Reverse Robin Hood: Six Billion Dollar Businesses Preying on Poor People
By Bill Quigley. Bill teaches law at Loyola University New Orleans.
Many see families in poverty and seek to help. Others see families in poverty and see opportunities for profit.
Here are six examples of billion dollar industries which are built on separating poor people, especially people of color, from their money, the reverse Robin Hood.
Check Cashing Businesses
Nearly 10 million households containing 25 million people do not have any bank account according to the FDIC. Most because they did not have enough money to keep a minimum balance in their account.
Check cashing business are part of a $100 billion industry of more than 6,500 check cashing businesses in the US, many which also provide money orders, utility bill payments and the like, according to testimony provided to Congress by the industry.
More than 30 million people use pawn shop lending services for an average loan of $150. One company, Cash America, has 84 check cashing centers and 859 lending locations in the US, over 260 in Texas alone, extending over $1 billion in pawn loans. In their 2014 annual report they disclose that 30 percent of people never return to redeem the item they pawned and the sale of those items makes up over half of the company revenues. The company paid millions in penalties in 2013 for overcharging members of the armed services and filing inaccurate court pleadings in thousands of cases. The CEO was given $6 million in 2014.
Overdraft fees, when there is not enough money in the checking account or credit card to cover all purchases, is an $11 billion industry for banks, according to the Consumer Financial Protection Bureau. A recent New York Times article explains how banks sometimes charge overdraft fees even when the customer has enough money in their accounts to cover the purchase and were forced to pay more than a billion dollars for manipulating the order of purchases to maximize the chances that their customers will have to pay extra fees.
Payday loans are used by people over 15 million times a year and can lead to deep debt problems and usually involve incredible percentages of up to 391 percent according to the Consumer Financial Protection Bureau. Pew Charitable Trusts reported pay day loans are a $7 billion dollar a year industry. The Federal Trade Commission won a $300 million case against two payday lenders who were deceiving borrowers, who, for example, took out a $300 loan thinking it could be repaid for $390 when in fact the lender was charging $975 to pay off the $300 loan. The US Department of Justice indicted former race car driver Scott Tucker on criminal charges for operating a $2 billion nationwide payday loan operation which routinely charged interest on loans for over 4.5 million people of 400 to 700 % per year. The nation’s largest pay day loan company, Advance America, charged nearly 140,000 people in North Carolina annual percentage rates exceeding 450 percent until it was stopped by the state.
Car Title Loans
More than 2 million people use auto title loans every year, paying about $3 billion in fees each year, with typical annual percentage rates of 300 percent, according to the Pew Charitable Trusts. The Center for Responsible Lending estimates there are over 7000 businesses which loan money to people based on holding the title to their cars, usually charging up to 300 percent annual interest, which they advertise as 25 percent per month. The average borrower gets a loan of $951 and pays off $3,093.
Debt collection is a $13 billion dollar a year industry employing more than 140,000 workers in 6,000 companies, according to the federal Consumer Financial Protection Bureau.
Debt collectors make more than 1 billion (yes with a b!) contacts with consumers each year, according to their own industry newsletter. Twelve million people (5.3 percent of consumers) are at least 30 days behind on their payments, according to the Urban Institute. Thirty-five percent of all adults with credit files, 77 million people, have debt in collection reported in their files. Pro Publica reviewed five years of court judgments and found the rate of judgements was twice as high in mostly black neighborhoods as it was in white ones.
The Consumer Financial Protection Bureau has over 74,000 complaints about improper debt collection, its number one complaint, according to a recent report of the Alliance for A Just Society.
These are not just small companies but big names like Citigroup, Capital One, JPMorgan Chase, Bank of America and Wells Fargo, in fact the Alliance for Just Society reported the big companies in debt collections have made nearly $100 million in contributions to federal candidates and parties since 2001 and another $280 million on federal lobbyists.
Citibank was sued twice by the federal CFPB over falsified documents and providing inaccurate information in debt collections and agreed to settle the case.
The debt collector with the largest number of complaints, Encore Capital Group, specializes in buying up debts from other creditors and then filing hundreds of thousands of lawsuits was forced to cancel more than 4,500 court judgments against borrowers in New York after it was charged with filing shoddy lawsuits.
JPMorgan Chase paid over $130 million to settle a case against it brought by attorney generals from 47 states for improperly collecting debts under what is called robo-signing, where legal documents are approved and filed without proper review. JPMorgan earlier paid $389 million in fines and refunds to credit-card consumers for problems with debt collections.
These businesses target families with incomes below $35,000 and people of color are three times more likely to receive abusive loans than whites. People with blemished credit are often passed over when seeking jobs.
There is some good news. Democrats created and passed into law the Consumer Financial Protection Bureau which is now beginning to gain some traction in monitoring and regulating these predatory practices. Bad news is that Republicans like Ted Cruz are trying to kill it and some Democrats are trying to hobble it. There are also good groups like the Center for Responsible Lending which provide excellent information on the abuses. But in the meantime making money off poor people remains a booming business.