Broke, USA: From Pawnshops to Poverty Inc. – How The Working Poor Became Big Business
If you’re familiar with the Midwest, you’ll likely recognize these names: Check Into Cash, Check ‘n’ Go, Advance America, National Cash Advance. Organizations less familiar to you may be the Home Defense Program and Center for Community Self-Help, two organizations dedicated to fighting predatory loans and high-interest subprime mortgages.
These two groups of organizations have in common what Gary Rivlin, author of the new book, “Broke, USA,” calls “Poverty Inc.,” “fringe financing,” “poverty business,” and “alternative financing” – the term preferred by the lenders profiled in his book – but behind all of these labels is one truth: contemporary poverty has become big business for high interest lenders, rent-to-own schemers, and other “poverty pimps” who exploit the nation’s working poor.
In the wake of President Obama’s financial reform bill, Rivlin’s detailed, engrossing account of the last twenty years of subprime mortgage hell and the rise of payday lending is timely. Rivlin explores how the development of subprime lending popularity can be attributed rising health care, housing, and heating oil costs in the 1990s, when many income levels were simultaneously flatlining, especially among forty percent of the population earning the lowest incomes. Seizing on their desperation, big banks – Bank of America, Citigroup, Wachovia – began closing branches in low-income black neighborhoods and installing subprime non-bank lenders that they’d recently acquired. As Rivlin documents, very few of the circumstances that led to the current crisis were fortuitous.
Throughout his deeply engaging account, Rivlin profiles a number of Poverty Inc.’s major players, including consumer advocates and other opponents of predatory lenders. His sketches include people who could – at least in theory – fall into a gray area, like Martin Eakes and the Center for Community Self-Help. A lawyer and consumer advocate, Eakes helped create the first subprime mortgage market in the 1980s. Backed by Fannie Mae, his organization repackaged subprime loans purchased from banks around the country and sold them as mortgage-backed securities on Wall Street.
At the time, Eakes thought this construction was going to solve the problems of the poor, and for a while, he was right. He and his associates at Self-Help were an idealistic bunch and thought that by working with the big banks like Wachovia – convincing them to also loan money to poor, single Black mothers, for example – they could help infinitely more people. Following Self-Help’s success, he founded the Center for Responsible Lending in 2002. The new organization’s mission was to take on Poverty Inc.’s profiteers: subprime credit card companies, payday lenders, used car financiers, pawnbrokers, and medical debt collectors. To a lesser extent, CRL also worked to fight the subprime mortgage monster the same people had unintentionally created at Self-Help.
Eakes wasn’t alone in his crusade. Rivlin also profiles activists like William “Bill” Brennan Jr., an obsessive staff attorney at Atlanta Legal Aid who founded the Home Defense Program in 1998 and later filed a class action suit against Rhode Island’s Fleet bank for conspiring with shady door-to-door contractors and loan originators in violation of federal racketeering laws.
The problem for men like Eakes and Brennan became the predatory lenders Self-Help and Home Defense had worked to counterbalance. As striking cases of abusive, high-interest lending came across Eakes’ and Brennan’s desks, it became clear that nothing was more important than directly fighting predatory lending. Succeeding in getting a few people into homes or funding a few small businesses was nothing compared to the havoc wreaked by predatory lenders that had rapidly gained a foothold by the end of the 1990s.
At the time of his research, a number of Poverty Inc.’s big players were eager to speak to Rivlin, to set the record straight and tell their side of the story. Subprime lenders often claimed that they needed to charge higher interest rates to cover the risk they assumed with low-income clients. But you don’t need to know much about basic arithmetic to know that a twenty-four percent interest rate is unmanageable for even the wealthiest borrowers.
Stories of saviors and sinners snake between one another as the profiles in the book unfold. Elderly black women were being targeted, singled out by brokers and lenders who snooped around the county clerk’s office, looking through residential tax records to see who had fallen behind on property tax payments. At the same time, check-cashing businesses were growing at exponential rates in the same failing communities, seizing on any last opportunity to squeeze profit from the poor.
As we now know, community activists and advocates were always one step behind the lenders. Even after legislation was passed in several states outlawing payday lenders or capping their interest rates, they stayed in business. The fees they were forced to pay paled in comparison to the millions they made while keeping their doors open.
Rivlin equates Poverty Inc.’s procedures to those of energy companies that strip-mined thousands of acres of wilderness until their practices were outlawed in the 1980s. There is some resemblance between the whole mess and cases like that of the Zodiac killer: everyone had pieces of the puzzle, but there was no centralized agency or office coordinating between branches, sharing information. Even as one state noticed another’s anti-predatory lending legislation, lobbyists lined up for the other side, ready to take down the consumer advocates.
Rivlin’s account is thorough and accessible for even the least economically-savvy reader interested in how the current foreclosure meltdown occurred. Although wide-ranging, the accounts are also neatly tied together. Rivlin interviews unrepentant payday loan sharks and reports from the National Check Cashiers Association annual conference in Las Vegas; he talks to pawn shop owners that get kickbacks from every prepaid debit card sold and every Western Union wire transfer completed. Along the way, we also meet former payday lender office managers who were pushed out because they started to object on ethical grounds to the job of loaning money to any person who walked in the door. As with any cautionary tale that is this frightening and far-reaching, if we don’t learn from stories like the ones Rivlin recounts, this won’t be the last time we find ourselves in such a collectively catastrophic financial state.