Week 3 critical discussion

What's Debt Got to Do with It? Brett Williams "THEY WILL GLADLY TAKE A CHECK" ... America's Cash Express ... is a plain, grim storefront, staffed by one woman behind ceiling-high Plexiglas, offering pagers for $80, laser tear gas for $10, and myriad one- stop financial services. Customers can apply for a telephone calling card or a secured credit card for a $25 processing fee and a $300 deposit (to be charged against) in First Deposit National Bank in New Hampshire. The annual fee is $35 and the annual percentage rate is 19.8 percent. You can wire a moneygram to pay a bill (for 10 percent of the total and a 10 percent discount on Greyhound) or "wire money in minutes worldwide" through an American Express moneygram. (In some places American Express charges as much as 24 percent of the amount wired.) You can file a tax return and receive a refund anticipation loan (“After all ... it's your money!” beams the promotional material). If you want ACE to prepare your return, that costs about $30. You can pay gas, water, telephone, and electric bills; play the lottery ("We've got your ticket!”); and purchase money orders with the cash you receive when you cash your payroll, government, insurance, or tax refund check. Some call these outlets "welfare banks” because of their heavy traffic in public assistance checks, and sometimes the government sends checks and food stamps directly there. ... For the most routine checks, the outlet charges 2 percent of the total, but this varies quite a bit depending on the amount and type of the check and whether or not you have ID. It can cost as much as 6 percent to cash a payroll check and 12 percent to cash a personal one. The most outrageous, expensive, and quasi-legal transactions are called "payday loans," advances secured by a postdated personal check. These loans can charge interest from 20 to 35 percent of the amount advanced; a typical transaction would offer the customer $200 for a $260 check. .... Despite the shame, expense, and tedium of the process, many residents of this neighborhood conduct all their bankless business at places like America's Cash Express. Citizens in poor urban neighborhoods find it increasingly difficult to get to a bank. Even is a local bank, residents often cannot afford its minimum balance requirements, fees for checks, or high bounced-check penalties. They may not have enough money in their account at the end of the month to cash a paycheck to pay their bills. They may need immediate cash to deliver to the phone company in person. Some residents do not have the major credit card that is to serve as a second major ID; some cannot manage a bank's restricted hours. Some cannot open checking or saving accounts because of even minor problems with their credit or immigration histories. Using check-cashing outlets further impoverishes and disenfranchises residents, leaving them with no records or proof of payment, no ongoing relationship to build up a credit history, and in greater personal danger from carrying cash (itself in jeopardy from fire theft, or loss). From where they stand, residents may find it hard to connect the storefronts to the larger financial system or to the injustices they endure. ... Atlanta snack-food sales.

man Ronald Hayes ... makes a weekly visit to cash his $400 paycheck and buy a money order to pay a bill per week. The total cost to Hayes is $15 a week. ... He fails to recognize that he is probably paying ten times more than a bank would charge. Even if some poo residents recognize the cost, others bow to hand-to-mouth demands for immediacy, safety or convenience. One homeless man, coping successfully with the dangers of carrying cash. purchases a money order made out to himself each month, cashes it repeatedly at a 2 percent rate, and then buys another money order to carry the balance. He carries his money more safely, but at a huge cost. Hudson interviewed two men in Manassas, Virginia, who paid $270 to cash a $4,500 insurance check because they didn't have time to wait for the check to clear. At the Eagle Outlet, where they cashed their check, owner Victor Daigle claimed that his customers "would rather pay a little bit more to us and have their convenience. They go to McDonald's because they want their hamburger right now. ... They can come to us and get their money right now.” "THAT'S WHY THEY'RE MY CUSTOMERS" Another, more venerable fringe bank is the pawnshop, a familiar sight in cities for many years. ... These have proliferated in Washington, D.C., and throughout the nation, doubling during the 1980s to number 10,091 in 1994 and certainly many more today. They have changed in other ways as well, to become centralized and chain-operated, backed by upscale marketing, ruthless acquisitions, and persistent pressure on local governments to raise usury rates. Like check-cashing outlets, they displace small businesses, family-owned pawn-shops, and local chains, offering young residents of urban neighborhoods downscale, minimum wage, no-benefits financial services jobs. For example, Cash America, founded in 1983, operates hundreds of shops. One of five chains to be publicly traded, it boasts NYSE: PWN (for "pawn") as its symbol, turns lush profits for investors, and has tried to upgrade the pawnshop image as it eyes markets all over the world. If you multiply its monthly rate by twelve, its average annual percentage rate (APR) hovers at around 200 percent, not unusual in an industry that often charges 240 percent, and it recorded $5 million in net income from lending activities in the last quarter of 2000, up 17 percent from the year before. In Washington, D.C., Famous Pawn has been enormously successful by gobbling up mom-and-pop stores including pawn shops in poor neighborhoods. ... The store is stuffed with former collateral for these expensive secured loans: from gold chains, wedding bands, and watches to baseball cards, leather jackets, computers, VCRs, television sets, compact discs, cameras, pianos, guitars, saxophones, power tools, and lawnmowers. Customers pawn these items for 10 percent interest each month, a relatively low rate set by Maryland and the District. A borrower would receive $100 for a pawned item and redeem it in thirty days for $110. One customer complains: “They don't give you nothin’ for it. But when they sell it, that's when they mark it up." If a customer is unable to redeem it after thirty days, the shop will keep it on hold for as long as he or she can pay each month's interest. Often, pawn-shops' profits lie in nurturing these long-term relationships

with borrowers, who come in to pay their "dues” on the first of each month but eventually give up and let their treasures go. Their misfortune allows Famous Pawn to bulge out of its space, overflowing with pawns, featuring a long line of borrowers every day, and swallowing its neighboring establishments. Secondary buyers cruise through periodically, buying up items in bulk and boosting profits in the retail side of the business, long less profitable than the interest-collecting side. The vast majority of borrowers are poor, with incomes between $9,000 and $17,000 a year, according to fringe-bank researcher John Caskey. They are young, in and out of work, and disproportionately of color. Cash America's Annual Report describes them this way: “The cash-only individual makes up the backbone of America. He's [sic] the hard- working next door neighbor, the guy at the corner service station, or the lady who works as a checker at the local supermarket." Caskey quotes Jack Daugherty of Cash America to somewhat different effect: "I could take my customers and put them on a bus and drive them down to a bank and the bank would laugh at them. That's why they're my customers." "AND YOU DON'T NEED CREDIT TO GET IT" By redefining what they are doing as "renting,” rent-to-own stores have emerged to evade usury laws that limit the interest paid by people who buy appliances and furniture on credit. Profits in this $3.7 billion-a-year business stem from astounding markups, as customers often pay five times what they would for retail. By the mid-1990s rent-to-own stores had tripled in number, so that by 1994 there were some seventy-five hundred rent- to-own outlets nationwide. Like check-cashing outlets and pawnshops, they increasingly come in corporate chain sizes. The Rent-A-Center chain boasts twelve hundred stores, a large share of this market. But another patriotic chain, RentAmerica, dominates the Washington, D.C., area. Mostly located in two poorer suburbs (including Jenkins's) and southeast D.C., RentAmerica is a temple to consumption. To walk in is to discover a lush cornucopia of household consumer goods: florid bedroom furniture; leather couches; brightly colored, blaring television sets; giant, gleaming refrigerators; and shimmering gold jewelry. The store offers impoverished customers a shot at the postwar American dream. But the American-flag sign that soars from the parking lot, the giddy interior, the slick brochures, and the "convenience” (or urgency?) of instant purchases and free delivery belie RentAmerica's harsh and greedy terms. ... The terms explain that the baby-bear TV requires seventy-eight weekly payments of $9.99, or $779.22 (plus tax); the twenty- seven-inch TV costs seventy-eight weekly payments of $15.99, or $1,247.22 (plus tax); and the thirty-two-inch TV will not be yours until you have paid in full: 104 weekly payments of $24.99, or $2.598.96 (plus tax). Retail prices are much lower. RentAmerica has the good sense not to mention either the alleged or actual prices for gold jewelry, refrigerators. freezers, the bedroom suite,” or the “living-room group.” The brochure recommends: "Ask for Details!"

To understand their excesses, it might be helpful to contrast rent-to-own terms and interest rates to the consumer credit available to residents of wealthier neighborhoods, who can receive a 10 percent discount on a purchase up to $300 at Woodward and Lothrop for example, just by applying for a store card-though if they do not pay on time and full, they owe 21 percent interest. Or at CompUSA, a computer store in the Maryland Virginia suburbs, approved customers can charge a computer and pay no interest for six months; they pay accumulated interest, however, if they do not pay in full at that time Seeing RentAmerica helps put these admittedly harsh, austere, and misleading terms into perspective. A FESTIVAL OF DEBT Poor neighborhoods in Washington, D.C., are plagued by finance companies peddling loans, to consolidate debt or to make home repairs, to people who are financially desper. ate or credit starved. These firms target minority, fixed- or low-income, low-wage, and Social Security-dependent households who often hold substantial equity in their homes as their sole resource. Not surprisingly, the finance companies charge high interest: from 36 to 50 percent. They tack on worthless, expensive "credit insurance." They offer shoddy work and pursue ruthless, haranguing collection policies. Sometimes they refinance these loans several times, piling on fees along the way: prepayment penalty fees, more credit insurance, and loan origination fees. They front for some of the country's largest financial institutions: NationsBank (after it acquired Chrysler First), Ford Financial Services (whose Associated Services division may keep it afloat), Chemical Bank, ITT, Fleet Financial Services, BankAmerica (through its Security Pacific division), General Motors, General Electric, Westinghouse, and Citicorp. These large lenders front money through lines of credit to finance companies, then buy up and bundle the loans and sell them on Wall Street via secondary securities markets. The customer may be left with shoddy repair work, a huge debt, the threat of foreclosure, and nobody to hold responsible. While the poor have developed many creative strategies to provide the essentials of life, such as doubling up, working under the table, managing collective living, and negotiating ongoing exchanges with friends and kin, they are increasingly vulnerable in the current economic climate. When intergenerational network flows, employment, and government assistance fail them, when relatives can no longer provide small loans between checks or the exchange of food stamps for cash, poor people develop strategies to work the fringe banking system: pawning televisions and VCRs when between checks, redeeming them when they can; cashing their checks at America's Cash Express; paying their bills with money orders and moneygrams they purchase at ACE; using the poor person's telephone, the pager; and "renting” their grossly overpriced furniture and appliances for as long as they can. ... The same developers who refused to maintain or build low-cost urban housing have gone bust on overpriced condominiums, unnecessary office space, and underutilized

shopping centers in the suburbs. The same lenders who disinvested in cities, jobs, workers, and infrastructure squandered their money on junk bonds and takeovers. Now they're back, extending credit to fringe banks for loans of last resort and thus passing on high-cost debt to the poor.