Making millions and billions off the working poor.

Businessweek’s Brian Grow and Keith Epstein did an in depth article on the corporations that prey upon our nations poor, specifically the working poor. The title of their article: The Poverty Business (listen to the podcast here). There is quite a lot of money to be made off this large group, don’t kid yourself. The working poor strive to get out of poverty, no one wants to be broke day after day…year after year. They seek to better their lot in life even though wages for this group in particular have been stagnant for years. That is where these corporations come into play. The Bill Moyers Journal this week was about this issue as well and interviewed the Businessweek writers.

They are known as Predatory Lenders. You see their ads; payday loans, buy a car with no or bad credit, subprime credit cards with well over 20% interest rates and finally the home loan corporations. In a Mother Jones writeup we can see how the subprime credit card industry is raking in the cash with the best wishes of major Civil Right Organizations such as the Southern Christian Leadership Conference and the National Urban League among others. Ironic? Oh hell yes, but more on that later.

The National Consumer Law Center has a report available on subprime credit card companies here (pdf). These credit card companies don’t offer credit as a means to ‘get ahead’, these cards are a means to provide the company with very lucrative income know as ‘Fee Harvesting”. A short excerpt:

The report, “Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers,” opens a window on a shadowy submarket where savvy card companies extract hundreds of millions of dollars in fees and other revenue from the pockets of consumers in the so-called subprime market. One of the fee-harvester cards featured in the NCLC report comes with a credit limit of $250. However, the consumer who signs up for this card will automatically incur a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee – an instant debt of $178 and buying power of only $72.

Fee-harvesting is extremely lucrative for the industry. In 2006, Atlanta-based CompuCredit – one company featured in the NCLC report – collected $400 million in fees from a portfolio of fee-harvester cards that by mid-2007 had saddled cardholders with nearly $1 billion in debt. (emphasis mine)

The predators at CompuCredit also have their very own collection agency when the working poor fall behind in their payments. As the MotherJones article points out, the Federal Trade Commission has filed suit against the parent company:

Last month, the Federal Trade Commission sued the company for unfair and deceptive trade practices, as well as violating the Fair Debt Collection Practices Act….The FTC also alleged that CompuCredit was working in tandem with its debt-collection arm, Jefferson Capital, in a complex scheme that used the credit cards as a way of duping consumers into paying off old debts that had been discharged by other lenders. Far from lifting consumers upward, CompuCredit was leaving its customers mired in debt, from which they would have a tough time escaping.

The Federal government has seen the trends in corporations moving past the payday loans and into the subprime automobile, credit cards and home mortgage industries. From the BusinessWeek expose, some numbers:

Federal Reserve data show that in relative terms, that debt is getting more expensive. In 1989 households earning $30,000 or less a year paid an average annual interest rate on auto loans that was 16.8% higher than what households earning more than $90,000 a year paid. By 2004 the discrepancy had soared to 56.1%. Roughly the same thing happened with mortgage loans: a leap from a 6.4% gap to one of 25.5%. “It’s not only that the poor are paying more; the poor are paying a lot more,” says Sheila C. Bair, chairman of the Federal Deposit Insurance Corp.

These corporations explain away the massive fees and un-godly high interest rates by saying its the only way they can ‘do business’ within the economically challenged neighborhoods.

Bullshit. There is no justification for the ‘fee-harvesting’ credit cards mentioned above. But many of them get their money upfront, long before the individual will reap any benefits. There is no justification for auto loans that are collateralized yet carry 24% interest rates on vehicles that have over 100,000 miles on them when they are sold to the working poor. Payday loans with interest rates of 300 percent might help keep the lights on in an emergency, but they will keep the working poor paying that loan off for months and sometimes years to the detriment of their families ability to house, feed and clothe their children.

Yet the minority rights groups support these corporations. They actually honor them in some cases. From the Mother Jones article:

Three years ago, Al Sharpton went so far as to appear in TV commercials for LoanMax, a company that specializes in auto-title loans, whose 300 percent interest rates consumer advocates consider deeply predatory. CompuCredit has participated in Jesse Jackson’s Rainbow/PUSH Coalition’s career fairs and economic summits. Local affiliates of the National Urban League, one of the nation’s oldest civil rights groups, have worked with the payday lending industry trade group, the Consumer Financial Services Association (CFSA), to conduct financial literacy seminars. Denise Harrod, CompuCredit’s vice president, has served on business committees of the National Conference of Black Mayors and the National Black Caucus of State Legislators, both of which have received money from the payday lending industry.

Payday lenders were popular honorees this year among civil rights groups celebrating the birthday of Martin Luther King Jr. The president of CFSA, the payday lending industry lobby group, chaired the Congress of Racial Equality’s (CORE) Martin Luther King Jr. awards dinner in January. To honor the King holiday this year, SCLC gave its presidential award to CompuCredit’s Harrod for her “leadership in the struggle for economic justice through the political process.”

Unconscionable and simply astounding. Studies show these companies are clustered in poor and minority neighborhoods. They prey solely on the minorities and the working poor. You do not see a Payday Loan shop in an upscale neighborhood, but within walking distance of my home, in one of the poorest parts of Bakersfield called Oildale, I can count on both hands numerous payday loan shops, auto dealers that do not have prices on the vehicle windows and car title loan businesses. These corporations are known in the financial world as “alternative financial services” and they rake in over $25 Billion a year. That is with a “B”. Again from the Businessweek article we get the numbers of what these ’services’ mean to Wall Street and beyond:

Mainstream financial institutions are helping to fuel this explosion in subprime lending to the working poor. Wells Fargo & Co. (WFC ) and U.S. Bancorp (USB ) now offer their own versions of payday loans, charging $2 for every $20 borrowed. Based on a 30-day repayment period, that’s an annual interest rate of 120%. (Wells Fargo says the loans are designed for emergencies, not long-term financial needs.) Bank of America’s revolving credit line to Byrider provides up to $110 million. Merrill Lynch & Co. (MER ) works with CompuCredit to package credit-card receivables as securities, which are bought by hedge funds and other big investors.

Once, major banks and companies avoided the poor side of town. “The mentality was: Low income means low revenue, so let’s not locate there,” says Matt Fellowes, a researcher at the Brookings Institution in Washington, D.C. Now, he says, a growing number of sizable corporations are realizing that viewed in the aggregate, the working poor are a choice target. Income for the 40 million U.S. households earning $30,000 or less totaled $650 billion in 2004, according to Federal Reserve data.

Gouging the poor is good business…very good. Alone, a poor individual isn’t worth squat but when you add up entire neighborhoods they are worth millions and in some cases billions…to someone that drives a top of the line car and owns a home in one of the best neighborhoods in our nation.

And we haven’t even covered the medical bill loansharks folks. There are now hospitals that will refuse to treat a sick, albeit uninsured individual unless they sign on the dotted line to have their hospital bill paid and financed by a new type of predatory lender.

Crossposted at Leftwing Nutjob.

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