Living in America’s Fringe Economy

By Howard Karger, Dollars and Sense. Posted December 29, 2006

http://alternet.org/workplace/45813/

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The term "fringe economy" refers to a range of businesses that engage in financially predatory relationships with low-income or heavily indebted consumers by charging excessive interest rates, superhigh fees, or exorbitant prices for goods or services. Some examples of fringe economy businesses include payday lenders, pawnshops, check-cashers, tax refund lenders, rent-to-own stores, and "buy-here/pay-here" used car lots. The fringe economy also includes credit card companies that charge excessive late payment or over-the-creditlimit penalties; cell phone providers that force less creditworthy customers into expensive prepaid plans; and subprime mortgage lenders that gouge prospective homeowners.

The fringe economy is hardly new. Pawnshops and informal high-interest lenders have been around forever. What we see today, however, is a fringe-economy sector that is growing fast, taking advantage of the ever-larger part of the U.S. population whose economic lives are becoming less secure. Moreover, in an important sense the sector is no longer "fringe" at all: more and more, large mainstream financial corporations are behind the high-rate loans that anxious customers in run-down storefronts sign for on the dotted line.

The Payday Lending Trap

Ron and Deanna Cook have two children and a combined family income of $48,000 -- more than twice the federal poverty line but still $10,000 below Georgia's median income. They are the working poor.

To make ends meet, the Cooks borrow from payday lenders. When Ron and Deanna borrow $300 for 14 days they pay $60 in interest -- an annual interest rate of 520%! If they can't pay the full $360, they pay just the $60 interest fee and roll over the loan for another two weeks. The original $300 loan now costs $120 in interest for 30 days. If they roll over the loan for another two-week cycle, they pay $180 in interest on a $300 loan for 45 days. If the payday lender permits only four rollovers, the Cooks sometimes take out a payday loan from another lender to repay the original loan. This costly cycle can be devastating. The Center for Responsible Lending tells the tale of one borrower who entered into 35 back-to-back payday loans over 17 months, paying $1,254 in fees on a $300 loan.

...continued...

these are the rules I grew up on...

Rent first - shelter is key
Utilities Second - you can do without if you have to, but it really sucks
Food Third - Potatoe soup for 2 weeks is horrid, but it will keep you alive.

#4th - Everything else is a luxury.

...to either return to these rules or face financial ruin. Those are good rules. They inspire self reliance and discipline.

or survival inspires the rules... whatever.


K & R!
This needs to be read by many.

to buy groceries on credit cards. pay bills that way. thier savings are gone and they don't splurge.
I know people who once could live a nice life with frills and now have to watch every penny and do not splash money around foolishly.
Thier lives are night and day. And there is no light coming for them.
I know people who've had to charge groceries because there was nothing left after bills and they had to eat.

Dental work? Medical bills? Prescriptions? College education for the children? Freakin' toilet paper?!? "Luxuries"?

It's always easy to spot those who have never wanted in their lives. They're the ones who always claim it's so easy to survive.

Sears catalogs were better than scratchy newspaper... but not very absorbent. :(

I'm SO glad my kids have never had to experience that. It's been a struggle, but they have always (at least) had cheap TP. :)

I work for a firm with a bankruptcy practice - you could chart the financial circumstances of alot of those who come here - and at the point which they reach the fringes of the financial system it is like they go off a cliff.

The problem is people come to in their desperation see these marginal lenders as their friends, with their slick advertising and smiling faces - when they should have been filing for bankruptcy before they reach their door. What is most tragic is that many of those who goto these marginal lenders are unaware of the fact they still have oppertunities for credit from mainstream lenders. The terms won't be as good as those for someone in a better situation, but there a hell of alot better than those available from Bubba's Bail Bonds and Loans.

Consumer lending had to be deregulated to a degree as old usury laws couldn't keep up with inflation - but the result has been marginal lenders doing things organized crime would literally be ashamed of.

...gross exploitation of the vulnerable, desperate, working class. Business as usual.

I live in middle class america where we struggle for the basics and treasure the little treats. no going out and no splurging on fun. On top of it we have medical bills.
A decade ago it was alot different.
The Bush era has been hell on the middle class and anyone who says the economy is booming needs to live in middle class world for a couple months and then say that.

...and views us as nothing more than resources to be exploited to further their ambitions of imperial expansion.