1. Debt and its Impact on Savings and Asset Building Javier Silva Demos: A Network for Ideas and Action Asset Building: The Perspectives of People of Color Convened by the National Economic Development & Law Center Tuskegee, Alabama, October 2 – 4, 2005 Funded by the Ford Foundation

2. The Debt Story  Credit Card Debt Explosion  Factors Driving Debt  Regulatory Context  What Can be Done?

3. Credit Card Debt Explosion

4. Debt by Race/Ethnicity  African American:22% Increase ($2,950)  Latino:20% Increase ($3,691)

5. Debt Hardship Trends Debt to Income Ratio > 40% of Income African American: 1992: 9%2001: 9% Less than $50,000:1 in 5 Latino: 1992: 14%2001: 13% Less than $50,000:1 in 7

6. Who’s Carrying Plastic, by Race/Ethnicity

7. Factors Driving Debt Myth: Frivolous consumption Reality: Credit Card Debt is a Band Aid strategy to make ends meet Incomes not keeping pace with costs; insufficient level of assets: –Health care –Unemployment Families are one stroke of bad luck away from disaster

8. Assets Zero or Negative Net Worth (2001)  African American 30.9%  Latinos:35.3%

9. Percent with No Health Insurance Coverage (2003)  African Americans:19.4%  Latinos:32.7%

10. Unemployment Rates (1992 – 2001)  African Americans:10.3%  Latinos:8.4%

11. Industry Practices The Effects of Deregulation

12. Regulatory Context Supreme Court Ruling in 1978: Ruled that banks could charge highest rate permitted in the state where bank is located Banks move to lender-friendly states like South Dakota and Delaware

13. Rates Don’t Drop  29 States Have No Limit On Credit Card Interest Rates  Card companies don’t lower rates in response to fed interest rate cuts  Card companies jack rates up to 29% for one late payment

14. The Birth of the Penalty Zone  Supreme Court rules in 1996: –Penalty fees are “interest” so same rule applies: banks can export highest penalty fee allowed in their state –Rapid rise in fees

15. Penalty Fees Soar: –1995: $8.3 billion –1998: $18.9 billion Late Fees Fastest Growing Source of Revenue –1996: $1.7 billion –2002: $7.3 billion Disappears Late Payment Grace Period Disappears

16. Assets: How Can We Save When…

17. Wealth-stripping effect Transfer of billions of dollars from families to a handful of banks  Avg. Balance: $5,000  19.99% Interest Rate  4 % min.payment $885 yearly lost to interest payments instead of savings, tuition, health care, assets…

18. What Can We Do About It? Addressing Industry Practices: – Redefining Late Payment – National Usury Law – Min. Payment Disclosure –Track Credit Card Interest Rates by Race/Ethnicity similar in the way HMDA tracks mortgage data