BusinessWeek: The Poverty Business

Business Week’s top story concerns the “subprime” lending industry in the United States. It’s a good read, one of those articles that makes you feel smarter for having read it. It’s shocking too, reading about a Navajo woman who makes $15,000 a year being lent $7,922 at 24.9% (to buy a 1999 Saturn with 103,000 miles on it) makes us slap our foreheads in frustration. But that’s how it goes when you’re poor. Your bank is a car dealer, your tax accountant is Jackson Hewitt and you’re screwed. —MEGHANN MARCO

The Poverty Business [BusinessWeek]
(Photo: Meghann Marco)

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  1. Wormfather says:

    I dont know what’s worse 8 people living on $32K a year or……

    “Unlike traditional dealers, Byrider doesn’t post prices directly on its cars. Salesmen, after consulting ARE, calculate the maximum that a person can afford to pay, and only then set the total price, down payment, and interest rate. Byrider calls this process fair and accurate; critics call it “opportunity pricing.”

    That’s about as ethical as bragging about getting layed after puting something in her drink.

  2. Wormfather says:

    Sorry $40K a year, still.

  3. hc5duke says:

    You don’t have to be poor to get 25% APR. Just last year I was offered over 20% APR on a 2006 Charger at Hendrick Dodge in Durham, NC. The salesman played dumb and only gave me the monthly payments (~$1000), which he insisted was a “competitive offer” (for him maybe?). The very next week, I purchased a Mustang GT from another dealer down the road at 6% APR (the dealer matched my eLoan rate), and wrote Dodge and Hendrick a letter why I will never buy another Dodge or from a Hendrick dealership… not that Dr. Z cares what I have to say.

  4. EtherealStrife says:

    Capitalism at work. Sad, but not really shocking.

  5. bambino says:

    So who do you blame?
    – the ‘predatory’ lending companies that provide 26% APR loans?
    – the ‘uneducated’ poor person who MUST have that car or computer NOW?
    – the education system for not teaching people how to live economically healthy lives?
    – the PARENTS of the poor people for not teaching them how to live econoically healthy lives?

    Discuss.

  6. bedofnails says:

    Why am I not surprised a former debt collector started Blue Hippo?

  7. bedofnails says:

    @bambino:

    Notice how almost every subject in the article had at least 3 children?

  8. CDANIEL says:

    Though the stories mentioned in this article contain many unfortunate circumstances, I find it difficult to sympathize with the poor choices that these individuals continue to make.

    Consider Lakissisha Thomas who opted for a Jackson Hewitt loan before later doing her research and asking the question “Why should I pay somebody else, some big company, when I could go to the free service?” Then there is Luisa Ajuria who just signs everything put in front of her without even reading the terms. She accepts a credit card and allows her niece to run up a $1,268 balance on the card for frivolous gifts.

    I feel sorry for the family that makes the decision to forgo Christmas in order to avoid the accumulation of debt, but I cannot accept the actions of the Ajuria family, proceeding without any plan for the future.

    A little education and research goes a long way. The great thing about a capital market is that business will cater to the needs of the market. If the consumers provide the demand for a business to supply subprime loans at exorbitantly high interest rates, then neither business nor consumer is being “taken advantage of” if consumers willingly accept the terms.

  9. bedofnails says:

    @CDANIEL:

    “…The great thing about a capital market is that business will cater to the needs of the market. If the consumers provide the demand for a business to supply subprime loans at exorbitantly high interest rates, then neither business nor consumer is being “taken advantage of” if consumers willingly accept the terms.”

    Very well stated.

  10. Buran says:

    @hc5duke: Good work. Now you don’t have to worry about your dash caving in in 6 years. ;)

  11. bambino says:

    @bedofnails: Yes, I did. Truthfully it disgusts me to think of the cycle of debt that those children are probably doomed to, given the choices of their parents.

  12. North of 49 says:

    what choices? if you are “subprime” banks won’t even look at you.

    friend of ours who owns a building couldn’t get a loan from the banks or several of the lending agencies. He finally, thanks to us pointing him in the right direction, has that loan being processed.

    This is someone who has the collateral to get the loans. But because he hasn’t been taught well about money – and he grew up in money – he has fritted away his inheritance and screwed up his credit rating.

    So you don’t have to be poor to be “subprime.”

  13. mac-phisto says:

    well, let’s see. the banks have successfully lobbied for bankruptcy reform that eliminates almost everybody’s right to escape debt b/c of a few assholes that govern their finances based on a 7-yr cycle. the student loan lenders successfully lobbied for an amended HEA that allows them to put debtors into financial servitude for the rest of their life.

    what’s around the corner? i’m guessing a return to peonage, the inheritance of debt by heirs…anything to keep this capitalist ship rolling!

  14. sliceofbread says:

    If you are not doing well with money, you should not be buying an $8000 Saturn. Don’t get me wrong, I absolutely love my Saturn with over 123,000 miles and will run it all the way up to 200K, but its no where near worth even $3000 which is what I paid for it the same time this lady bought hers.

  15. Sudonum says:

    @mac-phisto:
    Debtors prison

  16. timmus says:

    Agreed… the nation definitely is heading for dystopia — either legalized indentured servitude or a debtors prison where inmates are condemned to a life of doing telemarketing or tech support.

  17. TechnoDestructo says:

    Jeez, I think every car dealer in the Southwest is like the one in that article, to some extent or another. Shitty cars at premium prices and FINANCE FINANCE FINANCE!

    Even the new car dealers (far less scummy, but I still don’t trust them) take advantage of the lack of reasonably priced (and by reasonable I mean comparable to anywhere else in the damn country) used cars and jack up their prices, too.

    Arizona is a nice place to own a car, but a terrible place to buy one. :-/

  18. ReverseCarpetbagging says:

    I really don’t have a problem with subprime lending in general. The aspect that I have a problem with is that people are often offered much more than they really need. The concept of stretching one’s finances goes to a whole new level. The interest rates are just a company protecting itself from the risk of lending to people with less than perfect credit. Should lenders not lend to those people at all? Should they be forced to lend to them with lower interest rates? Should people with less than perfect credit be told that the are not allowed to borrow money? Capitalism is a beautiful thing. The only problem is the gluttonous borrowing habits of some and the gluttonous lending habits of others.

  19. ReverseCarpetbagging says:

    As far as the BAPCPA, I’m not so sure that the new bankruptcy code has made it impossible. While the means test does affect some people, it hasn’t put an end to consumer bankruptcy as we know it. Credit counseling isn’t the worst idea in the world and there was an effort to fend off repeat filing. Chapter 13 never got as much use as it should have. In the end, I’m sure it put some people into Chapter 13 that should have been there in the first place and may have prevented some people that have been hit by true emergencies from filing Chapter 7. But, with the huge problem of the Alternative Minimum Tax, I don’t think the 2005 amendments are the end of the world. Blame it on the lobbyists, blame it on whoever you want. Maybe more attention should be put on states that have unlimited homestead exemptions. Maybe more attention should be put on the actual language of the code and the poor drafting that it reflects. Oh well, it passed and now we have to live with it.

  20. SkippyKilimanjaro says:

    I don’t know if BlueHippo still operates this way, but they used to not ship the computer to the consumer until something like 13 or 14 successful payments had been made. What it amounted to was, once the consumer had actually paid for the cost of the computer (which was generally around $400) plus some cash profit, BH would then ship the computer. The remaining 40 or so payments were essentially risk-free ‘interest’ payments.

    The computers were bottom of the line crap, too.

    The call center I used to be part of competed for some of the BH business. I can remember sitting in marketing meetings talking about whether we wanted to do business with these scumbags. But it boiled down to what the Gateway guy in the article said…we were in business to make a profit and we needed customers to do that. We didn’t win the business, though, which was probably a blessing.

    Fun Fact: Their director of call center operations at the time was Tony Provenzano…nephew of the Tony Provenzano who reportedly killed Jimmy Hoffa.

  21. doug-pirahna says:

    @SkippyKilimanjaro:

    In addition to what you mentioned about BlueHippo, once you’re at the point the computer is due to be shipped, BlueHippo has a reputation for delaying the shipment date past the stated ship date for as long as they can, while at the same time you’re still making weekly payments and any “problems” with those payments can cause the shipment date to be delayed further, or they’ll cancel your account and keep all your money you paid them up to that point.

    Really classy operation in my book.