Stop Fleecing Poor Americans

The U.S. government should place greater restrictions on car sellers, pay-day lenders, and tax preparers who offer the working poor cash or credit with high fees and interest rates. Pro or con?

Pro: Exploitation, Plain and Simple

Most poor households lack financial literacy and are at risk of falling prey to exploitative lending. In the case of subprime mortgages, for example, economically disadvantaged borrowers have accepted teaser rates without realizing they can ill afford the much higher rates they’ll see down the line. Other forms of lending to low-income borrowers present similar dangers.

These vulnerable Americans often end up in debt traps, with unclear and exorbitant interest rates or fees on car, payday, or tax-preparation loans. Borrowers with inadequate financial education and meager finances often fail to realize the imprudence of such loans until it’s much too late.

The government must intervene to prevent such arrangements from occurring in the first place.

Yes, lawmakers’ restrictions may make it harder for those in need of quick cash to obtain it. But on a larger scale, these limits will produce a better outcome than leaving millions of households crushed under the weight of monies owed—and forced into bankruptcy.

The carnage and ruin caused by the subprime meltdown serves as a lesson in what can happen when credit markets balloon without the benefit of appropriate supervision and regulation. The subprime fiasco threatens to cause a generalized crunch in consumer credit that will lead to a hard landing, and possibly a recession, for the entire U.S. economy.

Let’s learn from our mistakes and ask government to do its job by protecting economically disadvantaged Americans.

Con: Treat Borrowers Like Adults

“Life, liberty, and the pursuit of happiness” should include the right to borrow money without coercive interference from government.

The Americans who pay high interest rates to pay-day, car-loan, and other lenders fall into two broad categories. The first consists of people who genuinely need the money now. They need to pay a doctor’s bill, move into a new house, or buy an engagement ring. Yes, the lenders charge a high rate of interest, but most of these people qualify as potentially bad or unknown credit risks. There are hundreds or thousands of lenders competing to give borrowers the best deal possible. These borrowers have decided to pay the price for up-front money, and no one has any business trying to stop them.

The second category comprises Americans who are simply desperate. They borrow because they have irrational impulses and cannot resist temptation. Even with these people, it may backfire to have the government restrict lending. If a hard-up individual can’t get a legal pay-day loan, he or she may go to the local loan shark. The rate of interest there is even higher, and nonpayment may result in broken bones or worse.

Or the desperate may look to gambling, legal or not, or perhaps hock treasured possessions in a pawnshop. Government cannot protect us from every possible form of our own stupidity, and it’s often counter-productive for it to try.

On the issue of loan markets, the main business of government is to ensure transparency of terms and protect against fraud. No one can judge how high an interest rate is too high for another person.

Finally, over-borrowed Americans do deserve a second chance. If we have to tinker with bankruptcy laws, so be it, but don’t assume that government can or should manage loan markets.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

stjoe

It is not just the poor who are taken advantage of. Even the educated and the rich are. Care to explain why anyone would buy a mutual fund with a 2% expense ratio? Numerous times I have offered to sit down with friends and neighbors and show them how to read their mutual fund prospectuses and annual report. Over the past 20 years, only one person has accepted the offer. The lack of financial literacy in this country is truly amazing. If I had my way, every high school would teach a course in basic finance: how to make a budget, how to compute interest charges of an item bought with interest, how to read basic financial documents, etc.

Richard Desmond

Don't prohibit these loans, but the government should mandate that all costs be spelled out in large type, including the cost of the loan and the total cost over the term of the contract--written on the first page of every agreement. And make sure all borrowers read and sign the entire agreement. If an adult then agrees to the purchase, it is not the government's job to stop it.

Chris Meisenzahl

Well done, Dr. Cowen.

Alec

The problem with these arrangements lies not only in the size of the print but also in the choice of language. As someone who works in the financial industry, even I can't easily decipher all of the legalese and other obscure and obtuse language used on subprime mortgages. So assuming most of these people aren't in the mortgage, finance, or legal industry, I suspect they often have little to no idea of what they're getting into. And that's exactly the way these predatory lenders like it.

Acad Ronin

Prof. Roubini: How about a compromise? People could volunteer to put themselves under government guardianship, thereby qualifying for all manner of protective legislation. In return, they would agree to give up the right to vote. If they feel unable to decide whether to borrow or not, they should surely agree that they are unable to decide on whom to vote for in elections for mayor, governor, or president.

Sebastian Villarreal

If you can read a bit of Spanish, perhaps you would be interested in Mexico City's new interactive museum of economics (aimed at middle and high school students, but my guess is their parents learn as well).
http://www.mide.org.mx/

Kevin Neilson

In general, I want to live in a country that treats its citizens like adults, where every man has economic liberty along with civil liberty. Ideally, even Social Security would be banished in favor of responsible citizens' purchasing their own annuities throughout their working career. Yet I know full well that when given a choice, the citizenry often makes the wrong one and expects the government to bail it out. Many wish to be treated like minors, to have the government forcibly save them from their own poor decisions. I wish this were all just a problem of disclosure, that if fully informed, people would not get interest-only loans, cash paychecks at the corner market, or buy loaded funds, but I don't think this is the case. I still advocate allowing economic liberty to as great an extent as possible without burdening the taxpayer with the fallout of the poor decision-makers. But in my dreams, I live in a utopia in which all is permitted but in which an enlightened public has ended credit card use, the lottery, one-year-same-as-cash, public pensions, and market bubbles.

lmedsker

Payday lending is a relatively new industry. As it evolves, members of the national trade association, the Community Financial Services Association (www.cfsa.net) have listened to the concerns raised about the industry and developed innovative solutions to address them.

Earlier this year, CFSA voluntarily introduced strong disclosure rules, an extended payment plan for customers who cannot pay back the loan when due, and partnerships to promote financial literacy. They are telling consumers that payday loans should be used only for short-term needs and will soon place a "customer notice" on all marketing materials. All of this was backed with a $10 million ad campaign as well as $2 million more to support community-based financial literacy programs by respected organizations.

Nick

Congress should definitely stop this fleecing of the poor. Mandate a halt to all these high interest rates and hidden fees that jack up the cost of the loans. This way, lenders will have no high yields to offset the high default rates of the poor, and be forced to stop giving credit to the poor. With no legitimate sources of credit, these people who consistently make bad decisions every day of their lives will make the decision to go to loan sharks. As they fail to pay off the loan sharks, the loan sharks will do society a favor and remove these idiots from the gene pool, preferably before they had spawned.

Kris

Treat them as adults. The four different forms a client must sign to get a refund-anticipation loan through Jackson Hewitt have the numbers and finance rates clearly indicated. As one who has sat across from low-income clients, and explained in detail to them, I am always amazed that they choose to elect the high finance charges that the bank (not Jackson Hewitt) assesses. The choice is theirs. There are "no finance" alternatives that are offered. Most clients don't want to wait two weeks, so they agree to the terms. There is a signature on every page. No one is forcing them to do anything. And I wish the media would stop saying that Jackson Hewitt gets the money. The bank gets the money. All JH gets is the tax-prep fee. We get the same tax-prep fee regardless of whether we are paid up front or if payment is withheld from the refund. In fact, I wish everyone would pay up front and get direct deposit and be done with it. That way, I'm not out any money when the IRS withholds a client's refund and the fees are never collected.

iggy

Companies like the ones mentioned in your article are the scum of the earth, and should be run out of business, town, and country. Taking advantage of people who want and need to get out of the position they currently are in is reprehensible at best. I can't see how these people can sleep at night knowing what they did. But as my parents used to say, what goes around comes around.

Tom Leonard

Payday-advance companies have helped millions of families overcome unexpected financial burdens.

When an air conditioner breaks or a car battery dies, responsible payday lenders provide convenient access to small amounts of money to cover those costs. Banks don't. They instead make millions on bounced-check and insufficient-fund "protection" fees.

While critics have rushed to label payday lending predatory without ever having defined what "predatory" means, the Federal Reserve Board recently found that payday loans are not predatory and--by providing credit where otherwise there would be none--actually help the households who use them.

Let's give Americans access to a variety of regulated credit options and trust them to choose what's best for them and their families.

JimG

Unfortunately, it's not just low-income folks who get caught in the predatory lending net. You can be solidly middle class, but if your credit rating goes south because of a divorce, job loss, or career change, you can find yourself facing loan-shark-type financing for cars and houses. There was a time in this country when states had usury laws that prevented folks from having to pay 32% interest rates on their credit cards (these are major mainstream banks I'm talking about here, not just the "scum of the earth" players that Iggy mentions in his post), because they were late with a credit-card payment one month. Let's rein in the predatory lenders who are taking advantage of borrowers of all incomes.

JThrash

Payday loans are there to give people a choice when they have a need for short-term financial assistance, and often, a payday loan is the most economical and cost effective choice a customer can make. "Preventing such arrangements" as suggested means the customers might be forced into higher-expense or more-risky agreements, such as Internet loans or pawn arrangements. Removing the product is not going to eliminate the need.

This being understood, isn't it more responsible to implement the regulations as recommended by the CFSA and ensure that responsible lending practices are being exercised?

The Longview

The people used as examples in this article all had something in common: They have lived immoral lives, producing children while never getting married or marrying multiple times. The inability to live moral, disciplined lives is reflected in every aspect of their existence, including the narrow field of finances reflected in this article. Unfortunately, these attitudes and morals are passed onto the next generation. Yes, education on these issues is a good idea. But until society starts promoting living moral, respectable, disciplined lives, this situation will continue as it has since man first started walking this earth.

JMA

Why would anybody buy a mutual fund with a 2% expense ratio?

For the same reason people no longer grow their own food, sew their own clothes, and do their own tax returns. It is a better use of their time to focus on their own careers or leisure and pay someone else (farmers, grocery stores, tailors, CPAs, financial advisers) to provide them goods and services.

The cost of the mutual fund is not only the cost of the money manager. It also entails all the costs associated with managing one's investments. You and that one other person are evidently the only ones who choose to do that for yourselves. Other people obviously don't want to bother. That doesn't make them stupid; it's their prerogative.

Donald J. Boudreaux

Surely BusinessWeek's reporters can muster more than token skepticism of the popular delusion that businesses hurt poor people by making credit more readily available ("The Poverty Business," May 21). While example can be piled atop example of borrowers who today are "trapped" by debt, reporters instead should ask "what's the alternative?" Were poor persons in the past who had less access to credit better off than poor persons today who enjoy greater access? Is being trapped by poverty with little hope for credit better than having ready options for securing loans?

Apollia

Fleecing isn't the word for all this predatory lending.

It's more like flaying--given how the chronic shortage of money resulting from diligently and honestly repaying one's debts can profoundly reduce the quality of one's life and future opportunities, due to the inability to buy needed items.

The lack of money can even jeopardize one's health and the health of loved ones, if one cannot afford medical care or enough nutritious food.

You also might suffer bad health effects from being totally overworked from trying to do multiple jobs merely to keep treading water--just so you can pay your mortgage every month so you don't lose your house, car payment so you don't lose your car, car insurance so you can legally driver, inevitable car repairs (so you can still get to work).

Not everyone is fortunate enough to be able to even get a better than minimum wage job, and all these expenses combine to make life very hard for such people.

You don't even have to be stupidly and exorbitantly waste money on foolish frivolities in order to be struggling--other, basic expenses are enough to drown many people.

And when you have to work so much merely to survive, you have hardly any time, let alone energy, left over to learn new skills that might get you better employment. And if you want to go to school, you'll likely have to take on tons of debt for that, which will just dig the hole you're in even deeper.

The working poor don't deserve all this. They are not lazy, immoral bums. They're working poor and trying not to steal for a living (unlike various predatory lenders) but instead resorting to whatever legitimate, legal means they have available to them to try to improve their situation.

Even if some people aren't as bright as they can possibly be when it comes to money, well, come on. You wouldn't say a stupid dog deserves to be a miserable, uncared-for beast of burden for the rest of its life, would you?

So, why would you say essentially the same about a person who isn't very bright and/or who makes mistakes? It's just cruel.

If you are not in favor of regulation of the predatory lenders (despite the fact that our federal government used to have usury laws, which probably never should have been repealed)--maybe relief efforts for our nation's poor would be good.

Even just one generous rich person, giving away money to individuals, not loaning it, could rescue a lot of poor people from utterly miserable lives of being enslaved to debt and never being able to get ahead financially because of the debt and the tons of interest and fees.

If fewer people were driven by the desperation of poverty into these predatory lending arrangements to begin with, the market would finally dry up and these scum would be out of business.

If I had the money, I'd give out grants myself to completely wipe out the debt of struggling people (and also to assist the newly debt-free so they don't possibly go back into debt). I have a personal loathing for predatory lenders, and I would love to stop them from stealing any more ill-gotten loot from so many honest hardworking people who are doing the very best they can under their very difficult circumstances.

I'd suggest a boycott, but it wouldn't really work too well, because the victims of this don't have many options and can't easily avoid predatory lenders when the choice is either, go to a predatory lender, or end up on the streets.

A boycott of credit cards is potentially more effective, because even many well-off people use credit cards (while payday loans and things like that are probably almost exclusively the province of lower-income, desperate people), and many merchants accept credit cards (but don't have to).

And so, if the credit card companies' well-off customers and merchants decided to stop using credit cards, just to make a statement that the credit card companies' treatment of their more unfortunate customers is absolutely unacceptable, it would probably put a large dent in the credit card companies' pocketbooks, and may persuade the credit card companies to clean up their act.

I strongly support a credit card boycott (you can search the web--I recommend using Yahoo--and easily find my web page about it; I also recommend reading my blog, where I wrote a bit about this BusinessWeek feature). That's my only focus, because that is what has personally affected me the most. But it's obvious that credit cards are just the tip of the iceberg of predatory lenders.

However, I think a nice mixture of the following, and probably other ideas as well, may improve matters tremendously for the poor in general, regardless of the exact type of predatory lender:

* Regulation--usury laws put back in place, excessive fees forbidden, etc., so this legalized loan sharking once again becomes illegal, as it deserves to be.

* Consumer awareness, so people know to watch out for these predatory scum and do whatever you have to do to avoid dealing with them.

* Financial education. I like the idea of a class being given in high schools.

* Generous grants (not loans) to individuals from caring wealthy people. These will prevent people from resorting to borrowing from predatory lenders to begin with--and rescue already drowning people from a gigantic, all-consuming black hole they could never possibly get themselves out of. It's almost like a boycott. What this comes down to is putting the poor in a position to be realistically able to boycott the predatory lenders.

There are probably other good, useful ideas out there as well.

Anyhow, thank you to BusinessWeek for featuring all these very insightful articles on this extremely important topic.

SheetWise

I agree with Apollia.

While there may be good reasons for some people to take out a high interest loan, the harm done to the poor as a class overshadows their individual gains.

For example, let's say the power company is going to shut your electricity off if the payment isn't in by 5pm today, and you don't have the money. A payday loan that covers the shortage is only going to encourage the poor to get in these situations. Instead, if we let the power company disconnect, increase the customer's security deposit, charge a $200 reconnect fee, and let the deadbeat go without electricity for a week, he or she might learn a lesson. The current situation, which allows the economically challenged to avoid this lesson simply by paying a $25 fee for a one-week loan of $200, is disturbing.

Poor people simply make bad decisions, and eliminating their options is the best way to protect them.

Apollia

Hi SheetWise. Thanks for agreeing with me.

Unfortunately, I can't agree with you as well. I see that suggestion as rather cruel. I think these people don't need to be "taught a lesson"--they need help and mercy.

That's real help and mercy, not pseudo-help such as the kind they'll get from loan sharks, which will make them the indebted slaves of those who "helped" them. At least we both agree that the loans are bad.

However, many of these loans for low-income people are worse than how you make them sound above. I can't speak from first-hand experience regarding such loans, but I recommend reading "Loan Rangers" from the Tucson Weekly, http://www.tucsonweekly.com/gbase/currents/Content?oid=oid:44868

Still, as bad as such loans are, they may not be as bad as people having their electricity shut off for a week, not having any way to buy food, or being thrown out of their houses or apartments because they can't afford the rent.

I don't think small loans should be eliminated altogether; I think they should be made fair and reasonably priced, so people don't get trapped in a vicious cycle of debt and end up having to take out yet more loans to make the payments on their previous loans.

In my opinion, depriving struggling poor people of electricity and gouging them with a $200 reconnection fee that they already can't afford is just going to make it harder for them to do whatever they have to do to earn enough money to pay their bills.

Besides, the "deadbeat" may not be the only victim of this "lesson." The "deadbeat" may have many helpless dependents to support--children, elderly parents--and they'll all go without electricity for a week, too, and the $200 reconnection fee could come out of the money for groceries for all of them.

I don't believe most poor people are "deadbeats" by choice. I believe they're honestly trying to do the best they can, but they just get overwhelmed by the high cost of living--basic costs like housing, utilities, transportation, car insurance, taxes, health care, etc. It all just costs too much for a person who may only be able to get a minimum wage job.

Henry Cusano

This is a problem that has grown out of the notion that the larger the lending institute, the better--when in fact the larger the institute, the less likely we are to see personalized lending. When all you look at is a credit score, you see nothing of the person, the community, or the problems a faceless person has. As the number of middle-class Americans continues to decline and more Americans become financially stressed, the more likely we are to see a breakdown in our financial markets--ending with the U.S. becoming just another Third World model and financial institutions preferring to dump their countrymen for more-lucrative foreign borrowers.

Alec

There's been a running theme throughout these comments, with perhaps the sole exception of Appollia, that poverty is a result of a failure of character. The reality is that America is the least socially mobile of all industrialized nations. If you're born into poverty, you're extremely likely to die there.

Chip

A financial transaction between adults is none of the government's business. We don't need Big Brother or a federal nanny to protect us from ourselves. What's next--get a bad deal on a shirt at the mall and the Feds sweep in and make it all good? Give me a break.

Rex

Bad idea. After watching a photo show by Jacob Holdt, I'm defiantly against lending money to the poor with high interest. Pure slavery.

Jeff

While companies taking advantage of the poor is absolutely abhorrent, there is no mention of personal responsibility. The author mentions two single women with five and four children. What of the others who failed to plan for their own future? Sadly, the American spirit of individual accountability has been replaced by political correctness, even in the writings of BusinessWeek.

Apollia

Sorry, but even if someone isn't making perfect decisions in life, that doesn't mean everyone is allowed to victimize and abuse that person.

Sure, it may be really stupid to walk down a dark alley late at night, but that doesn't mean muggers are allowed to mug anyone stupid enough to do that.

To me, watching predatory lenders do what they do to the poor, and then shrugging one's shoulders and saying, "Well, it's their own fault; they have to take personal responsibility," that's like watching a vicious mugging taking place, and then instead of trying to stop it and protect the person, smugly saying:

"Well, too bad for that stupid idiot walking down dark alleys late at night--he made his bed and now must lie in it. He has to take personal responsibility for his part in this vicious beating and mugging. Maybe getting beaten up and robbed will teach them a lesson. Actually, the mugger deserves that idiot's money for teaching that idiot such a valuable lesson. It's all that idiot's fault--he never should have been walking down a dark alley late at night. He deserves what he gets."

In my opinion, this callousness--blaming the victim--is a major part of what is wrong with our society.

I think that's a far greater menace to our society than people maybe being naive, financially illiterate, perhaps too honest for their own good, and struggling and working hard, instead of turning to crime to pay their bills.

This cruel attitude, causing so many to turn a blind eye to innocent, honest, moral people's undeserved suffering, is part of what allows this tremendous injustice to keep happening.

Just because usury is now legal doesn't make it right.

However, since some among you are against making this crime once again be against the law, I thought of another possible solution (aside from caring, generous rich people rescuing the poor through grants, not loans) that wouldn't require the imposition of government regulation.

In my opinion, it is not in the least necessary to engage in any loan sharking, price gouging, or rampant, despicable deception in the form of bait-and-switch tactics, and obfuscatory legal terms and fine print in order to run a profitable business.

And if I had the resources, I'd start my own business to compete with these vermin, and prove it. Being close to poverty myself, though, I don't have the resources, so all I can do is give this idea away.

The rampant crookedness of these businesses provides a tremendous opportunity for anyone who wishes to step in and (gasp) do business fairly and treat impoverished customers well. (Sadly, in these industries, this appears to be a novel concept.)

So many people are sick to death of these leeches and loan sharks, and they will flock--no, stampede--to lenders who will treat them fairly and well.

I think, if some new competition entered these various industries currently dominated by predatory lenders, and actually offered truly fair and reasonable lending terms to poor people, the profits would be colossal.

Especially once these poverty-stricken people, thanks to your genuine help, actually got on their feet financially, whereupon they would doubtless remain loyal to you, and spread the word and send you everyone they know as customers (instead of cursing your name and warning everyone they know against getting involved with you).

And, if you happened to offer them a credit card with truly fair terms, they'll almost certainly keep using it even in prosperity. And since credit card companies apparently make even more money from fees imposed on merchants than from gigantic late fees and so forth imposed on consumers, you'll still be in the money.

Meanwhile, the predatory lenders will have to clean up their acts just in order to compete with you.

In my opinion, the potential profits--both for your own business and for society and the world at large--are huge.

Plus, you will literally be saving lives, rescuing people from poverty, hunger, ill health and inadequate medical care due to lack of funds, homelessness, and all the other horrors that come with poverty. You will be giving people a real chance at achieving prosperity by providing something truly worthy of the name "financial services."

I think anyone who does this will be deservedly and rightly hailed as a hero and savior of society--and all for making money, not even for giving it away for free.

Anyone who is interested, feel free to implement this idea. I'd appreciate credit, but I'd appreciate cash even more (just a little joke).

Seriously, anyone who is interested, take this idea and run with it. (And once you're rich--or even more rich--please consider donating to me). I wish you all the success in the world.

Stephen

1) No one should pay 2% for a mutual fund. I don't see how this gets into active or passive management. Simple economics tell you that you can't beat the market long term, so why bother? Buy index funds. They're cheaper and have a better return without adjustment for the long haul, vs. managed funds.

2) I agree credit should be made available, but the information is asymmetric. Either you ban payday loan places, or you ensure that the consumer has all the information to make a sound decision. The former either sends folks to loan sharks or prevents folks who have an actual need from servicing it. The latter costs in terms of regulation but ensures that economically rational decisions based on full information are made.

Cash-call loans can get up to a 96% interest rate. How many economically literate people would want that product?

Anonymous

Those who say they fear others being infantilized by government regulation have, I think, some maturity issues themselves.

Most of the subprime shakeout would be designated fraud if it were given a serious hearing. But because financial institutions have so much more political clout than the poor and the near-poor, it is written off as being due to individual moral failings.

When Citigroup and Bank of America start to go under, we won't hear about their moral failings. We'll be told that propping them up is a national security interest.

Alec

To follow up that anonymous post, I find it hilarious that we assume moral failings are limited to the poor. Anyone who's been paying attention to Corporate America over the past few years has seen non-stop evidence of immoral and illegal activity by extremely rich people. Moral failings know no class lines.

Aaron

Sorry, Apollia. As someone who studied hard and sacrificed instant gratification so I could have a little bit of a nest egg, I am not giving free money away to people who did not make the same sacrifices.

I remember you in HS and even college. While I was in class, you were skipping school, smoking pot, and having a great time. And now that you are paying for your choices--poor, a couple kids on the way, and no brain cells left from drugs and booze--you have the nerve to ask me not for a loan, but for an outright grant.

Forget about it.

I think the 25% of my money I give away already, through the tax system, is more than enough to be wasted on the poor, who more often then not, have only themselves to blame for their condition.

Fred C. Dobbs

I am all for letting the smart guys fleece the dumb guys, but when the dumb guys go bankrupt and wipe out their stupid debts, I don't want to subsidize the smart guys' game by being charged higher costs and interest rates when I borrow or charge. Studies of behavior show dumb guys are defenseless against smart guys who prey on their stupidity. Isn't it immoral and intellectually dishonest to lend money to someone who probably can't pay it back? Wasn't this formerly a crime? If not, why is there any regulation of loans made by financial institutions whose deposits are insured by the solvent members of U.S. society? Why don't we simply enforce the laws that have been on our books since the Depression? This is no longer a country but a place of convenient residence.

Zek

Allowing the government to control credit streams and borrowed-money allocation? Sounds very Communistic. Can governments be trusted with managing people's finances? That would be allowing the government far too much financial power. What should happen is people should be taught economics and credit responsibility. This (like sex education) clearly doesn't happen on a wider scale.

People will always want money, whether they are "stupid" or not. Whether they gamble, borrow from black-market loan dealers, or sell assets (as leverage), they have to attempt to create wealth. It's a sad aspect of the human condition. Most people who know of the risks (educationally) may have been wary but aware when they borrowed.

Apollia

Well, Aaron, you make a lot of assumptions about the poor that in many cases may not be true.

I'll use myself as an example. I am, at least for someone living in America, relatively poor.

Despite being fertile and physically attractive enough that men aren't revolted by my appearance, I do not have children. In fact, I refuse to ever produce children, even if that would grant me a meal ticket in the form of child support. I refuse to engage in such unethical behavior merely to live.

To digress a bit, I abhor the hideously malfunctioning child support system and consider it to be yet another thing, like credit cards or income tax, that victimizes poor and rich alike. Many people, even those who were once prosperous, are being impoverished by this system through no fault of their own. Here's an informative web page that points out the myriad ways in which the child support system is broken: http://www.nfja.org./positionstatement/childsupportbudgetcuts.shtml.

Legally, up to 65% of someone's earnings can be garnished for child support, as this page states: http://www.dol.gov/compliance/guide/garnish.htm

How are people supposed to live with up to 65% of their paycheck stolen, and another large percentage robbed for income taxes, Social Security, etc.?


Back to my example. I did very well in school while I was there, especially on tests, in spite of the fact that I didn't really have the endurance to deal with the prolonged boredom. (Which also makes it difficult for me to last at a 9-to-5 style job, though I don't think I'd be able to make enough money even if I could last at such a job, because I probably can't get a job paying more than minimum wage. So, I have to admit, technically I myself am not "working poor"--since I'm not working, except for the Web sites I do for free to help out relatives and others.)

Once I left school, I found it very easy to get a GED, getting excellent grades on the tests. Also, my SAT scores were 730 on the verbal test and 510 on math. For a while I had hopes of going to college, but among other factors, the idea of going into massive debt discouraged me. (Unfortunately, I ended up dragged into massive debt anyhow due to the precarious financial situation of my family, who are working poor).

I am, and have always been, an absolute Puritan when it comes to alcohol, drugs, and so forth. I'd be willing to bet money that, chances are, you drink more alcohol than I do. If you are a social drinker, or even if you only have a drink at a bar or a party once a decade--ha, I win!

I am also not a particularly hedonistic sort of person in general. I find it very difficult to guiltlessly "have a great time" when the world is filled with misery, poverty and suffering, even though there's very little I can actually do about it due to my limited resources.

I subsist on the willingly given support of my parents, but if there were no one who would willingly give me support, I would willingly live honestly on the streets rather than steal, lie, or cheat for a so-called living. I am unshakably dedicated to my morals. Otherwise I probably wouldn't be poor.

So, though I am definitely not someone who has made all perfect decisions in my life, I am far from what you assumed of me.

I could understand your anger better if I had been proposing that the rich be forced to give the poor money. I'd be angry about that myself.

But instead, I was proposing that the rich only do so if they really want to. I would never want money from anyone who doesn't genuinely want to give it to me, or from anyone who can't genuinely afford to do so. (If only credit card companies, Uncle Sam, etc. felt the same way I do).

Also, by "rich," I didn't mean people who only have a little bit of a nest egg. By rich, I meant people who are so colossally rich, $1,000 or even $10,000 is like 10 cents to them.

Forgive me for perhaps making assumptions about you, but, since you made assumptions about me, I'll assume I have the same liberty.

Judging by what you said, it sounds as though you really need all the money you can manage to get, and getting it has been a hard struggle. To me, you sound very embittered over having had to work so hard and sacrifice so much, merely to get a little bit of a nest egg, which is continually being fleeced by Uncle Sam's extortion in the form of income tax.

And I don't blame you at all--one reason being that I absolutely loath the income tax and anything else that robs people's hard-earned wages, such as involuntary contributions to Social Security, insurance, etc.

In my opinion, the income tax is pure stealing and extortion, and it's just as egregious and unjust when done to the rich or middle class as to the poor. The essay by Frank Chodorov, "The Income Tax: Root of All Evil" expresses much of my outlook better than I could. http://www.mises.org/etexts/rootofevil.asp.

I think the income tax should be abolished. Our country got by just fine before 1913 (when the 16th Amendment, supposedly authorizing income taxes, was put in place).

In my opinion, the poor are far from the only ones who are being victimized and oppressed here.

I also believe you shouldn't have had such a hard life; no one should. You have admirable fortitude and I envy you that.

I wish you continued prosperity, and I also hope you don't still see me as some kind of subhuman scum. Best wishes.

BeenThereToo

I've used the "predatory" payday lenders and been thankful. To borrow $100 and pay back $115 is sure less money than $37.50 per day overdraft fees at your local bank. Poor judgment, checkbook error, didn't write in a debit card--yes, I, stupid person, human that I am, have done just that. And I was happy to pay the $15 fee, and I didn't have to borrow again and again. Big banks are no different from payday lenders; they are just bigger.

Jocelyn C. Gallant

I think the banks have gotten too greedy today. They're overcharging customers who are working poor, those who are poor and on fixed incomes. The banks are rip-offs today. When will this ever end?
Jocelyn C. Gallant

Apollia

I just thought I'd point out that I put my original comments, unedited by BusinessWeek, on my own website:

http://astroblahhh.com/opinions/may_2007_businessweek_comments.shtml

Jennifer

There are laws that restrict high-interest rates. The problem is that there are too many loopholes. If the government would consider the $250 participation fee on the $500 loan as part of the interest, it may help solve the problem.

d

My husband and I have missed meals to pay our bills. We now are in the position to lend to others. Our U.S. government is the one to accuse of "fleecing." I am in the business of helping others (who take advantage and are unthankful, but some realize our sacrifice and appreciate our help). If our laws and taxes were not so steep, we could do much more. The borrower and lender are broke.

w

I am a very low income, college educated single mother. I also am financially inept. I have given up my checking account, because bank fees for overdrafts are more expensive for me than check-cashing fees. I am by no means stupid. I simply have difficulty with managing money, and there is increasingly less and less money available to make ends meet. People who understand finances do take advantage of people like me. Isn't that the beauty of capitalism? The government will not be able to cure the greed of lenders. They continue to find a way to line their pockets at the extreme expense of others.

Payday Loan Advocate

The Arizona Credit Union System (ACUS) is pushing to abolish the payday advance industry in the Grand Canyon State, but consumers should realize the ACUS is just trying to eliminate the competition. The credit union is stepping up its lobbying efforts to level the payday loan industry so that it can claim all the former cash-advance customers as their own. As part of a massive e-mail campaign, the ACUS is attempting to reach almost 1.6 million credit union customers to persuade them that Proposition 200 is worth voting against. However, Proposition 200 supports institutions like the Arizona Community Financial Services Association, which points out that Proposition 200 will, in fact, lower Arizona's loan fees, eliminate extensions by implementing flexible payment plans, keep Internet lending in check, and lower the number of walk-in stores in Arizona. These up-and-coming reforms will not only benefit payday loan customers, they will also prevent industry employees from joining the unemployment line. Who can afford to lose their job while the economy is struggling like it is?
Post by the Personal Money Store

Payday Loan Advocate

The third and last U.S. Presidential debate took place in Hempstead, New York, on October 14, 2008. Both candidates declare to bring a resolution to America and its decreasing economy. However, will it leave consumers with the ability to choose where or when to have access to payday loans? That remains unclear. Just because it is said that Americans are living in "the land of the free" doesn't mean that interest groups (i.e. banks and credit unions) are of the same mind to have the freedom to choose.
-- Personal Money Store Professional Blogging Team

Payday Loan Advocate

I think the government and the Central Bank can intervene in the financial crisis for it to be solved.

America’s economy is facing problems not exclusive only in the United States. The International Herald Tribune features an article about the credit crunch in Europe. This article centers on a small business owner outside of Paris, Dominique Boudier, who runs a printing company. Small businesses just like hers depend on credit to be able to keep afloat, especially since she faces a 60-day lag in receiving payment from many of her clients. Currently, her creditors are cutting their offerings in half, largely due to her supplier’s credit insurance companies insisting on a lending freeze. Her bank, along with many others, are sending all their liquidity to the European Central Bank, instead of investing into other banks and back into the fragile economy. As banks begin to fail and liquidity dries up, credit begins to disappear. Similar to the Federal Reserve Bank in the U.S., the European Central Bank issues fiat money. Fiat money is currency that is backed with credit, and as governments can’t guarantee the value of said currency; its value diminishes rapidly, resulting in enormous inflation rates, which we are seeing in the global credit crunch. The consensus of many is that the proper manner in which to curb these symptoms is a stronger banking system.

While most people hang in the lurch, payday advance loans will be readily available, as most people will not be able to afford to wait for the banks to sort themselves out.

Lisa P

Election Day 2008 was historic. Those who participated should applaud themselves accordingly, regardless of who they voted for. The consensus has been that America has voted for change by selecting Democratic candidate Barack Obama as the 44th President of the United States, though whether that change will be for better or worse remains to be seen. He has made many promises, such as lowering the tax burden on the middle class, putting a timetable on withdrawing from Iraq, and a line by line trimming of the federal budget. He also has pledged his support in ridding America of its freedom of financial choice, by putting greater restrictions on payday loan lending. He thinks that it will minimize predatory lending toward lower income families and minorities. He doesn't think it drives all of us right toward the banks and credit companies that helped to create so much of the economic crisis that we're in already. Obama's ridding us of payday loan lending only compromises our financial freedom. He may bring America some, or maybe most, or all, of what it needs, but creating a banks' monopoly is not what we need now.

Rayman

This problem can be seen as originating in our outdated school system. Our high school system is so outdated we cannot even recognize the problems seeded in those years. And that is for the ones who finish. The courses are basically college oriented. The practical aspects of job training are ignored. There is either low or zero exposure to business realities. Our young people get used to being pampered and to low expectations. While many schools do an excellent job, the rule is the majority do not. As a result we are easy prey to experts. Even well educated people find it easy to yield to temptation of "easy money." A few shows of Dr. Phil about people in financial troubles show the disconnect between charging purchases and paying the money owed. Serious problem.

BHO

You people make me laugh. "The guvment should stop these loans." "They're fleecing America." No, you idiots, you're fleecing yourselves. Don't take out high-interest loans you fools!

JoeRal

Nanny state--when is it good, when is it bad? Seems to me reading all the comments that many are referring to this article or that study, often written by or paid for by biased consumer groups who tend to omit one important fact ... the actual consumer's opinion. There is a great lesson the nanny state endorsers can learn by actually walking a mile in some of these so-called illiterate poor people's shoes. You will find immediately they make very intelligent choices with what's available to them. To limit the few financial options they have only hurts them more, yet consumer groups can claim some sort of twisted victory. There is abuse in these markets and some reform is necessary--except our government falls short in understanding one size does not fit all. Recently the government (through their actions) made tax refund loans more expensive for the working poor. Why? They thought they had to cripple these tax loans so they can "pilot" low cost bank accounts for the working poor. The government still doesn't understand why poor people don't save in a bank account or even want one, especially one controlled by the government. But while their "pilot" will flounder, poorer Americans who still "need" their tax refund "yesterday" will pay more for them. Thanks, Nanny.

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