On the first day of my teller training class in 1990 I learned that the bank made a boat load of money off of poor people. Particularly, those customers whose cash position was so precarious that they routinely incurred overdraft fees.
I’m not sure what poverty really means in the United States, but I do know that a segment of our population is poorly educated when it comes to money. We all now know about the subprime mortgage market. We’ve heard how unscrupulous lenders set unsuspecting buyers up with confusing terms and optimistic promises of increasing real estate value. But what about smaller debt. In recent years, a wide range of businesses have offered financing to even the riskiest of borrowers. Inflated interest rates combined with foreclosures have proved a cash cow for some.
Consider these profitable ventures:
Opportunity Pricing on Cars: Instead of post prices on the dash, some dealers now calculate the maximum that a person can afford to pay, and then set the total price, down payment, and interest rate.
Tax Preparation Services: Instant refunds are actually extremely high interest short term loans with virtually no risk to the lender.
Rent to Own: BlueHippo Funding leases out such essentials as PCs and plasma TVs at hefty rates.
Payday Loans: Companies providing expensive cash advances due on the borrower’s next payday have are up from 300 in the early 1990s to more than 25,000 (as of 2007). And they’re going mainstream, with some even being traded publicly.
Healthcare: No insurance? Here’s a bill for full cost, no negotiating. What other industry penalizes cash payment?
According to a 2007 Business Week article by Brian Grow and Keith Epstein:
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%.
From 1989 through 2004, the total amount owed by households earning $30,000 or less a year has grown 247%, to $691 billion, according to the most recent Federal Reserve data available.
Is this capitalism? Something is off. I know no one forces the poor or anyone else into living beyond their means, but surely we can do a better job of educating the public about money and finance. Don’t you think?