Post by RPankn on Apr 20, 2004 4:30:00 GMT -5
The High Cost Of Being Poor: Fighting The ``Land Sharks''
Neal Peirce
If you're like me, you'll be grousing about nightmare tax rules and the assault on your bank account as you seal up your income tax return and fire it off to the IRS this week.
But take heart. It could be a lot worse. You could be poor.
Poverty is not just miserable, it's actually expensive, the Annie E. Casey Foundation asserts in its "KidsCount" report. The foundation documents how every outlay -- from food to rent to loans to health coverage to check-cashing or a car for commuting -- is likely to cost you an arm and a leg more if you're a low-income American.
Some of the conditions can't be fixed quickly -- food prices up to double suburban rates in some inner cities that have been deserted by supermarkets, for example. Or rents so high that more than 5 million families are now obliged to spend over half their entire incomes for shelter.
But there's a depressingly long list of predatory fiscal devices that have ballooned in number since 1990. Collectively, they're ripping off low-income America, trapping millions of poor Americans in permanent, high-cost indebtedness.
"Land Sharks Circling" is the name of a paper by Debby Goldberg and Allen Fishbein for the Washington-based Center for Community Change, showing the phenomenal growth of predatory lending practices.
First they describe fringe banks -- uninsured, nondeposit institutions, lightly if at all regulated, often charging families excessive fees and interest. As neighborhood branches of mainstream banks have dwindled in number, fringe banking has grown fast.
One big practice: subprime mortgage lending. Marketed aggressively to borrowers who have poor or no credit history, subprime loans are typically offered -- at high interest, with extremely high fees -- to consolidate consumer debt or finance home repairs. They carry a high risk of foreclosure. [This ought to be a big topic everywhere because it's not just the poor being affected, predatory lenders are preying on what's left of the middle class, too, because they know many can't afford to pay for a lawyer to help them and most lawyers look at you like you have two heads if you say the words "predatory lending." The bankruptcy bar racket makes a huge fortune off this too.]
Next come check-cashing outlets, which demand up to 3 percent of the face value of government checks, 15 percent or more for personal checks. Many low-wage workers spend 2 percent to 3 percent of their incomes just to access money they've been paid for their labor. From 1,350 outlets nationwide in 1986, check-cashing stores burgeoned to 13,000 in 2002.
Payday lending -- small, short-term loans for periods of up to two weeks, secured by a borrower's postdated personal check or electronic access to his or her bank account -- has spread rapidly. The average interest for a two-week period is 15 percent to 17 percent, the equivalent of 400 percent a year. Even worse, struggling borrowers get enticed into rolling over their payday loans again and again. They're as trapped by debt as sharecroppers once were to plantation owners, or the workers at factory stores to the bossman.
Payday lending stores, only 300 nationwide in 1994, rose to 8,000 by 1999. Fishbein added up all reported expenditures of low-income households on check cashing, payday loans, pawnshops, rent-to-own furniture purchase and high-cost auto lending. Then he added in the added cost of subprime mortgages and fees that low-income families pay for income tax preparation and cash advances against anticipated federal tax credits. The total bill, he estimated-- well over $16 billion a year.
And all that money is being taken from Americans who typically are just one accident or one illness away from family financial collapse.
So what's to be done? State and local controls on predatory lending are one route. [I would add Federal controls, too] Fannie Mae, which has begun modest efforts to refinance predatory home loans, could do more. More mainstream banks (such as Union Bank of California) could open special neighborhood outlets to offer check-cashing, money orders and savings accounts.
Groups volunteering to help low-income people prepare their tax returns -- or even better to bundle services and counseling to help low-income families avoid unnecessary debt and exploitation -- are appearing in many cities and fulfilling real need. Many workers can also get counsel through the growing Corporate Voices for Working Families program.
"People need a sense of optimism, financial literacy, an escape from the leaking ship," says Bonnie Howard of the Annie Casey Foundation.
Casey's new plan, working with varied partners in cities nationwide, is to set up Centers for Working Families -- one-stop shops offering an array of services on how to avoid predatory lenders, repair credit records, manage money and qualify for legitimate loans and mortgages. The same centers can provide some information on how to look for jobs, plus enrollment in federal or state programs including health insurance, child care subsidies or the Earned Income Tax Credit.
To me, it sounds like a concept ripe for franchising to ambitious community-based organizations across the country. The political climate in America may not be ready for a new, government-sponsored war on poverty. But who (except all those predatory lenders and other "land sharks") can help but cheer a campaign for respect, access and building working peoples' economic independence?
Link: www.postwritersgroup.com/archives/peir0405.htm
Neal Peirce's e-mail address is nrp@citistates.com.
Neal Peirce
If you're like me, you'll be grousing about nightmare tax rules and the assault on your bank account as you seal up your income tax return and fire it off to the IRS this week.
But take heart. It could be a lot worse. You could be poor.
Poverty is not just miserable, it's actually expensive, the Annie E. Casey Foundation asserts in its "KidsCount" report. The foundation documents how every outlay -- from food to rent to loans to health coverage to check-cashing or a car for commuting -- is likely to cost you an arm and a leg more if you're a low-income American.
Some of the conditions can't be fixed quickly -- food prices up to double suburban rates in some inner cities that have been deserted by supermarkets, for example. Or rents so high that more than 5 million families are now obliged to spend over half their entire incomes for shelter.
But there's a depressingly long list of predatory fiscal devices that have ballooned in number since 1990. Collectively, they're ripping off low-income America, trapping millions of poor Americans in permanent, high-cost indebtedness.
"Land Sharks Circling" is the name of a paper by Debby Goldberg and Allen Fishbein for the Washington-based Center for Community Change, showing the phenomenal growth of predatory lending practices.
First they describe fringe banks -- uninsured, nondeposit institutions, lightly if at all regulated, often charging families excessive fees and interest. As neighborhood branches of mainstream banks have dwindled in number, fringe banking has grown fast.
One big practice: subprime mortgage lending. Marketed aggressively to borrowers who have poor or no credit history, subprime loans are typically offered -- at high interest, with extremely high fees -- to consolidate consumer debt or finance home repairs. They carry a high risk of foreclosure. [This ought to be a big topic everywhere because it's not just the poor being affected, predatory lenders are preying on what's left of the middle class, too, because they know many can't afford to pay for a lawyer to help them and most lawyers look at you like you have two heads if you say the words "predatory lending." The bankruptcy bar racket makes a huge fortune off this too.]
Next come check-cashing outlets, which demand up to 3 percent of the face value of government checks, 15 percent or more for personal checks. Many low-wage workers spend 2 percent to 3 percent of their incomes just to access money they've been paid for their labor. From 1,350 outlets nationwide in 1986, check-cashing stores burgeoned to 13,000 in 2002.
Payday lending -- small, short-term loans for periods of up to two weeks, secured by a borrower's postdated personal check or electronic access to his or her bank account -- has spread rapidly. The average interest for a two-week period is 15 percent to 17 percent, the equivalent of 400 percent a year. Even worse, struggling borrowers get enticed into rolling over their payday loans again and again. They're as trapped by debt as sharecroppers once were to plantation owners, or the workers at factory stores to the bossman.
Payday lending stores, only 300 nationwide in 1994, rose to 8,000 by 1999. Fishbein added up all reported expenditures of low-income households on check cashing, payday loans, pawnshops, rent-to-own furniture purchase and high-cost auto lending. Then he added in the added cost of subprime mortgages and fees that low-income families pay for income tax preparation and cash advances against anticipated federal tax credits. The total bill, he estimated-- well over $16 billion a year.
And all that money is being taken from Americans who typically are just one accident or one illness away from family financial collapse.
So what's to be done? State and local controls on predatory lending are one route. [I would add Federal controls, too] Fannie Mae, which has begun modest efforts to refinance predatory home loans, could do more. More mainstream banks (such as Union Bank of California) could open special neighborhood outlets to offer check-cashing, money orders and savings accounts.
Groups volunteering to help low-income people prepare their tax returns -- or even better to bundle services and counseling to help low-income families avoid unnecessary debt and exploitation -- are appearing in many cities and fulfilling real need. Many workers can also get counsel through the growing Corporate Voices for Working Families program.
"People need a sense of optimism, financial literacy, an escape from the leaking ship," says Bonnie Howard of the Annie Casey Foundation.
Casey's new plan, working with varied partners in cities nationwide, is to set up Centers for Working Families -- one-stop shops offering an array of services on how to avoid predatory lenders, repair credit records, manage money and qualify for legitimate loans and mortgages. The same centers can provide some information on how to look for jobs, plus enrollment in federal or state programs including health insurance, child care subsidies or the Earned Income Tax Credit.
To me, it sounds like a concept ripe for franchising to ambitious community-based organizations across the country. The political climate in America may not be ready for a new, government-sponsored war on poverty. But who (except all those predatory lenders and other "land sharks") can help but cheer a campaign for respect, access and building working peoples' economic independence?
Link: www.postwritersgroup.com/archives/peir0405.htm
Neal Peirce's e-mail address is nrp@citistates.com.
