Shortchanged: Life and Debt in the Fringe Economy (Bk Currents) - Hardcover

Karger, Howard

 
9781576753361: Shortchanged: Life and Debt in the Fringe Economy (Bk Currents)
Hardcover
ISBN 10: 1576753360 ISBN 13: 9781576753361
Verlag: Berrett-Koehler Publishers, 2005

Inhaltsangabe

“An eye-opening read in the school of Barbara Ehrenreich’s Nickel & Dimed . . . shines a bright light on the economy’s darker side.” —Publishers Weekly (starred review)
 
Drive through a low-income neighborhood and you’re likely to see streets lined with pawnshops, check cashers, rent-to-own stores, payday and tax refund lenders, auto title pawns, and buy-here-pay-here used car lots. We’re awash in “alternative financial services” directed at the poor and those with credit problems. Howard Karger describes this world as an economic Wild West, where just about any financial scheme that’s not patently illegal is tolerated. 
 
Taking a hard look at this fringe economy, Karger shows that what seem to be small, independent storefront operations are actually part of a fully-formed parallel economy dominated by a handful of well-financed corporations, subject to little or no oversight, with increasingly strong ties to mainstream financial institutions. It is a hidden world, Karger writes, where a customer’s economic fate is sealed with a handshake, a smile, and a stack of fine print documents that would befuddle many attorneys. 
 
Filled with heartbreaking stories of real people trapped in perpetual debt, Shortchanged exposes the deceptive practices that allow these businesses to prey on people when they are most vulnerable. Karger reveals the many ways this industry has run amok, ruining countless people’s lives, and shows that it’s not just the poor but, more and more, maxed-out middle class consumers who fall prey to these devious schemes. Balancing compassion with a realistic awareness of the risks any business faces in working with an economically distressed clientele, Karger details hard-headed, practical recommendations for reforming this predatory industry.

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Über die Autorin bzw. den Autor

Howard Karger is a professor of social policy at the Graduate School of Social Work, University of Houston. He is a two-time Fulbright Scholar and has written nine books and more than 80 articles or book chapters in various national and international journals. His articles have also appeared in The Washington Monthly, The Jerusalem Report, Tikkun, and Ram- parts. Howard and his wife, Anna, live in Houston, Texas.

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1
America’s Changing Fringe Economy

Driving through low-income neighborhoods, you can’t help but notice the large number of pawnshops, check cashers, rent-to-own stores, payday and tax refund lenders, auto title pawns and buy-here, pay-here used-car lots. We are awash in “alternative financial services” directed at the poor and those with credit problems. These fringe economy services are equivalent to an economic Wild West where just about any financial scheme that’s not patently illegal is tolerated.4

Elise and Bernardo Rodriguez are typical fringe economy customers. The Rodriguezes emigrated from Honduras to San Antonio, Texas, in the middle 1990s. Elise works for a company that cleans office buildings, and Bernardo owns a small landscaping company. They have two school-age children. Although the Rodriguezes are paid by check, they don’t have a checking or savings account. Instead, they use ACE Cash Express to cash their checks and to electronically pay bills. When electronic bill paying is not available, the Rodriguezes use money orders. They also wire money back to their family in Honduras through ACE. In fact, ACE is an important part of the Rodriguezes’ banking system. Occasional trips to pawnshops and check cashers round out their informal banking system.

There are several reasons why the Rodriguezes use check cashers. For one, they can’t wait for checks to clear. Because they make so little money, they live hand-to-mouth, and waiting a week or more for a check to clear the banking system means not having food on the table. Second, their account balances are so small after the rent and car payments that there’s almost nothing left after the second week of the month. Third, the Rodriguezes live in a cash economy, and many of the small shops where they buy food, clothing, and other necessities accept only cash. Checks are viewed skeptically and generally not accepted. The Rodriguezes don’t trust banks, and they don’t feel welcome there. They are also reluctant to write checks for fear of bounced-check fees from banks and merchants. All told, the Rodriguezes spend almost 10% of their net income on alternative financial services, which is average for unbanked households that rely on the fringe economy for their financial needs.1


Defining the Fringe Economy


5
There is no generally agreed-upon definition of the fringe economy or of predatory lending. In fact, if a broad definition is applied that includes high-interest home refinancing and credit cards, then the fringe economy is used as frequently by the financially troubled middle class as by the poor. Nevertheless, in a public relations spin, the industry uses “subprime lending” to refer to “loans made to borrowers with credit problems by charging higher, but still fair, fees.”2 The Federal Reserve Board defines subprime lending as “extending credit to borrowers who exhibit characteristics indicating a significantly higher risk of default than traditional bank lending customers.”3

Although a continuum supposedly exists between subprime and predatory lending, the delineation between the two is unclear. For example, what differentiates “expensive” or “very expensive” from “predatory” lending? When does an interest rate go from subprime to predatory? While not all subprime loans are predatory, all predatory loans are subprime. As Citigroup concedes, “There is no standard industry-wide approach to the definitions of either subprime loans or subprime lending programs, indicating that the meanings of these terms are institution specific.”4

Under the Home Ownership and Equity Protection Act (HOEPA), a mortgage is considered high interest if the annual percentage rate (APR) is 8 points (8%) for first mortgages and 10 points for subsequent loans above the rate of return on Treasury securities for the same period, or if the fees and points at closing are 8% or more of the loan amount. This definition of a high-cost loan would be a bargain for the many fringe economy customers whose interest rates are measured in the hundreds of percent. A clear definition of predatory lending is important, since without it all manner of abuses can be overlooked.


The Scope and Profitability of the Fringe Economy


The spartan and often shoddy storefronts of the fringe economy mask the true scope of this economic sector. In 2003 government spending on social welfare programs included the following:


$29 billion for Temporary Aid to Needy Families (TANF), the replacement for Aid to Families with Dependent Children (AFDC)6
$35 billion for Supplemental Security Income (SSI)
$33 billion for food stamps, the Special Supplemental Food Program for Women, Infants, and Children (WIC), and school lunch programs
$25 billion for the U.S. Department of Housing and Urban Development’s (HUD) low-income housing programs

Altogether, the bulwark of America’s public-assistance programs cost less than $125 billion. By comparison, check cashers, payday lenders, pawnshops, and rent-to-own stores engaged in at least 280 million transactions in 2001, generating about $78 billion in gross revenues.5 If we add subprime home mortgages and refinancing, as well as used-car sales, revenues in the combined sectors of the fringe economy are several times higher than federal and state spending on the poor.6

About 22,000 payday lenders extended more than $25 billion in short-term loans to millions of households in 2004.7 The 11,000 check-cashing stores alone processed 180 million checks in 2002, with a face value of $55 billion.8 The sheer number of fringe economy storefronts illustrates the scope of this sector. For example, McDonald’s has 13,500 U.S. restaurants, Burger King has 7,624, Target has 1,250 stores, Sears has 1,970, J.C. Penney has about 1,000 locations, and the entire Wal-Mart retail chain includes about 3,600 U.S. outlets. These combined 29,000 locations are fewer than the nation’s 33,000 check-cashing and payday lenders, just two sectors of the fringe economy.9

ACE Cash Express, the nation’s largest check casher, is an example of the scope, growth, and profitability of the fringe economy. In 1991 ACE had 181 company-owned stores; by 2003 that number had risen to 1,230 company-owned and franchised stores in 37 states and the District of Columbia. (ACE plans to add another 500 stores by 2008.) In 2000 ACE’s net income was $8.3 million; by 2004 that had risen to $17.1 million. ACE claims about 1.2 million new customers a year, and in 2004 it served 38.2 million customers, or about 11,000 an hour. The company’s revenue corresponded to its growth. In 2000 ACE’s revenues were $141 million; by 2004 they had jumped to $247 million. In 2004, ACE


engaged in 41 million total transactions worth over $8 billion,7
cashed approximately 13.2 million checks with a face value of $5.1 billion,
made 1.9 million payday loans and earned $77 million in fees,
completed 9.7 million bill-payment transactions,
made 2 million wire transfers (worth $581 million) and sold 8.8 million money orders with a face value of $1.2 billion,
added 53 new stores, compared with 14 in 2003.

ACE expects its total revenue for fiscal 2005 to range between $265 million and $270 million.10

Advance America, Cash Advance Centers, Inc., is the nation’s leading payday lender, at least as measured by the number of its stores. By 2004 Advance America had 2,290 stores in 34 states. In 2003 it employed 5,300 people and had $489.5 million in sales with a net income of $96 million.11 Advance America allied with out-of-state banks in 2002 to evade limits that some states imposed on the industry’s...

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Verlag
Berrett-Koehler Publishers
Erscheinungsdatum
2005
Sprache
Englisch
ISBN 10 
1576753360
ISBN 13 
9781576753361
Einband
Gebundene Ausgabe
Anzahl der Seiten
272
Kontakt zum Hersteller
Nicht verfügbar
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Pärnu mnt. 139b-14
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