Latino Buyers : Credit--the Lifeblood of Broadway

Just before Christmas, a proud Roberto Garcia wheeled a new 19-inch color television set out the door of Victor Clothing Co. on Broadway in downtown Los Angeles. He did not get a bargain.

The Inglewood air-conditioning repairman paid $500 for the set, a Korean model, which he could have bought for half the price at any of a dozen stores closer to home.

Why did he go downtown to Victor Clothing, a longtime Broadway merchant selling clothes, jewelry and electronic goods to a largely Spanish-speaking clientele?

“La facilidad de credito, “ Garcia said. The ease of credit.

Victor Clothing is one of a score of shops on and around Broadway catering to Latinos and offering easy credit to people who for the most part do not carry MasterCards, do not qualify for Sears, Roebuck charge accounts and cannot walk into a bank for a personal loan.

The American Dream

The stores peddle a piece of the American dream, on time.

The Broadway credit system is parallel to that of the larger American society, yet wholly independent of it. It is a throwback to decades past, when merchants kept their records in shoe boxes, not computers, and extended credit based on family relationships and seat-of-the-pants judgments. The system is sophisticated but highly subjective and, in large measure, it works--at least for the merchants.

Broadway’s high rents, thriving retail trade and sharp Latin flavor have earned it the nickname “the Rodeo Drive for East L.A.” It is equally the Wall Street for a large segment of Los Angeles’ Latino community, a self-contained financial center offering banking services that include check cashing, consumer loans, foreign exchange and wire transfer of money to Mexico.

But it’s credit, easy credit, that makes the neon lights so bright on Broadway.

Credito Facil, signs in the windows up and down Broadway proclaim. Credito Instantaneo. Salsa music blares from sidewalk speakers. Gold jewelry and the latest electronic gadgetry beckon from shop windows. Salesmen, like carnival barkers, entice passers-by with fantastic prices and the promise of easy loans. Korean and Arab shop owners extol their wares in fluent Spanish.

Abra una cuenta. Su credito es bueno aqui. Open an account. Your credit’s good here.

Some stores, like Victor Clothing, charge no interest at all, recovering their costs in heavy markups. Most charge the legal maximum interest--1.6% a month or 19.2% a year, about the same as a bank credit card, with the length of the contract adjusted to the customer’s ability to pay.

Prices at the interest-charging stores are close to those offered by the region’s big department stores, but higher than the aggressive discount chains like Circuit City and Federated.

Some Broadway jewelers eliminate credit risk by marking up their merchandise three or four times and requiring a 25% down payment on credit sales, merchants familiar with the jewelers’ pricing practices said. After the first couple of payments, the seller has recovered his costs; the rest is gravy.

Illegal Aliens

Several of the larger Broadway merchants say a majority of their customers are illegal immigrants with spotty employment records, no permanent address, little English and no other access to credit. At many of these stores, credit purchases account for more than 95% of annual sales. The owners say they are granting credit when nobody else will and are giving their customers entree to the American financial system.

The loans get paid back, too, at a rate envied by banks and the big department stores like Sears and Bullock’s. Credit losses at most stores on Broadway are at or below retail industry averages and lower than many banks’ losses on credit cards and personal loans. In addition, the merchants do not have to pay MasterCard and Visa service charges, which run 6% of sales, or subscribe to expensive outside billing firms.

The legal status of the customers may account for their repayment records, many merchants concede. Illegal aliens tend not to argue about prices and interest rates. They pay their debts scrupulously to avoid unpleasant encounters with collection agencies or, worse, the courts and the immigration authorities.

Are these shopkeepers, with their easy credit come-ons and their high prices, cynically exploiting a vulnerable population? Or are they offering a valuable service to a multibillion-dollar market that everyone else has chosen to ignore because of racism or ignorance?

Probably some of both.

“The customers are drawn to these stores because they are transients, temporary residents in the United States,” said Humberto Perez, assistant vice president at the Banco Popular de Puerto Rico branch on South Spring Street. “They do not want to become very visible. They look for a place where they feel comfortable.”

Fear of Bankers

Perez, who was born and raised in Mexico, said these customers take advantage of the easy credit offered by the Broadway merchants even when they might qualify for a personal loan or a credit card from a bank. In return, Perez said, the stores take advantage of a captive clientele by charging high prices and encouraging their customers to run up their debts buying unneeded goods.

“Hispanics as a whole are a little bit afraid of bankers. Some who can’t speak English would automatically be afraid to even walk into a bank,” Perez said. “In Mexico and other Latin countries, a bank is seen as an institution for only the prominent and well-to-do. They assume they’d be rejected.”

Since few recently arrived Latinos have bank accounts, Perez said, they need a place to cash a check with a minimum of hassle and identification. Many of the Broadway merchants gladly cash payroll and government checks for free or a modest charge, typically $2 a check.

Once inside the store, and with a fistful of cash, the impulse to buy, and the incentive to make a payment on the account, is great. In the process, the merchant gets up-to-date information on the customer’s employment, income and address.

“It’s a real neat technique. Not only do they collect on the account, but they sell some more. They bring the people back in and they gladly buy things they don’t need. The stores make it so easy,” Perez said.

In their defense, the merchants say they are providing necessities to people that other stores discriminate against because of their legal status, their inability to speak English, their lack of standing with the arbiters of credit in the Anglo financial world--MasterCard, Visa, American Express, Sears, TRW Credit Data and other credit-reporting bureaus.

An Opening

“When they open an account here, they usually don’t have credit anywhere else,” said Rachel Bensimon, credit manager at Dearden’s, a downtown department store at 7th and Main streets. The company has other stores in Pico Rivera and Huntington Park, also serving a primarily Latino clientele. “This account at Dearden’s opens the door for them. It’s a high credit reference.”

Bensimon said that more than 90% of Dearden’s sales are on credit and that the store rarely turns a new account away. For first-time customers, Dearden’s usually requires a co-signer and sets a low credit limit and short repayment schedule. As the customer builds a record of timely payments, the limit is raised and the terms liberalized, Bensimon said.

The interest rate is 19.2% a year and all payments are recorded in a payment book that the customer takes in or sends in with his payment. The book is a portable record of one’s credit-worthiness and is considered a valuable reference at other stores catering to Latinos.

In the mainstream of American retail credit, the once-common payment book system has all but disappeared, gone the way of the metal charge-a-plate and pneumatic tubes from the cashier’s office.

Dearden’s has 95,000 loyal credit customers, many of them second- or third-generation account-holders. Thousands qualify for credit elsewhere but return to Dearden’s for appliances and furniture because they feel comfortable shopping there, because the sales staff speaks Spanish, because Dearden’s seems to care.

“We’re not only their store,” Bensimon said--”if they need legal advice, they come to us. (For example, Dearden’s and several other downtown stores offer free information about the new immigration law.) If they want to cash a check, they come here. If they want to become part of the American dream, they come to us.”

Credit Losses

Bensimon said the store’s annual credit losses run 1 1/2% of sales, about the retail industry average. The store employs 50 people full time to process credit applications, verify employment and personal references, and remind tardy account-holders about overdue payments.

The company handles its own collections, chiefly by sending out letters and making phone calls. Very rarely, maybe twice a year, does the store send an agent to a home to demand payment or repossess an item, Bensimon said.

Spanish-speaking staff and easy credit are the big draw at Dearden’s, Victor Clothing, Central Electric and other downtown merchants. The stores also make an effort to create a friendly atmosphere, providing armchairs for sitting and visiting, free toys for children, and gregarious salespeople who always seem to know a potential customer’s neighbor in Boyle Heights or cousin in Juarez.

“At Sears, we don’t get the same service when we’re speaking to each other in Spanish,” said Alfonso Berrios, a buyer for Victor Clothing. “Our customers won’t go to Bullock’s or Robinson’s--not because they don’t have the money, but because they don’t get treated the way they deserve.

“They’re tired of being treated like Latinos everyplace else they go. When people feel they’ve been treated in a good manner, they don’t care about the price. They say, ‘This is my place.’ ”

The relaxed atmosphere extends to the stores’ collection practices. Victor Clothing has a full-time “legal staff” to handle tardy accounts. It consists of two women, who are not lawyers, who write letters and make phone calls.

The store loses $400,000 a year on bad loans, nearly 10% of its annual sales. But it does not repossess anything and never refers accounts to outside collection agencies.

“I don’t want my merchandise back. To me, they are necessities of life,” said Ramiro Salcedo, general manager at Victor Clothing. “Besides, who wants a used suit?”

Sophisticated System

At Central Electric, a large appliance and furniture store at Broadway and Washington Boulevard, the credit and collection system is more sophisticated. General manager Don Hoffman said that a quarter of the store’s 280 employees are involved in some aspect of the credit process. There are 30 young women who take credit applications, 15 workers who verify employment and addresses, 14 cashiers who take payments and stamp payment books, and 12 people devoted to collections.

But Central’s collection agents do not fit the stereotype of menacing repo-men. Hoffman said he hires women and “non-intimidating-type” young men who do most of their work by telephone. Occasionally, he said, they will make a visit to a home. But, Hoffman said, “We’re not going out there to scare a customer or pop a car. We think of them (collection agents) as credit counselors.”

Hoffman said the heavy-handed approach does not work with his clientele. A certain number of accounts are bad from the start; he writes them off at a rate of about 1 1/2% of annual sales.

The majority of late payments, he said, are due to loss of jobs or temporary disability and threats wouldn’t work in those cases. Most customers want to make their payments and build a solid credit record. There is also a Latin ethic that demands that a person meet his obligations, Hoffman said.

“Our approach goes back to the culture of our customers. They want respect,” he said.

Other merchants and Latino activists also remarked on this aspect of the Latin nature that makes the Latino a particularly good credit risk, even if he does not meet the “objective” criteria of income and residential stability demanded by banks and other Anglo creditors.

“It’s a cultural deal with us,” banker Perez said. “We are taught since we are young if we have a debt, we should repay it, even if we should suffer hunger. It’s a question of honor in our society.”

A Matter of Honor

Cecilia Sandoval, a Latino community organizer, said: “In Mexico and South and Central America, you give your word and the promise is implicit in your handshake. It’s a matter of honor that you’re going to fulfill that obligation.”

Another cultural trait that works to the advantage of the merchants is a certain passivity in the face of authority, a trait particularly pronounced among Latinos in the United States illegally. Illegal residents are unlikely to complain about shoddy products or unfair credit practices if such a complaint would bring them into contact with the courts or other official agencies.

“If I’m illegal, I’m limited in where I feel I can go,” said Irene Gomez Caro, who runs a consumer call-in show on Spanish-language radio station KTNQ in Los Angeles. “There are regulatory agencies that handle complaints, but their ability to deal with Spanish-speaking people is nil. There’s nowhere these people who have a complaint can go.”

Most Sales on Credit

Neil Fradkin, who runs an optical shop on Broadway, said 80% of his customers are Latino and about 75% of his sales are on credit. A large proportion of his clients are illegal aliens, he suspects, but that does not affect their diligence about paying their accounts.

“We could care less about their legal status. We have patients who are deported and work their way back several times and never miss a payment,” Fradkin said.

Fradkin said his father opened the optical shop 40 years ago and over the years developed the informal and largely successful credit analysis system he uses today.

“We’re taking a gamble, but we’ve been doing it for a long time and it works,” Fradkin said. “The Latin people believe in paying their debts. They have a certain integrity, which is lacking among other people in Los Angeles. I have another office in Van Nuys, a1852055663anyone.”

Then, gesturing toward the constant and colorful flow of pedestrian traffic past his downtown window, Fradkin added, “Broadway is like another country.”