Credit Card Debt Swells among Hispanics and Blacks
Alma Dalia Rojo

Unsolicited credit card applications that fill millions of mailboxes every year tell recipients they're pre-approved for a new credit card. What they don't say is they could also be pre-approved for substantial debt when the fine print is not deciphered.

Credit card debt is a problem that has grown faster among blacks and Hispanics than among their non-Hispanic white counterparts, concludes a study just released by the Economic Opportunity Program at Demos, a national, non-partisan public policy group.

It offers multiple reasons. Overall, blacks and Hispanics enjoy fewer opportunities to access financial services, have lower incomes, higher rates of unemployment, and lack health insurance. This combination of factors can explain why these two groups may frequently resort to using credit cards, study author Javier Silva said.

The study, "Costly Credit: African Americans and Latinos in Debt," analyzes credit card data gathered by the Survey of Consumer Finances over a ten-year period, from 1992 to 2001.

Silva notes that Hispanics found introductory interest rates between zero percent and 18 percent that were rapidly increased to 29% or higher.

In 2001, 82 percent of white families had credit cards, but only 51% carried monthly balances. Adversely, 5.5 million Hispanic families (53 percent) had credit cards, but 4.2 million of them (75 percent) carried a balance.

The study found the average balance carried by Hispanic families in 2001 who didn't pay off their outstanding monthly bill was $3,691, $690 less than whites and $741 more than blacks.

Silva told Hispanic Link that the fine print often misleads unfamiliar consumers. "The language is unclear and small to read, but if it's on their disclosure, it's legal," he said. He wondered whether some high rates, or inadequately explaining the consequences to customers could be made illegal.

Contacted by Hispanic Link, Howard Dvorkin, founder of Consolidated Credit Counseling Services, Inc. in Ft. Lauderdale, Fla., agreed with the study's findings based on his 15 years of credit counseling experience.

"The lack of experience and financial education leaves some Hispanics vulnerable to taking or utilizing products that may not be in their best interests," he said. Spanish-speaking clients may need up to three times as many counseling sessions to get out of debt, he added.

The credit counseling service provides bilingual advising and self-help manuals in Spanish. "People need to educate themselves. It doesn't matter where you come from. What matters is that you're in debt and you need to get yourself out of it," he said.

The Federal Deposit Insurance Corporation is addressing the debt concern with a summer-long media campaign in select cities. “Money Smart,” its free financial education program, was developed for Hispanics who live in a "cash society," U.S. Rep. Rubén Hinojosa (D-Texas) said at the campaign's June 9 launch.

"Financial literacy programs are essential to empower them with the financial and economic knowledge necessary to move from a cash society into the mainstream financial system and to make sound, personal financial decisions during all phases of life," Hinojosa said.

The bilingual program explains how to establish and maintain credit, find low interest rates in home mortgages and credit cards, and how to read a bank or credit card company's disclosure.

Because Hispanics are more likely to carry a balance, they are the fastest-growing market for credit card agencies and a profitable target for pre-approved debt.

(Alma Dalia Rojo is a reporter with Hispanic Link News Service. She may be contacted at alma@HispanicLink.org)

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© 2005, Hispanic Link News Service
06/26/05
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