Originally published in Real
Check cashing outlets. Pawn shops. Used car lots advertising "No credit? No problem!" Familiar sights in Seattle, or in any city of any size. Often a welcome sight: when you have a disability check but no checking account, or the check's run out and you need to turn some of your belongings in storage, that you can't use, into money that you can use.
Reading Merchants of Misery gives a different perspective on these services. This book is a collection of articles by national-level journalists for such publications as U.S. News & World Report, the Wall Street Journal, the New York Times, Barron's, and other major newspapers and magazines. It is edited by Michael Hudson, whose reporting on the problems of disadvantaged consumers has won a John Hancock Award for business reporting and a Sidney Hillman award for social justice journalism, among others. These folks have credentials.
The book has scope. It is not an all-opinion rant, nor an expose on one abuse or one abuser. The articles collected cover the uses and abuses of the "fringe economy" through banking, check cashing outlets, pawn shops, home repair rip-offs, car loans, insurance, low-income rental housing, rent-to-own plans, trade school scams, and - woven through it all - politics.
Businesses that target the "fringe economy" make $200 to $300 billion a year off of the marginalized - the poor, the working-class, and often the minorities - who can't get loans from traditional institutions. And yet, many of the traditional institutions that deny service to the poor - by not placing banks in working-class neighborhoods, by refusing mortgages in minority neighborhoods , etc. - these same institutions own a majority of the businesses that profit from the poor, through the nontraditional market.
Not every merchant who markets financial services to the poor is exploitative. Many do provide a needed and wanted service.
But others take a ruthless advantage of people in no position to "credit shop". A woman who borrowed $2000 for car repairs from Associates Financial Services, owned by Ford Motor Company, found she had bought $1,200 of add-ons she had never heard of, let alone approved, and she was paying 33.99% interest.
She sued. Associates settled out of court.
One of the standard responses to abuses by lenders is, "The buyer should have just been more careful." But we don't shrug off victims of burglary or armed robbery with, "Well, you should have been more careful." If you left your keys in the car, your insurance company may penalize you - but the law will still go after the person who stole your car. We don't tell people who suffer food-poisoning in a restaurant, "No one forced you to eat there." We force the restaurant to clean up or close. We consider the government to have a duty to protect its citizens, and that duty is often carried out even to an annoying extreme - unless those we need to be protected against have a great deal of money.
Private trade schools can be good avenues to a paying job. They can also be rip-offs. Julie Shorter, a single mother with two children, signed up at Connecticut Academy in Atlanta, Georgia, to train as a medical assistant. Waste disposal was cavalier, and needles commonly reused all around the class. But she stuck with the program, staying up late at night to learn medical terms, buying clean needles to practice with herself. When she graduated at last, no one would hire her with a Connecticut Academy diploma. The careless methods of the Academy were common knowledge. One doctor told her he'd be asking for a malpractice suit if he hired her.
Yet this school was accredited, and received federal funds through student loans. Moreover, Shorter soon found that while telling her she was applying for a grant, the school had actually had her sign a loan application - and she was now obligated to repay a $5000 loan, for a worthless education. Julie Shorter has an income of $235 a month, in federal aid.
The federal government was supposed to be helping Julie get paying work and get off of welfare. Julie did her part. But the government, instead of doing its part, aided and abetted con artists to keep her trapped.
Legal reform that will prevent financial abuses is difficult if not impossible to get passed, in any arena. In 1992, a bill to put a cap on the interest rate that homeowners - usually poor and minorities - paid on second mortgages fought through the Georgia Senate Banking Committee and through the Senate, only to stall in the Georgia House - in a panel chaired by a banker, in which each of the five members of the panel had received $8,000 in campaign contributions from lenders.
Minority borrowers are usually forced to go to fringe institutions, when it is difficult for them to get loans from more traditional - and far less abusive - banks.
Most people will argue that current antidiscrimination laws prevent minorities from being refused loans. But mortgage loans are based on appraised value of the home. Racial bias still skews mortgage appraisals, as evidenced by this story:
"Joseph Boyce, a black editor at the Wall Street Journal, wrote in 1992 about trying to sell his house in Atlanta. When white appraisers came in, Boyce's family was present. The appraisers set the value of the house at just over $70,000. Before a second set of appraisers came in, Boyce removed all his family photos and had his secretary and her son, who are white, be there instead of his own family. The second time around, the house appraised $12,500 higher."
Merchants of Misery does document successful reform movements. The final chapter lists ways that the reader can investigate the poverty industry in your own city or state, and actions you can take on abuses.
In future issues of the Real Change, we are going to follow the tips in that chapter, and publish the results of our own investigations. We welcome tips and reports from our readers.