income families a step up; and credit costs should be lowered). ▪ Barbara Robles examined family capital and financial education. She discussed how families bring several forms of capital to the table—political capital (voting), human capital (education, skills), social capital (cement of the community), and cultural capital (critical for international relations in particular). In addition, she recommended that we offer financial education to youth. Public schools fail our children today; we should be more aggressive with teaching financial information so future consumers are better informed. As it is, education is one of the only portable assets that cannot be foreclosed on.
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▪ Deepak Lamba-Nieves targeted the small-island economy of Puerto Rico (PR). Since it is a home to four million U.S. citizens, examination of its economy and worker trends could be representative of the state of Latinos on the mainland. PR’s economy has slowed with little success in catching up, and there are low-participation rates in its work force. The incentive structure is insufficient, and it needs more precise changes than just the broad strokes of the Farm Bill. Most working poor are self-employed with unincorporated businesses. Education is important and has expanded, but quality is low in PR. The main conduits to wealth are homeownership and savings, but a lack of affordable homes is one cause of low-homeownership rates.
Q&A
The following is a selection from the symposium transcript. Q: Audience member: Can you please cite an example of some of those income policies that you are referring to, particularly when we’re thinking about a downward economy? A: Weller: Take care of people who still have a job, which is still the majority of people. Also, improve the unemployment insurance benefits. Especially for the Latino community, we want to simplify qualifying for unemployment insurance benefits. Q: Audience member: What policies and practices inspire higher prioritization in a family’s retirement planning, participation, and activities? What resources are most effective? A: Lamba-Nieves: Basic, high-quality education is the key to increased retirement participation. Q: Audience member: How is the role of high-quality education related to the savings you discussed earlier? A: Lamba-Nieves: In a way, we developed the institutional tools to get people into school, but we did not guarantee the education’s quality. Basic education is an important conduit to financial education. We now have a bottleneck. We are now trying to improve the Puerto Rican Department of Education’s curriculum and to ensure that financial education is added to the mix.
Themes and Consensus Wealth is unequally distributed in the U.S. Median net worth is almost $134,000 for non-Hispanic White families and $18,000 for Latino families; these figures include homes. Remove homeownership from that data, and the disparity is greater. Employment increased among Latinos, but wealth trends did not follow. Latinos made employment gains because they took on multiple jobs. Rather than multiple jobs, we need to strive for increased wealth and benefits. In addition, we should gear efforts toward making structural and behavioral changes. We need to offer collective goods and incentives and to respond with progressive policy.
Conclusion We should stop thinking about Latinos as consumers only and more as participants, more as investors, and more as savers with very creative ideas.
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Session II “The Role of Debt in Building Wealth: Reports from Small Group Sessions” Moderator Janis Bowdler, Associate Director, Wealth-Building Policy Project, NCLR The following moderators presented highlights from their small-group discussions. ▪ José Quiñonez, Executive Director, Mission Asset Fund ▪ Pastor Herrera, Jr., Director, Los Angeles County ▪ Brenda Muñiz, Legislative Director, the Association of Community Organizations for Reform Now ▪ Marisol Miramontes, Nonprofit Consultant ▪ Irene Skricki, Program Manager for Assets and Savings, Family Economic Success Unit, Annie E. Casey Foundation
“How Fair Is FICO? Giving Credit Where Credit Is Due” Small-Group Moderator Jose Quiñonez Comoderator Walkiria Pool
Participants were asked to consider the role of credit scoring in building wealth. Key questions focused on whether credit scores accomplished their goal and how they benefited or imposed challenges on some families. Group participants said that it was difficult for low-income families who have low credit scores or no credit to build wealth because their extra income goes to paying higher interest rates and even higher insurance premiums than those with good credit scores. Instead of being excluded by the banking industry, minorities are targeted by predatory lenders for abusive loan products that often cost more than clients can afford to pay. Further, some agencies offer to repair credit for a fee, but many times people end up with worse credit because they cannot pay their consolidated bills on time. “We know what it takes to build wealth in Latino and immigrant communities and communities of color. Unfortunately, many mainstream financial institutions are still falling short, failing to meet the needs of our community. Where mainstream banking institutions have left a hole, predatory lenders have been quick to fill the gap.” —Janet Murguía, President and CEO, NCLR
FICO scores are gaining weighty relevance as they are now being used for more than just loans (e.g., employment, rent, insurance). For those Latinos who do have credit scores, there is serious speculation about whether FICO and other credit scores are fair or accurate. Some participants said that FICO moves the target for families—low-income families in particular—attempting to establish good credit. In response to these challenges, a new industry has emerged that attempts to quantify nonreported payments—such as rent, utilities, and other bills—as an alternative or supplement to traditional credit history information. Vantage Score is one example of a joint venture branching out into this new area.
Consensus and Recommendations Efforts should be put into expanding Latinos’ knowledge of FICO scores. Learning about how credit scoring works, budgeting, banking, saving, and about the consequences of late payments must be focused on at an early age. NCLR is working on a pilot program, Economic Mobility Centers (EMC), to help
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families enter the financial system. These EMCs will work with community-based organizations (CBOs) to provide an array of financial products while also opening opportunities for financial education. Participants agreed that the power of the FICO score should be minimized. It should only be used to gauge credit-worthiness, not to assess candidates for employment or for renting purposes.
“Is Debt a Bridge to Financial Security? A Look at Credit Cards” Small-Group Moderator Pastor Herrera Comoderator Lauren Saunders
The group was asked to examine the role that credit cards played in helping modest-income households build wealth. They discussed whether the availability of credit led the way to the middle class. Participants also discussed the trend of increased credit card use among Latinos, many of whom have thin credit histories. This is a precarious combination that unfortunately leaves some prey to predatory practices. Modest-income families and those new to the credit market are targeted by issuers of fee-laden credit cards with abusive features. While these consumers believe they are making a good fiscal decision in establishing or repairing their credit, the negative terms of the card often leave them worse off than before they applied for the card. Participants thought that creative methods were needed to integrate new credit card users into the mainstream. Group members thought a balance must be struck between educating the consumer and having a regulatory structure that is fair to the consumer.
Consensus and Recommendations Participants agreed that credit cards were still important for building sustainable wealth. However, there must be a more fluid way to integrate new consumers. More creative products should be designed for consumers with thin credit, and more financial counseling should be offered. Credit cards should be allowed for people who have Individual Tax Identification Numbers. In addition, there should be more industry restrictions to ensure fair practices. Since funding and resources are limited, the onus of providing better credit card products and education should be borne by several entities—the government, regulators, banks, and consumers. Many participants agreed that there should be a national financial curriculum.
“Who Needs Short-Term Loans” Small-Group Moderator Brenda Muñiz Comoderator Laura Arce
Participants were led in a discussion about which borrowers sought short-term loans and why. The group focused on whether such products helped or dissuaded people from achieving broader goals of wealth-building. Most of lenders’ profits come from revolving debt; borrowers have a difficult time departing from the debt cycle once entered. The group focused on questions about who should offer short-term products, considering their risk, and whether credit unions and banks should partner with payday lenders. Participants discussed how low-income families use short-term loans for purposes of convenience. Group members also mentioned that some consumers fear they would actually ruin their credit report
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if they went into extensive debt on their credit card; thus, they seek short-term services. However, they later discovered that short-term loans do not contribute to wealth or establish good credit; these products usually forestall wealth. Collaboration between credit unions and payday lenders was controversial. Some said there were success stories such as the partnership between Kinecta Federal Credit Union and Nix Check Cashing. Others said that credit unions offered diverse products and should have provided short-term loans themselves, rather than dealing with payday lenders who were generally predatory in nature.
Consensus and Recommendations Most participants agreed that today’s short-term offerings were inadequate. Partnerships between payday lenders and credit unions should be avoided or permitted with strong precautions. Regulatory improvements need to be made. For example, if a strong partnership between a payday loan provider and a community could be established, it would need strict regulation to both educate and funnel unbanked customers into the banking system. In this case, short-term loan providers could be helpful. In addition, fees should be regulated and interest rates capped rates across the board for mainstream and payday lenders. Participants suggested that a program similar to the consumer product safety commission be established in the financial services industry. The Community Reinvestment Act should also be used to bring capital to underbanked and low-wealth communities, and major banks should offer short-term products and take a small loss or potentially bundle them with other products.
“Driving Opportunities: The Role of Cars in Building Wealth” Small-Group Moderator Irene Skricki Comoderator Margy Waller
This group focused on factors that have made auto loans a major point of interest as a possible wealthbuilding tool. Questions covered best practices for consumer education and outreach; whether there was any push-back from environmental groups and others for asserting that those in poverty need access to cars; and if there are better solutions that can come from the auto industry. Research indicates that auto ownership is critical to having access to an affordable home and a sustainable job. Purchase price and cost of insurance are barriers to auto ownership among low-income Latino “The number one issue facing our community families. According to a study conducted at UCLA, people who have cars have access to 60% more jobs. Unfortunately, today is the economy. It is the number one similar to the credit market, vulnerable Latinos fall prey to concern. It relates to everything else in [our] predatory practices in the auto market, such as inflated lives, whether it’s concern about education or markups and being offered a subprime loan even when health care or the war in Iraq. The downturn in the economy and its impact on families and our qualifying for a prime one. In addition, purchasing a lemon, paying for break-downs, and dealing with repossession often ability to not only get by, but to succeed and to lead to bad credit scores. provide for our families, is not only the number one national concern, it is the number one concern for Latinos across the United States.” —Monica Lozano, Publisher and CEO, La Opinión
Auto ownership struggles to gain prominence in the wealthbuilding world, yet auto ownership is at the intersection of the workforce and assets. Many think auto ownership goes against the grain of environmentalism and the push for public transportation, but the challenge is to find a way to adapt the market so that a vehicle is more an asset than a liability.
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Consensus and Recommendations Participants agreed that more research should be done to better understand the auto market. Regulating the complex factors of auto purchases and financing is an uphill battle. For example, some say that if loan interest rates are regulated, dealers will just increase sticker prices. Other measures can be taken, however. Reporting requirements should be strengthened to put positive pressure on the industry to uphold fairness standards. Emphasis should be placed on helping low-income families finance a car in a nonpredatory environment. In addition, incentives should be given for car companies to develop environment-friendly, affordable cars. Perhaps a “good housekeeping” seal of approval (certify credit counselors) could be implemented to motivate dealers and encourage buyers.
“The Role of Community-Based Organizations and Programs in a Wealth-Building Strategy” Small-Group Moderator Marisol Miramontes Comoderator Edna McLaughlin
This final group was entreated to discuss the capacity of nonprofit housing counselors to absorb the increased work that is cropping up because of today’s economic fallout. Participants touched on issues of expansion and whether traditional programs can cover more than one area of financial/bankingrelated programs. They focused on means of measuring success and how CBOs could “tell their story” and document this success. The group also examined how funders, partners, and other stakeholders could empower their local nonprofit service providers. CBOs have demonstrated success in basic as well as highly sophisticated, technical programs, such as housing counseling, IDAs, mortgage brokerages, and tax preparation services. CBOs are serious players in helping low-wealth families obtain assets. There needs to be more compensation for CBO personnel. Lenders should also understand that people who go through CBOs’ prepurchase workshops are less likely to default, if they default at all.
Consensus and Recommendations Group members thought that CBOs should have short- and long-term plans for building capital and recruiting. They should stabilize their position in the community by reaching out to the media to bring in new clients and funders and ramping up advocacy to increase government support. To increase compensation for personnel, CBOs could perhaps charge a fee for services from investors and advertise an established staff certification to make the investment more enticing. In terms of education, they could increase consumer-protection education and take preventive action by starting financial education early. CBOs could also use innovative means such as the arts, popular learning, novellas, or testimonials as teaching tools.
Q&A The following is a selection from the symposium transcript. Q: Audience member: What’s the right balance and role for consumer education? A: Herrera: There needs to be a balance between educating the consumer so that they’re at a
level that allows for fairness and having a regulatory structure that is also fair to the consumer. So I really think that there is a need for a balance. What that balance is, I don’t know, but I think
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Q&A that in discussions that we have here and elsewhere, there could be a balance between regulatory entities, industry, and the educational needs of the consumer. Q: Audience member: Many organizations, whether it’s AARP or AAA, create a network of
vendors, car vendors and credit vendors, which basically agree to certain standards and pricing. And as part of that agreement, they actually allow the organization to audit the transaction after the fact. Now, when you have 45 million Latinos and the buying power that they represent and the amount of money that’s spent marketing to them, it seems that establishing a set of standards might work. So I wondered if that was something that anybody thought had any potential in terms of a broad agreement? A: Skricki: It’s interesting you should bring that up because someone in our group suggested the
same thing. Could there be some kind “good housekeeping” seal of approval? I noted that there’s an effort now to do that with credit cards. There’s also discussion among some partners of ours of having an award program for banks that meet certain standards in their general financial products for low-income folks. Well, we hadn’t yet thought about, and I haven’t heard talk of extending it to the auto process, but I think that’d be terrific. It would be difficult, but it’s a great idea. So, I will bring that back to people I know who might be interested. Q: Audience member: We know that there are a lot of great resources out there available to
folks, but how do you make the connections (to the people and the needed resources), and are there incentives that we can put in place to make sure that those connections are made? A: Miramontes: Often times the private industry doesn’t approach the not-for-profit sector until they need something from them. For example, I need a certificate saying my client received education so that I can produce a loan for them. Well, it shouldn’t really work that way. They should be more excited about having an educated consumer that they’ll keep longer term. The private and nonprofit sectors should collaborate before that stage. Q: Audience member: Assuming that we can require, through legislation, that payday lenders
report the payment history of their customers, are there any barriers we will encounter from the credit reporting agencies in what they report or if they would report it at all? A: Quiñonez: What did come out of our discussion was that the information that gets reported through the credit bureaus is voluntary and there’s a certain self-selection of entities or businesses that actually do that. Either they have a profit motive or another motive for doing so. So that’s one big problem with how FICO itself collects information, so hold onto your information. Payday lenders themselves may not necessarily have the right incentives to actually report the information that would give their customers a better credit score. That might actually lead them to have bank accounts, and that means that they may not necessarily require their services down the road. Allen might have some thoughts on that. A: Follow-up by Allen Fishbein: Current reporting databases look at 30-day late payments. And since the payday loans are structured as 14-day loans, they generally wouldn’t fit into their database and would have to be looked at differently. Q: Audience member: Can you elaborate on why credit unions specifically, but big partnerships
more generally, are so worrisome for you in the payday lending collaboration? And, do you see any pros in partnerships or purchases in which credit unions might purchase payday lending or check-cashing businesses, examining their ability to help people where they’re at, providing financial education, and moving them on to other products? A: Muniz: Our concern is that it shouldn’t be easier for other financial institutions to cooperate with
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Q&A payday lenders. But I think, especially for credit unions, the consensus seems to be that because they have a certain community-driven mission and a special tax status, they are more obligated to come up with more innovative, affordable solutions than simply to pair up with payday lenders. That being said, none of us has any kind of silver bullet. Folks need short-term loans. If they’re uninsured, they might have a medical emergency. With gas prices rising suddenly now, the traditional budgets they had a year ago aren’t working anymore. So how do they get a short-term affordable loan? There’s some innovation that’s taking place, but in terms of taking those types of concepts to scale, I think we’re a little far off from that. However, the consensus seems to be that the status quo is just not going to work.
Session III “Wealth Protection: Building the Civil Rights Agenda” Moderator Allen Fishbein, Director of Credit and Housing Policy, Consumer Federation of America Panelists
▪ Luis Pastor, CEO, Latino Community Credit Union ▪ Ellen Seidman, Director, Financial Services and Education Project, New America Foundation ▪ Meizhu Lui, Coauthor, The Color of Wealth Moderator Allen Fishbein opened the session by discussing the Institute for American Values report, For a New Thrift: Confronting the Debt Culture. The report suggests that a two-tiered, polarizing financial system is emerging in the U.S. In its wake, a substantial financial sector has surfaced that serves lowincome households; it includes special credit cards, payday lenders, and rent-to-own facilities. The report claims that this is not a prothrift sector as much as an anti-thrift sector and that it is dragging Americans into over-indebtedness.
“When programs and public policy designed to benefit everyone are co-opted to advantage the few, then it’s time that reform and realignment are required, and we think that’s the case clearly in the mortgage market. It’s our obligation therefore to recognize the forces impacting the economic well-being of our community. When so many members of the nation’s two largest minority groups—African Americans and Latinos—live in segregated neighborhoods, they are not connected to the normal economic, social, and political opportunities available to other Americans.” —Donald Bowen, Senior Vice President of Programs, National Urban League
Fishbein stated that we have focused on upscale consumers for far too long; we must focus on the little guys. He then invited panelists to discuss Latino wealth in this context and offer potential recommendations for improving their status. Luis Pastor emphasized the need to help vulnerable customers. He said that new clients should not be taken advantage of just because they’re undocumented; they are not necessarily riskier. Pastor identified a need to take care of these clients and in response created the Latino Community Credit Union in North Carolina. He wanted to augment the fairness demonstrated toward people of any income level. Pastor also highlighted the importance of teaching consumers how to manage during hard times; we should help them make goals for their children and future. Finally, he recommended simplifying the credit system. No one should have to get an MBA just to read a credit card contract.
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Ellen Seidman targeted the idea of being prepared when opportunities arise from the new administration. She points out that we will see immediate and long-term changes. In the meantime, we must create a groundswell so we will be ready and people will understand our agenda. Similar to Pastor, Seidman stressed the importance of educating consumers. She pointed out that homeownership must be done right. It might not be the best investment for certain consumers. We should consider borrowers’ circumstances case by case and try to think of other wealth-building avenues rather than deeming homeownership the silver bullet. All of our wealth problems will not be answered by buying a home. Seidman also declared that the market is in need of stronger regulation. We should advocate more in the regulatory, legislative environment. Meizhu Lui discussed how people of color have no problem creating wealth through their labor, but do have had a hard time keeping it in their hands. Distribution of wealth is the issue. The government needs to step in to help sustain homeownership for these communities. The GI bill was a success. Similar large and sweeping reforms are needed today. Like the other speakers, Lui underscored the need to educate consumers and offer more wealth-building incentives; tax breaks must not help only those at the top; and Temporary Assistance for Needy Families and Medicaid must not keep people in poverty (applicants can only have $2,000 in assets to qualify for assistance).
Consensus and Contrasting Views Consensus. Throughout this session, each panelist pointed out that financial education is important. Most recommended that it should be required before fitting low-income consumers with loan products.
Contrasting Views. One panelist thought that homeownership should no longer be touted as the silver bullet; others, including audience members, did not fully agree. Many still viewed homeownership as the most reliable means for building wealth.
Consensus. Changes must be made and they must be done from the bottom up. The also need to be made by the government to cater to the growing needs of low-income immigrant communities. Our most important mission is to create opportunity to build and sustain wealth in low-income immigrant communities. When wealth is more evenly spread, more individuals will be able to contribute fully to society.
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Appendix How Fair Is FICO? Giving Credit Where Credit Is Due Facilitated by: Jose Quinonez, Mission Asset Fund
Walkiria Pool, National Council of La Raza The Fair Isaac Corporation introduced the first credit scoring system in 1970 as a way for lenders to predict the likelihood a borrower would default on a his or her debt. The risk calculation is based on information gathered by major credit bureaus: Experian, Equifax, and TransUnion. Since that time, the credit score has become the linchpin on which numerous lending decisions are made. In fact, the score has moved beyond the realm of lending and into insurance, rental, and employment markets and many lending institutions have developed their own scoring methodologies. In many ways, a family’s credit score can determine what financial products are available to them. Having a good credit score can open financial doors, but a bad credit score or no score at all—which is the case for millions of Americans—can make some financial products more expensive or harder to get. In fact, 22% of Latinos do not have a credit score. For those that do have scores, there is serious speculation about whether FICO and other credit scores are fair or accurate. For example, credit bureaus can only calculate a score based on information that is reported. In some cases, creditors have held back positive information and only reported negative information to keep their competitors from stealing their customers. Some have argued that the way credit scores are calculated does not accurately reflect the borrowing and paying habits of underserved communities, such as immigrants. In response to these challenge, a new industry has emerged that attempts to quantify nonreported payments—such as rent, utilities, and other bills—as an alternative or supplement to traditional credit history information. Given the ubiquitous effects of a credit score, wealth advocates must face related issues head on.
Discussion questions: ▪ Is having a credit score critical to the financial stability of a household? What role do credit scores play in helping low-income families build wealth? ▪ What barriers do underserved communities—immigrants, unbanked, and minorities—face when trying to build a credit history? When trying to improve a credit history? ▪ What are the best practices models for helping families understand, build, or improve a credit score? How do the strategies differ between those helping to build a history versus those that are trying to repair the history? ▪ What role can alternative credit score products play in improving asset ownership among low-income and immigrant families? ▪ In what ways do credit scores work against families? Does the expansion of credit scores into an area beyond lending help or hurt low-income communities?
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Is Debt a Bridge to Financial Security? A Look at Credit Cards Facilitated by: Pastor Herrera, Director, Department of Consumer Affairs, Los Angeles County
Lauren Saunders, Managing Attorney, National Consumer Law Center The credit card market has expanded dramatically in recent years. In 2006, consumers received an estimated 8 billion credit card solicitations by mail, a 30% increase from the previous year. Proponents argue that credit cards can help families manage their finances and build a credit history. In fact, most would agree that positive credit card experiences can prepare families for larger asset purchases such as a car or home. While Latino and immigrant families are less likely than others to have a credit card (56% vs. 80%), their card application rates are on the rise. Unfortunately, Latino and immigrant households face a number of barriers that leave them vulnerable to abusive products. For example, Hispanic families are often marketed the highest-priced cards, regardless of creditworthiness, because they lack a traditional credit score. Hispanic families are more likely to be victims of fraud and scams, report a higher debt burden, and have higher interest rates than their peers. Credit cards are a common financial product that millions of households rely on to manage their finances. However, questions persist about product design and their usefulness in building wealth.
Discussion questions: ▪ What role do credit cards play in helping modest-income households build wealth? Is there such a thing as “good credit card debt”? ▪ Proponents of credit cards have often pointed to the product as the first and most common way for individuals to build credit histories. Does this ring true for wealth advocates and stakeholders? Is this a good role for credit cards to play among those new to credit markets? ▪ What are industry best practices for serving the card needs of low-income individuals who have no credit score? ▪ Should some credit card rate increases and other practices be restricted, even if it means that some people will get lower credit card limits or no card at all? ▪ What venues for recourse are available to consumers who have been harmed by credit cardrelated scams or abusive practices? Where can consumers turn to find trustworthy information and resources?
Symposium Proceedings
Who Needs Short-Term Loans? Facilitated by: Brenda Muniz, Legislative Director, ACORN
Laura Arce, Senior Program Manager, Corporation for Enterprise Development For people living paycheck to paycheck, short-term loans can help bridge the liquidity gap that may come with unexpected expenses. Unanticipated car repairs, emergency trips to the doctor, and budget shortfalls are common drivers of demand for this product. Short-term loans are often characterized by extremely high-interest rates and are secured by a borrower’s paycheck, tax refund, or car title. Oftentimes, short-term borrowers cannot afford to pay off the loan when due; many choose to roll the balance over into a new loan. In this case, layers of late fees and service charges are added to the loan balance, often trapping borrowers in cycles of debt. While payday customers must have a checking account to receive a loan—as they use a signed check for collateral—most barely fall into the category of the “banked” and are at risk of losing their foothold in the banking system. Payday industry stakeholders claim that their loans help borrowers avoid costly overdraft frees from banks, providing up-front money, rather than after-the-fact penalties. However, advocates point to the aggregate cost of financing as more expensive than the short-term rate expresses.
Discussion questions: ▪ Who uses short-term loans? Why do borrowers seek out these types of financial products? ▪ Do short-term loans further broader goals to build wealth in low-income communities? ▪ A significant share of payday lender profit is derived not from one-time use, but from revolving debt. What needs to happen to address these cycles of debt? ▪ What are the risks and benefits to consumers of credit union and bank partnerships with payday lenders? Should the FDIC allow payday lenders to operate in states that bar payday lending through partnering with out-of-state banks? ▪ Should there be federal pre-emption on stricter laws governing small loan fees? ▪ What are the best practices that can guide the payday lending market toward a less abusive, more sustainable lending product for consumers? Are banks able to develop such services cost-effectively and pass on a portion of the savings to consumers?
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Building Wealth in a Troubled Economy
Driving Opportunities: The Role of Cars in Building Wealth Facilitated by: Irene Skricki, Annie E. Casey Foundation
Margy Waller, The Mobility Agenda Automobile ownership is often taken for granted. Most American households own a car, and millions rely on their car for essential daily activities such as getting to work or to a doctor’s appointment. Research shows that most families must commute, some at long distances, to have access to both a sustainable job and a home they can afford. The necessity and demand for auto ownership among lowincome families is especially notable. Unfortunately, low-income families face a number of barriers to owning a car. For very low-income families, the purchase price or cost of insurance may be a barrier; for others, access to credit is an issue. In addition, research shows that Latino and African American auto buyers have been victims of discriminatory lending practices, often paying higher mark-ups than comparably situated White buyers. For those who can purchase a car through financing, auto ownership may be an opportunity to build a positive credit history. Still, auto ownership struggles to gain prominence in the wealth- and asset-development field.
Discussion questions: ▪ Are cars an asset? What role does auto ownership play in asset-building or in attaining financial security? ▪ In what ways are the needs and challenges around auto ownership different for middle-income families compared to very low-income families? ▪ What are best practices for increasing auto ownership and affordability? ▪ How do barriers to mandatory supplemental products, such as insurance and a driver’s license, impact auto ownership and affordability? ▪ What are best practices for making auto insurance more accessible? What are the major barriers to accessing coverage? How do outreach efforts vary by underserved markets (e.g., immigrants, first-time buyers)? ▪ What kind of information do wealth advocates need to incorporate car-ownership issues into their agenda? Background materials from The Mobility Agenda (http://www.mobilityagenda.org): Transportation Overview: http://www.mobilityagenda.org-a.googlepages.com/transportation Economic Driver’s License Suspension and Reinstatement: http://www.mobilityagenda.org/
driver%27slicensemeeting Car Ownership and Financing: http://www.mobilityagenda.org/carfinancing Access to Driving and Employment (Data from 10 cities): http://www.mobilityagenda.org-a
googlepages.com/accesstodriving
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Symposium Proceedings
The Role of Community-Based Organizations and Programs in a Wealth-Building Strategy Facilitated by: Edna McLaughlin, Community Development Specialist, National Council of La Raza
Marisol Miramontes, Nonprofit Consultant In many neighborhoods, community-based organizations (CBOs) are seen as a trusted and independent source of information and assistance. This is especially true in Hispanic and immigrant communities where CBOs often serve as hubs of communication and resources. As the Latino and immigrant population grows, so does their demand for services offered by nonprofit organizations. Moreover, the capacity of CBOs has expanded greatly over the last several years. Where they were once seen as providers of largely “soft services,” such as social work or referrals, nonprofit organizations have demonstrated success at also running highly technical programs such as housing counseling, Individual Development Accounts, mortgage brokerages and other financial services, and tax preparation services. As a result, CBOs have become serious players in the movement to help low-wealth families obtain assets. The demand for wealth-building community programs is growing. More immigrant families are purchasing homes, securing auto loans, and attaining credit cards than in previous years. While this means more opportunities to build wealth, it also translates into increased exposure to predatory lending, consumer debt, and scams. CBOs must be included in a strategy to protect and maintain the assets of low-income and underserved communities.
Discussion questions:
▪ With foreclosure rates on the rise, and likely to continue on an upward trend, the demand for nonprofit housing counseling services has increased dramatically. What is the capacity of the nonprofit field to absorb the increase in work? Is there capacity to expand their traditional programs into more than one area of financial/banking-related programs? ▪ What are the measures of a successful wealth-building program? How can CBOs “tell their story” and document their success?
▪ How can nonprofits take a more preventative role in addressing community needs, rather than a defensive? ▪ How can CBOs use their best practices to create lasting change in the mainstream financial services market? ▪ What can funders, partners, and other stakeholders do to empower their local nonprofit service provider?
The National Council of La Raza (NCLR) –the largest national Hispanic civil rights and advocacy organization in the United States– works to improve opportunities for Hispanic Americans. Through its network of nearly 300 affiliated community-based organizations (CBOs), NCLR reaches millions of Hispanics each year in 41 states, Puerto Rico, and the District of Columbia. To achieve its mission, NCLR conducts applied research, policy analysis, and advocacy, providing a Latino perspective in five key areas – assets/investments, civil rights/ immigration, education, employment and economic status, and health. In addition, it provides capacity-building assistance to its Affiliates who work at the state and local level to advance opportunities for individuals and families. For more information on the formation of NCLR and NCLR’s history, please visit www.nclr.org.