If you want a realistic look at predatory lending, high-cost financial services, and other "ordinary rip-offs" endured by low-income persons in the United States today be sure and visit this link to the cover story of the latest issue of Business Week, no liberal rag I might add: http://www.businessweek.com/magazine/
content/07_21/b4035001.htm?chan=top+news_top+news+index_best+of+bw+this+week.
I expect the story will sicken you, as it did me.
Israel in the days of the Hebrew prophet Amos (circa 8th century B.C. E.) had nothing on the United States today! Might do us all good to read the words of Amos today, right after we read the Business Week article. Let me know when you hear either quoted in church.
What with largely unregulated loan sharks, disguised as reputable businesses; selling used cars complete with strategies to repossess a part of the business plan; rent-to-own electronics and appliances; payday loans; income tax services and extremely high interest credit cards; poor folks in this country discover just one more way to slide further and further into the darkness of not just poverty, but generational poverty. The Business Week report demonstrates that these businesses plan to exploit the poor as standard operating procedure on the way to remarkable profits.
Unchecked capitalism such as this, as well as the injustices it spawns, should be reigned in for the good of the entire society.
Behind this story is a fact that others in the business world should take note of. The subprime and predatory lenders have moved in on the poor for one simple reason: the poor have money and constitute a viable market opportunity.
Here's my question. If there is an opportunity for the shady, why not the legitimate?
For years we have been asking for grocery retailers to set up business in the poorer sections of Dallas, especially in the inner city neighborhoods of South Dallas. Our low-income friends need and purchase food more often and frequently than credit! The market is there. Where is the company willing to step up to the unique challenges of these areas of our city and deliver what would in many low-income neighborhoods be a smashing business success?
I doubt anyone starts breaking ground tomorrow, but I'll keep asking anyway.
9 comments:
Larry - I've noted this several times on your blog - yet some of these predatory lenders have been applauded by City officials and the media who are ignorant of their true practices.
So how can we go about campaigning for usury laws with teeth?
Larry, You obviously don't understand capitalism or the high risk these lenders take in making these loans, selling these cars, etc. Without these services, the unbanked really would be dealing with loan "sharks" as opposed to legitimate, regulated industries. Ever heard of "personal responsibility" in terms of making credit decisions. People overeat every day, yet we don't call McDonald's a "predatory restaurant".
Get a clue.
anonymous 12:20 p.m., you seem certain about Larry's "understanding" or misunderstanding, as the case may be.
Your comments make fairly clear your own level of very low understanding, as well:
a) You didn't read the Business Week article Larry pointed us to--even they see the problem.
b) You've never wanted for much in your life, and don't have a clue about what the poor face on a day-to-day basis--a real problem in this country.
c) Loan sharks couldn't be much worse than pawn shops and some of what the article reports.
I bet Larry would be willing to work on getting "a clue," if you promise to work on getting a heart.
I have struggled with the morality of lending money to those who are poor or have low credit scores. I would like to hear people's opinions on what the upper limit for a "fair" interest rate is. I have made several loans through prosper.com to people who are looking to consolidate high interest credit card debt or pay off payday loans. I feel like offering 20% interest to someone who was previously paying 25% or more is reasonable and justified, but perhaps this is still usury? Based on historical default data, my annual return will probably be less than 10% over the 3yr term of these loans. Should a determination of how much interest is too much be based on what any individual borrower is paying, or on what you are likely to receive after accounting for defaults? Effectively what is happening is that people who pay back their loans are subsidizing "free money" to their peers who don't pay off the loans, but these transfers should be compensated by the resulting changes in their credit scores. In order for a system that provides credit to the poor to be sustainable, whether as a for-profit enterprise or a non-profit credit union, interest rates will necessarily be higher for those with increased risk. At what interest rate should we refuse people access to credit?
It saddens me that the less than wealthy are the ones that always have to pay the higher prices. My daugher (26 and single) is my example. She pays her own way and has a fairly decent income (mid-40's). She doesn't have the best credit rating though (divorce). Less than perfect credit sets you up for high-interest rate loans. She makes ends meet but doesn't have "leftover." She had no cash for a down payment. She bought a foreclosed property - another portrait of others that have been sucked into the black hole. Anyway, she had a fast-talking broker that convinced her that the adjustable rate mortgage was perfect for her. By the time my husband and I knew anything about it, it was too late to get out of. At the closing, my husband tried to tell the broker that ARMs were dangerous - they shushed him up in a hurry. Anyway, thankfully, within 1 1/2 yrs. we were able to do a refi. Not everyone has been that lucky. These people have no shame - they say we should know better. Think about their target audience. It makes me furious. And then when you buy a car, the people that have the most get the best rates. I understand the "risk" I guess, but there's almost always more to the story than what's on paper. The "poor" description is covering more and more of the population. And with these deceptive techniques, it's going to cover a lot more.
I would say the answer is not to legislate these businesses. I believe they are being shady, and exploiting the poor and ignorant, but I don't think that making laws against their operation is the answer, because, as anonymous said (but with a tone I attempt not to use) if you make operation of these companies illegal, predatory lending to the poor will still happen, but it will be a black market thing. And we all know what happens on the black market...
I think the answer lies in education about these practices and non profits stepping in to compete with them. Also, we must address, in every class from rich to poor, the dangers of consumerism. While owning things isn't inherently wrong, and while debt is something that can help you in some circumstances (investment, homes, etc) people need to know that its better to save their money for something they want rather than rent it. After the computer I received for graduation died, I wanted a new one, but my parents told me to save my money, and I did, and after a couple of cheap replacements, I got one that was new and what I wanted. But it took two years to do that. Rent a Center's and places like that are exploiting the consumerist mentality of "I want it now" among us... if you can't afford it, rent it, or put it on credit... That is such a dangerous mentality.
Its up to us as Christians, especially those of us who have learned responsible behaviors from our parents and grandparents, to teach those trapped in the cycle of poverty how to become self sufficient, to stay away from buying non neccesary items on credit, and to save money each month.
As to bringing more business to poor areas, until crime gets under control, businesses are going to stay away from those areas. I've seen many a mall in Memphis close its doors, not because of loss of sales, but because theft became such a problem that the cost of theft outpaced the sales of the business. And businesses that are all ready in poor areas will increase their prices as long as there is no competition.
Its a sad and vicious cycle.
"non-profits to compete with them"....wow...what if the local church opened lending outlets much like their food banks?
a few thoughts...in no special order:
I understand that the reason that jewish lenders were the lenders to go to in the middle ages, was because the church forbad Chrsitians from exacting any interest from loans to fellow Christians... resulting in no christians willing to loan.
Larry...do you have a copy of "The Message"? the intro to Amos is intense.
Deutoronomy says over and over again to not take advantage of the poor. Taking advantage might mean profiting from. What if Christian business men made a living by their profits on loans to people who would profit from those loans, and NOT a killing by profiteering from people who desperately need a temporary break.
Anonymous 12:48 can speak to a world of perfect folks. Perfect rich people and perfect poor people will always be okay. But it is the rest of us to which I and I think, God speakls: If you are wealthy and mess up, it is a minor thing. If you are poor and screw up, it may be the last strike, and you are out.
Let the church teach financial responsiblity, if that's what you're advocating. Oh, and by the way, make sure that the church gets its tithe, while you're at it. Instead of simply attacking the lenders, what about those in society that drive the appetite of materialism, enticing people to borrow beyond their means? They are not blameless, by any stretch, either.
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