Tweet
Has anyone read the book
Shortchanged: Life & Debt in the Fringe Economy ?
If so, would love to hear a review.
I knew about this book several months ago and was planning to read it but then forgot about it until I read this online article today.
I have to get a copy. It really sounds interesting
~~~~~~~~~~~~~
Life in the Fringe Economy
When I was a boy growing up in a Pennsylvania factory town, pawnshops only existed in the cities and in towns near military bases. There were no such things as title pawnshops, check-cashing outlets, payday loans, stored-value credit cards, tax refund advances, rent-to-own furniture stores, furniture lease backs, phone cards promising low rates to call home in faraway countries, reverse mortgages, shared appreciation mortgages, and many other predatory schemes. Today these things are commonplace; drive through any small and not overly prosperous town and you will see them everywhere. In South Central Los Angeles, for example, in “a low-income community of 400,000 [there are] 133 check-cashing outlets....” What is more, they are not confined to criminal enterprises but are a substantial part of or the sole business of billion-dollar corporations. All of them cater to the poor and near-poor, the latter being that sector of middle-income households that have accumulated too much debt and are a small disaster away from being poor.
Here are some revealing facts about what Howard Karger classifies as the “fringe economy” in his fine book, Shortchanged: Life and Debt in the Fringe Economy:
In the United States there are more than 22,000 payday lenders (making more than $25 billion in short-term loans). There are more than 11,000 check-cashing stores (180 million checks and $55 billion). There are more than 14,000 pawnshops. The three largest pawnshop chains do more than $1 billion a year in business. The rent-to-own furniture and appliance industry does over $6 billion in business with more than 3 million customers. More than 12 million people receive tax refund anticipation loans. More than 332,000 “subprime” (read extremely high interest rate) mortgages are taken out each year, amounting to more than $300 billion.
The players in the fringe economy are no longer mom-and-pop operations. New corporate giants have been built, and old “mainline” companies are deeply involved in taking poor people’s money. How many readers know about ACE Cash Express (serving more than 38 million customers a year—more than 11,000 a minute—in more than 1,230 stores and doing $8 billion worth of transactions); or Advance America, Cash Advance Centers, Inc. (more than 2,800 stores, 5,300 employees, and at least $500 million in sales); or Cash America International, EZ Pawn, and First Cash (the pawn industry’s big three, each with revenues of more than $15 million); or Rent-A-Center (with worldwide operations employing more than 15,000 workers, 3,000 stores, and $2.3 billion in sales). Of course, we have all heard of H&R Block, Wells Fargo, JP Morgan Chase, Morgan Stanley, Bank of America, Wachovia, Well Fargo, Citigroup, and Lehman Brothers, all blue chip corporations, and all either doing business independently in the fringe economy or partnered up with the fringe operators just mentioned.
The fringe debt economy is extremely profitable, belying the notion that the poor must be charged usurious interest rates and made to pay outrageous and usually hidden fees because they are such high-risk borrowers. Business start-up costs are low, and few employees are needed to run a store. Consumer defaults are also low. Borrowers typically have to put up some collateral to get a loan. A tax anticipation loan is a sure thing, since the loan is never for more than the expected tax refund, which the lender keeps. Pawnshops keep the goods if they are not redeemed, and they never pay more than a fraction of the retail value of an item. Subprime mortgages are backed by the property, which goes to the lender in cases of default. Even where there is no collateral, as in a check-cashing operation, the price is so high that it more than makes up for any defaults. Karger tells us that “ACE Cash Express assesses the risk of each check-cashing transaction and reports losses of less than 1%.” And “...only 5% of subprime car loans are charged off as unrecoverable debt, a low number given the problematic credit histories of some borrowers.” These numbers hardly justify the interest rates charged to the poor, rates which, in the case of subprime car loans can reach 35 percent. The profitability of selling products and lending money to the poor is also demonstrated by the explosive growth of the fringe debt economy. Profitability is also shown by the high salaries, bonuses, and stock options of the corporate CEOs. The chairman of EZ Pawn took home $1.26 million in 2004; the CEO of Cash America “earned” $2.2 million and had $9 million in stock options. Advance America’s CEO made a paltry $650,000 in 2003 but held stock worth $101 million.
Without question, the fringe debt economy targets the poor, including especially immigrants, and those who are not poor but living from paycheck to paycheck. Many of these people are the “unbanked,” those without bank accounts of any kind. Most of them have yearly incomes below $25,000. Karger notes that “as many as 56 million adult Americans—about 28% of all adults—don’t have a bank account. Almost 12 million U.S. households (one-fourth of all low-income families) have no relationship with a bank, saving institution, credit union, or other mainstream financial provider.” The customers in the fringe debt economy are the same people who do the types of work described by Ness in his book: “nursing home aides, poultry processors, pharmacy assistants, child-care workers, data-entry keyers, janitors, and other employees of the secondary and tertiary labor markets.” As Ness makes clear, and Karger seconds, the customers of our check-cashing stores and rent-to-own outlets are growing in number, and for reasons intimately tied to the way in which the national and global economies have changed: falling median wages, a frozen minimum wage, declining health care coverage, the dismantling of the welfare system, the destruction of the means of livelihood in poor countries and the attendant rise in immigration, the denial of basic welfare benefits to immigrants, and the radical transformation of workplaces that can now utilize millions of contingent workers.
Economic changes have forced the poor and near-poor to assume larger amounts of debt, and the inability to pay this debt fuels the fringe economy, leading to what amounts to a system of debt peonage. Karger notes that “...family debt has increased a whopping 500% since 1957.” And, “[a]ccording to Elizabeth Warren and Amelia Tyagi, today’s two-income family earns 75% more than its single-income counterpart did a generation ago but has less discretionary income after fixed monthly bills are paid.”
The bulk of Karger’s book consists of a detailed examination of the major types of debt enterprises that prey on the poor and near-poor. Individual chapters are devoted to the credit card industry, storefront loans (pawnshops, payday loans, and tax refund lenders), alternative services (check-cashers, rent-to-own, and telecommunications), fringe housing, real-estate speculation and foreclosure, the fringe automobile industry, and the getting-out-of-debt industry. Heartrending personal stories are interspersed with the mechanics of each operation, and each chapter contains copious and useful data.
In each case we see that predatory lenders offer services the poor need but would not otherwise get. But they have to pay a high price to get them, and once in the debt economy there is no easy way out. The system is structured to keep the poor in debt. Like criminal loan sharks and bookmakers, the idea is not to kill the goose that lays the golden eggs but to keep it laying eggs, bleeding the poor slowly and for as long as possible. As long as you keep paying, they’ll keep lending. For example, poor people with credit problems or without any connection to a bank cannot get a loan for a new car or for a good used car from a reputable dealer. So they go to a “buy here, pay here (BHPH)” used car lot. There are some 19,000 of these in the United States, accounting for nearly a quarter of all used car sales. This is big business, and consolidation is now taking place, with a few large firms dominating the market and saturating mainstream local media with ads. DriveTime operates seventy-six dealerships in eight states; Car-Mart—located in Bentonville, Arkansas, headquarters of Wal-Mart—controls seventy-six dealerships in seven states. Big banks typically buy at a discount the loans issued by the BHPH dealers, making a nice safe profit without the bad publicity such shady operations might involve.
Here there are no credit checks. The seller works out a weekly payment the buyer thinks she or he can afford, and a deal is struck. There is a significant down payment, lots of hidden charges, an interest rate on the loan that may be as high as 35 percent, and an aggressive repossession policy (as soon as one day after a missed payment). But the buyer leaves with a badly-needed car. If it needs repairs, the BHPH dealer will do them and roll the repair costs into the loan. If the repairs are too costly, the dealer will offer a better trade-in than anyone else so that the buyer can get a more expensive car. And a new loan. And so on. Seldom do buyers keep a car for more than a year. Instead they return again and again to the same dealer and soon find themselves in a never-ending cycle of debt. Making regular payments does not improve their credit rating, since no credit reporting is done. They end up paying many times more than the price of a good used car. Their only reward, if they are Car-Mart customers, is to get their name on a plaque as a frequent buyer. Fifteen purchases put them in the Platinum Club. In this market it is even possible to rent tires, often a necessity for passing state car inspections.
The fringe debt economy also undermines public policies aimed at helping poor people. Tax time produces a feeding frenzy among tax refund anticipation lenders. Poor households depend heavily upon money from the Earned Income Tax Credit (EITC); the EITC check might be the largest single sum of money they receive in a year. However, they often need the money immediately. They can get it, for a price. Karger tells us that in 2001, tax preparation fees, tax-anticipation loan fees, check-cashing fees, and the like cost the poor $1.8 billion, 6 percent of the EITC program. One of the worst abusers of all of this is the giant corporation, H&R Block.
Karger proposes a variety of public policy changes for each fringe sector he examines. These include caps on interest rates, the outlawing of certain types of loans, full disclosure of loan conditions to customers, free publicly-funded tax return services to the poor, adequate enforcement of existing laws, limits on credit card spending maximums, adequate minimum payments on credit card balances to avoid balances that never diminish, longer grace periods before late fees are charged, extending the minimum payback time for payday loans (often this is as little as two weeks), not permitting credit card companies to raise interest rates because customers have been late paying another company, strict rules for setting exchange rates in international money transfers, expanded coverage of consumer credit laws to include rent-to-own transactions, limitations on fees charged for prepaid phone and credit cards, prohibition of many of the bogus fees charged to poor home buyers as well as pre-payment penalty fees, housing price controls, federal housing loans, and an increase in the stock of public housing and public transportation.
A Golden Opportunity
Karger does not offer us a strategy for achieving his many reform proposals. Here, however, we can learn much from Ness’s book. Ness’s immigrant workers are a significant component of Karger’s fringe debt consumers. Ness tells us that the organization of the workers began autonomously, the result of their extreme exploitation and social isolation, the latter a partial consequence of their ethnic homogeneity. They had only themselves to turn to, and this is what they eventually did. Solidarity and class consciousness flowed out of their circumstances.
It is unlikely that autonomous organization among the poor will arise to challenge the fringe debt economy. Incurring debt is a private matter, and the debtors do not usually live in close proximity to one another outside of the big city ethnic enclaves. Yet, the horrible work lives of the poor are so closely connected to their need for credit that some kind of movement ought to be possible. We all live lives of many connected parts. One of the problems of the U.S. labor movement has been to forget this and to assume that if a union provided some insurance at work this was enough.
In the cases of the workers studied by Immanuel Ness, labor organizations were in a position to give critical support to the immigrants. Wouldn’t it be possible for unions to finance, along with poor working people themselves, a network of workers’ centers in every city and medium-sized town and suburb in the country? These centers could be sponsored not just by unions but by sympathetic progressive organizations. Members would have to pay small dues and agree to participate in a certain number of actions each year (informational picketing, class action suits, letter-writing campaigns, and the like). The centers would have headquarters where working people could socialize and exchange information about work, organizing unions, confronting predatory lenders, and anything else of interest to them. The centers could, as some now do, offer instruction in English and provide an array of other services. For example, the centers could fight for some of the proposals Karger makes. The most likely ones would be those that would make poor workers less reliant upon fringe lenders and at the same time, not quite so reliant upon their employers. These would include more public housing, more and better public transportation, public tax services, community-based automobile dealers, and, even, as a friend of mine, John Mage, suggested, public pawnshops, which actually existed in fifteenth-century Italy. The connections between exploitation at work and in the consumer marketplace could be a key one made by the centers’ leaders, among whom would be as many poor workers as possible. They could be places where cross-racial, cross-ethnic, and cross-gender understanding and solidarity could be built.
Unions and union leaders are always complaining about the labor laws, the National Labor Relations Board, the Bush administration, Wal-Mart, China, and a host of other demons. If only this were true or that would happen. Well, Ness’s immigrant workers organized against great odds. Others could do the same. The labor movement could make a difference. Now.
Shortchanged: Life & Debt in the Fringe Economy ?
If so, would love to hear a review.
I knew about this book several months ago and was planning to read it but then forgot about it until I read this online article today.
I have to get a copy. It really sounds interesting
~~~~~~~~~~~~~
Life in the Fringe Economy
When I was a boy growing up in a Pennsylvania factory town, pawnshops only existed in the cities and in towns near military bases. There were no such things as title pawnshops, check-cashing outlets, payday loans, stored-value credit cards, tax refund advances, rent-to-own furniture stores, furniture lease backs, phone cards promising low rates to call home in faraway countries, reverse mortgages, shared appreciation mortgages, and many other predatory schemes. Today these things are commonplace; drive through any small and not overly prosperous town and you will see them everywhere. In South Central Los Angeles, for example, in “a low-income community of 400,000 [there are] 133 check-cashing outlets....” What is more, they are not confined to criminal enterprises but are a substantial part of or the sole business of billion-dollar corporations. All of them cater to the poor and near-poor, the latter being that sector of middle-income households that have accumulated too much debt and are a small disaster away from being poor.
Here are some revealing facts about what Howard Karger classifies as the “fringe economy” in his fine book, Shortchanged: Life and Debt in the Fringe Economy:
In the United States there are more than 22,000 payday lenders (making more than $25 billion in short-term loans). There are more than 11,000 check-cashing stores (180 million checks and $55 billion). There are more than 14,000 pawnshops. The three largest pawnshop chains do more than $1 billion a year in business. The rent-to-own furniture and appliance industry does over $6 billion in business with more than 3 million customers. More than 12 million people receive tax refund anticipation loans. More than 332,000 “subprime” (read extremely high interest rate) mortgages are taken out each year, amounting to more than $300 billion.
The players in the fringe economy are no longer mom-and-pop operations. New corporate giants have been built, and old “mainline” companies are deeply involved in taking poor people’s money. How many readers know about ACE Cash Express (serving more than 38 million customers a year—more than 11,000 a minute—in more than 1,230 stores and doing $8 billion worth of transactions); or Advance America, Cash Advance Centers, Inc. (more than 2,800 stores, 5,300 employees, and at least $500 million in sales); or Cash America International, EZ Pawn, and First Cash (the pawn industry’s big three, each with revenues of more than $15 million); or Rent-A-Center (with worldwide operations employing more than 15,000 workers, 3,000 stores, and $2.3 billion in sales). Of course, we have all heard of H&R Block, Wells Fargo, JP Morgan Chase, Morgan Stanley, Bank of America, Wachovia, Well Fargo, Citigroup, and Lehman Brothers, all blue chip corporations, and all either doing business independently in the fringe economy or partnered up with the fringe operators just mentioned.
The fringe debt economy is extremely profitable, belying the notion that the poor must be charged usurious interest rates and made to pay outrageous and usually hidden fees because they are such high-risk borrowers. Business start-up costs are low, and few employees are needed to run a store. Consumer defaults are also low. Borrowers typically have to put up some collateral to get a loan. A tax anticipation loan is a sure thing, since the loan is never for more than the expected tax refund, which the lender keeps. Pawnshops keep the goods if they are not redeemed, and they never pay more than a fraction of the retail value of an item. Subprime mortgages are backed by the property, which goes to the lender in cases of default. Even where there is no collateral, as in a check-cashing operation, the price is so high that it more than makes up for any defaults. Karger tells us that “ACE Cash Express assesses the risk of each check-cashing transaction and reports losses of less than 1%.” And “...only 5% of subprime car loans are charged off as unrecoverable debt, a low number given the problematic credit histories of some borrowers.” These numbers hardly justify the interest rates charged to the poor, rates which, in the case of subprime car loans can reach 35 percent. The profitability of selling products and lending money to the poor is also demonstrated by the explosive growth of the fringe debt economy. Profitability is also shown by the high salaries, bonuses, and stock options of the corporate CEOs. The chairman of EZ Pawn took home $1.26 million in 2004; the CEO of Cash America “earned” $2.2 million and had $9 million in stock options. Advance America’s CEO made a paltry $650,000 in 2003 but held stock worth $101 million.
Without question, the fringe debt economy targets the poor, including especially immigrants, and those who are not poor but living from paycheck to paycheck. Many of these people are the “unbanked,” those without bank accounts of any kind. Most of them have yearly incomes below $25,000. Karger notes that “as many as 56 million adult Americans—about 28% of all adults—don’t have a bank account. Almost 12 million U.S. households (one-fourth of all low-income families) have no relationship with a bank, saving institution, credit union, or other mainstream financial provider.” The customers in the fringe debt economy are the same people who do the types of work described by Ness in his book: “nursing home aides, poultry processors, pharmacy assistants, child-care workers, data-entry keyers, janitors, and other employees of the secondary and tertiary labor markets.” As Ness makes clear, and Karger seconds, the customers of our check-cashing stores and rent-to-own outlets are growing in number, and for reasons intimately tied to the way in which the national and global economies have changed: falling median wages, a frozen minimum wage, declining health care coverage, the dismantling of the welfare system, the destruction of the means of livelihood in poor countries and the attendant rise in immigration, the denial of basic welfare benefits to immigrants, and the radical transformation of workplaces that can now utilize millions of contingent workers.
Economic changes have forced the poor and near-poor to assume larger amounts of debt, and the inability to pay this debt fuels the fringe economy, leading to what amounts to a system of debt peonage. Karger notes that “...family debt has increased a whopping 500% since 1957.” And, “[a]ccording to Elizabeth Warren and Amelia Tyagi, today’s two-income family earns 75% more than its single-income counterpart did a generation ago but has less discretionary income after fixed monthly bills are paid.”
The bulk of Karger’s book consists of a detailed examination of the major types of debt enterprises that prey on the poor and near-poor. Individual chapters are devoted to the credit card industry, storefront loans (pawnshops, payday loans, and tax refund lenders), alternative services (check-cashers, rent-to-own, and telecommunications), fringe housing, real-estate speculation and foreclosure, the fringe automobile industry, and the getting-out-of-debt industry. Heartrending personal stories are interspersed with the mechanics of each operation, and each chapter contains copious and useful data.
In each case we see that predatory lenders offer services the poor need but would not otherwise get. But they have to pay a high price to get them, and once in the debt economy there is no easy way out. The system is structured to keep the poor in debt. Like criminal loan sharks and bookmakers, the idea is not to kill the goose that lays the golden eggs but to keep it laying eggs, bleeding the poor slowly and for as long as possible. As long as you keep paying, they’ll keep lending. For example, poor people with credit problems or without any connection to a bank cannot get a loan for a new car or for a good used car from a reputable dealer. So they go to a “buy here, pay here (BHPH)” used car lot. There are some 19,000 of these in the United States, accounting for nearly a quarter of all used car sales. This is big business, and consolidation is now taking place, with a few large firms dominating the market and saturating mainstream local media with ads. DriveTime operates seventy-six dealerships in eight states; Car-Mart—located in Bentonville, Arkansas, headquarters of Wal-Mart—controls seventy-six dealerships in seven states. Big banks typically buy at a discount the loans issued by the BHPH dealers, making a nice safe profit without the bad publicity such shady operations might involve.
Here there are no credit checks. The seller works out a weekly payment the buyer thinks she or he can afford, and a deal is struck. There is a significant down payment, lots of hidden charges, an interest rate on the loan that may be as high as 35 percent, and an aggressive repossession policy (as soon as one day after a missed payment). But the buyer leaves with a badly-needed car. If it needs repairs, the BHPH dealer will do them and roll the repair costs into the loan. If the repairs are too costly, the dealer will offer a better trade-in than anyone else so that the buyer can get a more expensive car. And a new loan. And so on. Seldom do buyers keep a car for more than a year. Instead they return again and again to the same dealer and soon find themselves in a never-ending cycle of debt. Making regular payments does not improve their credit rating, since no credit reporting is done. They end up paying many times more than the price of a good used car. Their only reward, if they are Car-Mart customers, is to get their name on a plaque as a frequent buyer. Fifteen purchases put them in the Platinum Club. In this market it is even possible to rent tires, often a necessity for passing state car inspections.
The fringe debt economy also undermines public policies aimed at helping poor people. Tax time produces a feeding frenzy among tax refund anticipation lenders. Poor households depend heavily upon money from the Earned Income Tax Credit (EITC); the EITC check might be the largest single sum of money they receive in a year. However, they often need the money immediately. They can get it, for a price. Karger tells us that in 2001, tax preparation fees, tax-anticipation loan fees, check-cashing fees, and the like cost the poor $1.8 billion, 6 percent of the EITC program. One of the worst abusers of all of this is the giant corporation, H&R Block.
Karger proposes a variety of public policy changes for each fringe sector he examines. These include caps on interest rates, the outlawing of certain types of loans, full disclosure of loan conditions to customers, free publicly-funded tax return services to the poor, adequate enforcement of existing laws, limits on credit card spending maximums, adequate minimum payments on credit card balances to avoid balances that never diminish, longer grace periods before late fees are charged, extending the minimum payback time for payday loans (often this is as little as two weeks), not permitting credit card companies to raise interest rates because customers have been late paying another company, strict rules for setting exchange rates in international money transfers, expanded coverage of consumer credit laws to include rent-to-own transactions, limitations on fees charged for prepaid phone and credit cards, prohibition of many of the bogus fees charged to poor home buyers as well as pre-payment penalty fees, housing price controls, federal housing loans, and an increase in the stock of public housing and public transportation.
A Golden Opportunity
Karger does not offer us a strategy for achieving his many reform proposals. Here, however, we can learn much from Ness’s book. Ness’s immigrant workers are a significant component of Karger’s fringe debt consumers. Ness tells us that the organization of the workers began autonomously, the result of their extreme exploitation and social isolation, the latter a partial consequence of their ethnic homogeneity. They had only themselves to turn to, and this is what they eventually did. Solidarity and class consciousness flowed out of their circumstances.
It is unlikely that autonomous organization among the poor will arise to challenge the fringe debt economy. Incurring debt is a private matter, and the debtors do not usually live in close proximity to one another outside of the big city ethnic enclaves. Yet, the horrible work lives of the poor are so closely connected to their need for credit that some kind of movement ought to be possible. We all live lives of many connected parts. One of the problems of the U.S. labor movement has been to forget this and to assume that if a union provided some insurance at work this was enough.
In the cases of the workers studied by Immanuel Ness, labor organizations were in a position to give critical support to the immigrants. Wouldn’t it be possible for unions to finance, along with poor working people themselves, a network of workers’ centers in every city and medium-sized town and suburb in the country? These centers could be sponsored not just by unions but by sympathetic progressive organizations. Members would have to pay small dues and agree to participate in a certain number of actions each year (informational picketing, class action suits, letter-writing campaigns, and the like). The centers would have headquarters where working people could socialize and exchange information about work, organizing unions, confronting predatory lenders, and anything else of interest to them. The centers could, as some now do, offer instruction in English and provide an array of other services. For example, the centers could fight for some of the proposals Karger makes. The most likely ones would be those that would make poor workers less reliant upon fringe lenders and at the same time, not quite so reliant upon their employers. These would include more public housing, more and better public transportation, public tax services, community-based automobile dealers, and, even, as a friend of mine, John Mage, suggested, public pawnshops, which actually existed in fifteenth-century Italy. The connections between exploitation at work and in the consumer marketplace could be a key one made by the centers’ leaders, among whom would be as many poor workers as possible. They could be places where cross-racial, cross-ethnic, and cross-gender understanding and solidarity could be built.
Unions and union leaders are always complaining about the labor laws, the National Labor Relations Board, the Bush administration, Wal-Mart, China, and a host of other demons. If only this were true or that would happen. Well, Ness’s immigrant workers organized against great odds. Others could do the same. The labor movement could make a difference. Now.
. There is no reason why you can't offer short term loans, rent-to-own and other services for a resonable profit that doesn't harm your customers/clients. These companies just make me sick. They prey upon the people who can least afford it and don't know of any other way.
Comment