Squeezing the Poor for Profit


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?

  • Drea: Thanks for this thought-provoking post. There are many underlying issues that create an environment that makes it profitable for the unethical to prey on the poor. One of these is the miserable minimum wage. Until that issue is addressed, no headway will be made. Rosemary Carstens

  • I do agree with your post. And if course something is definitely off.. look at the current situation we are facing today. Are you going to tell me that the issue of this article didn’t play a big role in setting up this downfall?

  • Drea

    Rosemary, thanks for commenting. Lela Davidson wrote the post, which I agree is thought-provoking. For once, I feel lucky to have grown up in a family of misers, making some of these scams an affront to the family value system. I’m also dismayed at the fact that 50% of bankruptcy filings have to do with healthcare costs.

    Check this quote out, from http://www.nchc.org/facts/cost.shtml:

    “68 percent of those who filed for bankruptcy had health insurance. In addition, the study found that 50 percent of all bankruptcy filings were partly the result of medical expenses.13 Every 30 seconds in the United States someone files for bankruptcy in the aftermath of a serious health problem.”

    Holy goats.

  • Luke

    The problem isn’t so much a lack of financial education but a lack of options.

    In the past I have used payday loan companies knowing full well I was getting a bad deal but I didn’t have any other option. We don’t all have the luxury of asking mommy and daddy for a loan when the shit hits the fan nor do we all have the option of moving back in with our parents.

    My point is that when the wolves are at the door, sometimes money with huge strings attached is better than no money at all. It’s not stupidity that causes people to become customers of these companies, it’s desperation.

  • Alan

    Lela, thanks for shining a light on this aspect of our business culture. From Enron’s sales reps high fiving each other over successfully scamming elderly old ladies out of their meager savings, to MBA’s figuring out how to make a killing with the paperwork shell game called managed care, to the real estate industry making fraudulent high risk mortgage loans encased in misleading paperwork, to investment banks collecting toxic credit instruments into inscrutable securities, we have been witnessing the extreme dark side of American free market capitalism for a couple of decades now and it calls into question any naive assertions of our innate goodness as a nation. The reason that we are perceived so badly in the world today is not just because of our contrived invasion of Iraq and the Machiavellian machinations of the Bush administration, but because of a long laundry list of abuses of power and violations of the human rights of disadvantaged peoples – including our fellow citizens. The present economic meltdown that is affecting us all is the bitter harvest of decades of wheeling & dealing by an unrestained business sector that has continuously reduced its legal & moral restraints thru the use of congressional influence peddling & professional lobbyists. Our business & political leaders have profitted at our collective expense by the unrestrained implementation of their darkest global profiteering schemes, and they have turned a once prosperous nation into a debt-ridden object of global derision. Hopefully The People will make their feelings known in this next election and demand substantive change in this “business as usual” debacle.