Poverty: Political and Profitable

Poverty: Political and Profitable

As the gap between rich and poor continues to widen, poverty in America has risen to its highest level in 47 years.  Most telling about this fact is that a full third of Americans now identify themselves as lower class according to a Pew report.

The Census Bureau’s report on poverty this past September showed that more than 46 million Americans—about 15 percent of the population–had fallen into poverty.  Add to this statistic that 150 million Americans are just one paycheck away from the official poverty line and you’d expect to have heard more from the media about the level of poverty in an election year—save Tavis Smiley and Cornel West.

Astonishingly, poverty wasn’t even a subject on the table of discussion—much less debate—during the recent presidential election.  How can it be that the leader of this nation and the candidates—who claim themselves qualified to lead this country—are able
to ignore an almost unprecedented level of poverty during an election year?

The Great Recession—driven by the foreclosures which hit minority communities especially hard—had a whiplash effect among these economically disadvantaged populations who were left to resort to financial products and services like payday lenders and rent-to-own stores.  As we leave 2012 behind, it might be time to have a look at how expensive it became for the poor and newly poor in America.

Not surprising is that these types of predatory businesses like payday lenders and rent-to-own stores have only increased since
the economic crisis, adding further injury to the estimated $7 trillion Americans lost in equity.

Importantly, millions of households that were neither foreclosed upon or ever accessed a predatory loan also experienced an exceptional loss of wealth due to foreclosures within their neighborhoods.   Now millions of borrowers hold mortgages that are valued at more than their property.

The estimate for the median American family is that they lost almost two decades of wealth, nearly 40 percent of their assets.  As a result, roughly nine million households are unbanked—they cash their checks at storefront check cashiers at an average transaction cost of $40 per payroll check.

Another 21 million American households are underbanked making the alternative financial services industry big business with 340 million transactions annually, costing consumers about $13 billion.

Translation, roughly 60 million adults now operate outside the mainstream of the financial services relying on payday lenders, check cashiers, and pawn shops.  Storefronts for payday loans and check cashing now outnumber all McDonalds, Burger King, Sears, Target, J.C. Penny and Walmart stores and branches combined.

Payday loans which are usually 14-day cash advances that cost between $15 and $30 per $100 borrowed are well known to be financially ruinous to their customers.  Almost 75% of all payday loans are rollovers of previously unaffordable debt.  Typically, interest rates exceed 400 percent annually.

Bank fees have been rising since the onset of the financial crisis and according to the Pew Charitable Trust, the median extended
overdraft penalty fee at the nation’s 12 largest banks has increased 32 percent since 2010.

Not surprisingly, there is a substantial and growing connection between mainstream banks and alternative lenders.  Adding insult to injury, the nation’s largest banks are able to borrow at practically 0 percent interest rates due to the current Federal Reserve monetary policy.  Imagine for a moment the profitability of a business operation at a zero cost of goods.

Unfortunately, too little has been done by regulators and policy makers to protect vulnerable consumers from a predatory financial product industry that hasn’t slowed for an instant to further exploit the economically disadvantaged consumer.  Where are our elected representatives who’ve been sworn to serve and protect?

While the President, politicians and some economist express optimism for economic growth in 2013, there are 150 million Americans finding it increasingly expensive and difficult to share this optimism.





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  • The act of fixing credit card practices by the federal government drove countless millions out of the at least dependable and less predatory lending than the PayDay Loan stores.

    Most banks and charge card lenders, such as American Express, had to double the minimum payment due and lower the available credit for millions of card holders, forcing some cardholders into bankruptcy and other to near default. The unintended consequences of the typical progressive action.

    You can thank, in part, the G-man, for being from the government and there to help. Help loan sharks, that is.

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