If you’ve never used one, you probably don’t think about check-cashing services very much. But if you’re one of the 17 million Americans without a bank account, you could well spend seven hundred dollars a year getting access to your own money, not counting a few hundred more to turn it back into checks to pay bills. Those are sobering numbers, especially if the reason you don’t have a bank account is that you make less than $20,000 a year, and you can’t afford one.
Broke, USA is the story of the poverty industry, the network of subprime mortgage brokers, pawnbrokers, and payday lenders who keep poor Americans poor by charging exorbitant fees and usurious interest rates for services their customers otherwise wouldn’t have at all. People living paycheck to paycheck may pay monthly fees to carry credit cards with interest of 29 percent. They may buy appliances and furniture through a rent-to-own store, making small payments that add up over time to two or three times what the items are worth. They may sell their future tax refunds at a steep discount, like Esau begging for a mess of pottage. They may pawn their guitars, their jewelry, or the titles to their cars.
Or they may, in effect, pawn their next paychecks. Rivlin says, “Payday lending was a late entry in the Poverty, Inc. phenomenon—the first payday lender didn’t go public until 2004—but it is at once more pervasive than any of its scruffy, low-rent cousins and far more controversial.” Broke, USA shows us what the controversy is made of, visiting the Las Vegas trade show of FiSCA, the Financial Service Centers of America, “a rebranding at once more respectable and opaque.”
One of the stars of the book is W. Allen Jones, Jr., of Cleveland, Tennessee, who in 16 years made several hundred million dollars out of $200 one-week loans, issued through some 1,300 Check Into Cash stores. Jones has a compulsion to defend his business against consumer advocates and attorneys general. He feels they conspire to deprive him of an honest living. He bursts with pride over the jobs he’s created, and the help he’s given desperate people who have nowhere else to turn.
Rivlin shows us the opponents, too, like those who fought a 2008 pro-payday referendum in Ohio with the slogan, “Is 391 Percent Too High?” North Carolina’s Center for Responsible Lending was only a small player in that fight, but its founder, Martin Eakes, had long been involved in campaigns to regulate subprime mortgages, which ravaged the lives and finances of the working poor for years before spreading up the economic scale over the past decade. Eakes is another unforgettable character, an idealistic philosophy major turned lawyer and “a virtuoso workaholic—a man who approaches the job as if it were an extreme sport.”
The realities of subprime mortgage demand that kind of energy. Rivlin tells heartrending stories of people in Atlanta who lost houses they owned because they needed to fix a leaky roof. He says, “There was something unmistakably predatory about this earliest iteration of the subprime story. Solicitations for easy money came in the mail and over the phone and sometimes with a knock on the door by a home repair huckster working in tandem with a mortgage broker.”
More disturbing still, these small-time crooks had big-money backers. In 1991, public interest lawyers in Atlanta charged that Fleet Finance, a subsidiary of Rhode Island-based Fleet Bank, had been using pass-through companies to write loans with interest rates over 23 percent, with predictable results: “In 1991, Fleet foreclosed on the homes of nearly 13 percent of the residents with whom it did business in Atlanta and its suburbs.”
The battle was fought in the courts and in the media (where the term ‘predatory lending’ got a workout,) and made it to the Senate Banking Committee, which led to the passage of the 1994 Home Ownership and Equity Protection Act. Fleet paid $150 million dollars in fines and left the state, not particularly chastened; it sold its portfolio to a rival called Associates, which was more than happy to keep refinancing the shaky loans, adding fees and increasing balances over and over. The lawyers and activists went right back to work.
Broke, USA covers a lot of territory; the strands are tied together by the participation of mainstream banks, which may be Rivlin’s most revealing and appalling point. The names over the doors in the broken-down city centers and suburban strip malls are Household Finance, Advance America, Check Into Cash, Liberty Tax Service, but the profits of the poverty industry also flow to Citibank, the Bank of America, HSBC, and other heavy hitters. Notwithstanding the embarrassment of the occasional successful lawsuit, the money is just too good to pass up.
And when, in the early aughts, Wall Street figured out how to package and resell the loans (so that the proceeds flowed upward, but, somehow, not the liability,) sub-prime mortgage lending spread from the original low-income borrowers up to the middle class. Mortgage brokers who made more money on the most expensive loans pushed the process along, in defiance of their fiduciary obligations. Bond rating agencies knew what was happening, but it was contrary to their interests to express that knowledge by issuing lower ratings. Federal regulators, including Alan Greenspan at the Federal Reserve and John Hawke at the Office of the Comptroller of the Currency, resolutely looked the other way. In 2006, the music stopped, and tens of millions of people were left owing more than their homes were worth.
Rivlin estimates the annual revenues of the poverty industry at $150 billion dollars, more than casino gambling and Big Tobacco combined, with room to spare. But after all the numbers, all the hearings, all the touching stories, are the businessmen of FiSCA angels or vultures?
Mostly the latter, Rivlin thinks; there’s really no excuse for a 391-percent interest rate on the payday loan. Are people who lost their houses because they took out crazy mortgages greedy, or foolish, or were they fleeced? Some of each, surely, but there’s no excuse for the nearly half of Fannie Mae subprime mortgages (as of 1998) that could have been written at prime rates … and still less for the disproportionate number of such mortgages sold to black people, compared to whites with the same levels of income.
The recently authorized Consumer Financial Protection Agency offers some small hope, though both the mainstream and fringe financial industries have plenty of friends in Congress. There’s no doubt that the free market, without regulation, is a race to the bottom. The individual consumer doesn’t stand a chance.
And while we’re looking at the industry that exists to fleece them, we really must look at the 40 percent of Americans who live paycheck to paycheck, whose wages at WalMart and the Holiday Inn are never going to be enough to live decently in this country. Nothing about Big Business is stacked in their favor.
That’s just the way it is. A company that cares too much about its workers and customers is failing its stockholders. Thank heaven for the consumer advocates and public interest lawyers; it seems they are never going to run out of work.
Carolyn Roosevelt reads, writes, and sings in Cambridge, MA, and blogs about books at anygoodbooks-mixedreviews.blogspot.com. Until recently a stationery store clerk of some renown, she’s looking for a new career that involves customer service and problem solving.