The Poverty Industry

This is the first post in a blog series providing commentary on Gary Rivlin's book Broke USA and the poverty industry.

You may not realize it, but the poverty industry is all around you. The business of making money off of the poor has always existed, but it didn’t become a multi- billion dollar industry until the 1980’s. I recently read Broke USA by Gary Rivlin which provides a commentary on how the poverty industry turned the working poor into big business.

The poverty industry consists of check cashers, payday lenders, pawnshops, rent-to-own furniture and appliance stores, and other businesses that make money off the impoverished and working poor. The industry is very profitable. In 2008, payday lenders charged their customers a collective $7 billion in fees and the country’s rent-to-own shops took in about $7 billion in revenue. The same year, pawnbrokers booked about $4 billion in revenue and check cashers $3 billion. Add businesses like auto title lenders and tax preparers that offer instant tax refunds, and the total adds up to $25 billion. That is a staggering figure.

Most of these businesses make money by charging exorbitant interest rates on the loans they provide to the working poor. For example, payday lenders and title loan shops are known to charge close to 400%. Other lenders charge excessive fees for mortgage refinancing and home equity loans. Rivlin tells the story of Lillie Mae Starr, a retired factory worker who borrowed $5,000 to fix her windows. Ms. Starr was paying 23.3 percent interest, and fell behind in her payments. After refinancing twice, she owed Fleet Finance $63,000.

The most angering part of the poverty industry is its predatory nature. Gail Kubiniec ran a CitiFinancial branch that was engaged in predatory lending, and she claimed to boost revenues by packing loans with unnecessary insurance policies. She said, “The more gullible a consumer appeared, the more coverage I would try to include in the loan.” She defined a gullible customer as someone who was very young or old, a minority, or someone who appeared uneducated and inarticulate. The industry preys off vulnerable people that are trapped in poverty.

The poverty industry is typically concentrated in certain neighborhoods and shopping centers. For example, a pawn shop will be next to a rent-to-own store which will be next to a payday lender which will be next to a tax preparer that offers instant refunds. See the pictures below to see how this is true in Forsyth County.

The Rent-A-Center is in the same shopping center as the Professional Tax Service that offers fast cash.

The Quick Cash Pawn Shop is across the street from the Rent-A-Center.

While the poverty industry is still extremely profitable, more people have taken notice of its predatory and abusive nature. What do you think about the poverty industry? Is it in your neighborhood? Have we done too much to rein it in or not enough? Let us know what you think, then check back to learn what steps North Carolina has taken!