Hinojosa: Latino community deserves a full commitment to opportunity

Hispanic workers, from entrepreneurs to farmworkers, are a unique strength of the American economy. However, historically, we have faced an uphill climb as we fight for fair wages, access to savings and retirement plans, access to credit and capital, and the resources we need to build businesses and secure financial futures.

The Biden administration deserves credit for its efforts to level the playing field and create opportunities for Latinos across the United States. However, our political leaders need to take a comprehensive look at the financial ecosystem and how the Latino community remains on the outside looking in.

It will take more than reducing the limit on credit card late fees to fully affect the financial barriers the Hispanic community faces. While well-intentioned, this action by the Consumer Financial Protection Bureau misses the larger picture. It may constrict the availability of credit for Latino consumers and business owners, making it harder to pay off their existing debt.

The CFPB has issued a seemingly innocent and even appealing reduction in the limit on credit card late fees, which would drop the current cap from anywhere between $30 and $41 down to $8. Before we can address late fees, we have to acknowledge the difficulties already facing Hispanic consumers and entrepreneurs, as they seek access to credit.

FDIC research shows that 9.3 percent of the Hispanic community remains unbanked, as opposed to 4.5 percent among all groups nationwide, more than twice the national rate.

An even higher percentage are underbanked, relying on non-bank credit such as rent-to-own, pawn shops and check-cashing locations for their banking needs. Further complicating the landscape, Federal Reserve data show that Hispanic business owners can obtain the capital they need only at half the rate of White business owners. Access to credit, and in many cases, traditional banking, are the crux of the problem for Latino families.

Often, small, independent and community banks are the ones able to develop personal relationships with their customers and are invested in the financial success of the people they serve. This is particularly true for Latino consumers, as my organization has partnered with small banks and credit unions nationwide to help Hispanic families open low-barrier, short-term savings accounts as an entry point for building those relationships.

A change in regulation for fees will force these community banks and larger banks to make adjustments in fees elsewhere. While this change may help consumers, credit card users could immediately see higher interest rates as banks are forced to cover their losses, putting the burden on them to pay off balances faster or pay more in the long term. For business owners, either option could be catastrophic.

Among the reasons found by the FDIC research for why consumers remain unbanked or close their existing accounts, fees that are too high and unpredictable are in the top 5. This is not an issue for low-income consumers. According to the Latino Donor Collaborative, the Gross Domestic Income of Latinos in the United States in 2021 was $2.5 trillion.

The CFPB and the administration need an opportunity to look at the financial ecosystem in a holistic way to secure the financial futures of Latinos. The way forward is to invest in community financial and retirement education to reframe the conversation around the benefits and security of traditional banking and access to credit.

This will allow Hispanic consumers to make educated decisions on the access, use and maintenance of credit to avoid overdrafts and other fees to better plan their finances and long-term goals. Tinkering with fees could backfire for those trying to manage their credit and will further validate why many continue to avoid banking.

Unfortunately, the CFPB’s rule to reduce the cap on credit card late fees will create dire consequences for the very people it aims to help. It should reverse course on this rule and go back to the drawing board to figure out how to open more doors for Latinos. We cannot afford a mistake that will affect and impede our financial futures.

Amy Hinojosa is the president and CEO of MANA, the oldest and largest Latina membership organization in the United States.