11 Chapters
Medium 9781576753361

Fringe Housing

Karger, Howard Jacob Berrett-Koehler Publishers ePub

Although market specialization, competition, and innovation have vastly expanded credit to virtually all income classes, under certain circumstances this expanded access may not be entirely beneficial. … Of concern are abusive lending practices that target specific neighborhoods or vulnerable segments of the population and can result in unaffordable payments, equity stripping, and foreclosure.
–Alan Greenspan, “Economic Challenges in the New Century,” Annual Conference of the National Community Reinvestment Coalition, Washington, DC, March 22, 2000

Congress knows predatory lending is a problem. The Clinton administration knows this is a problem. Now the chairman of the Federal Reserve himself is saying this is a problem. So, when are we going to see laws, regulation, and enforcement to put a stop to it?
–Frank Torres, legislative counsel, Consumers Union, March 22, 2000

Housing represents the biggest chunk of a family budget and is the single largest asset for the majority of American homeowners. Home mortgages and refinancing is a multibillion-dollar business in the United States, and in 2002 home equity hit a record high of $7.6 trillion.1 Housing is also a sector highly susceptible to the predations of the fringe economy. For example, Eric Stein estimates that U.S. borrowers lose $9.1 billion annually to predatory mortgage practices.2 The robust and dangerous fringe housing economy encompasses everything from subprime to predatory lending, and from legal, to quasi-legal, to outright illegal speculation and lender-initiated scams. This chapter examines the differences between subprime and predatory lending; various kinds of home, refinancing, and home equity loans; housing speculation; and the foreclosure process.110

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Alternative Services: Check Cashers, the Rent-to-Own Industry, and Telecommunications

Karger, Howard Jacob Berrett-Koehler Publishers ePub

The millions who are poor in the United States tend to become increasingly invisible. Here is a great mass of people, yet it takes an effort of the intellect and will even to see them.
–Michael Harrington, The Other America

A robust and growing industry has emerged in America for those with bad or no credit. Most services, such as telecommunications, apartment rentals, and store credit cards, require a credit check. Those who score low on this check are forced into the alternative services sector. This chapter examines how America’s down-and-out are shortchanged through expensive alternative services, such as furniture and appliance rentals and telecommunications.88

ACE Cash Express, Check ‘n Go, Mr. Payroll (Cash America International), Dollar, and Money Mart are familiar sights in inner-city neighborhoods and strip malls. Behind these 14,000-plus storefronts lies an industry that cashed upwards of 180 million checks in 2001 with a face value of $55 billion. These check-cashing outlets (CCOs) generate nearly $1.5 billion a year in revenues, coming largely from the 20%–40% of the unbanked who regularly use these services to cash their paychecks.2

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Why the Fringe Economy Is Growing

Karger, Howard Jacob Berrett-Koehler Publishers ePub

Our customer base is very large, diverse, and rapidly growing–it’s really mainstream America. –ACE Cash Express, 2004 Annual Report

The almost exponential growth of the fringe economy during the mid-1990s was baffling, especially since real incomes were rising and the numbers of people in poverty were dropping. Nonetheless, many factors came together to foster the phenomenal growth of the fringe economy, including the rise in numbers of America’s working poor, welfare reform, high levels of immigration, the growth of the Internet, the increased financial stress that slow wage growth and the rising cost of necessities placed on the middle class; and liberal federal banking laws. In simple terms, a major reason for the growth in the fringe economy is that 43% of Americans annually spend more than they earn. A full appreciation of the growth of the fringe economy begins with an understanding of its customer base.18

The fringe economy primarily targets those who make less than the median family income of $50,000 and live from paycheck to paycheck. A second target is immigrants who have little experience with banking institutions in their home countries, or who come from countries where banks cater primarily to the wealthy. Each month the amount of money they earn is equivalent to, or less than, their living expenses for rent, utilities, food, clothing, and other necessities.

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The Fringe Auto Industry

Karger, Howard Jacob Berrett-Koehler Publishers ePub

Credit, the problem and solution to all of life’s problems.
–Vista Cars & Trucks, Houston, Texas

Owning a car has become a necessity in many American cities. In particular, many of the post-World War II car-based cities of the Midwest, Southwest, South, and West Coast have notoriously poor public transportation—fewer than 5% of U.S. roadways are served by public transportation. Having a reliable vehicle is important for getting to work on time, for picking up children in day care, for shopping at the lowest-priced stores, for visiting friends and family, and for finding employment. Vehicle ownership is also fertile ground for all types of fraud, from used-car purchases to auto title pawns, and even to tire rentals.146

This chapter explores some of the hurdles that the poor encounter when trying to find and keep basic transportation. In particular, it examines how the used-car industry is organized, the difficulties that the poor face when trying to find affordable used cars, the ins and outs of used-car financing, and subprime financing. It also looks at loosely regulated fringe auto insurers and auto title pawns. Finally, the chapter offers some solutions to help rein in the fringe auto economy.

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The Credit Card Industry

Karger, Howard Jacob Berrett-Koehler Publishers ePub

Money can’t buy you love, but a credit card can get you started.
–Robert D. Manning, Credit Card Nation

A profound revolution is taking place in the way we are meeting our financial needs. Although it is occurring largely off the radar screen, this change represents a fundamental shift in how a growing number of us access financial services and manage our day-to-day money matters. The basis of this revolution is the widespread expansion of credit.42

Credit is the cornerstone of the modern U.S. economy. We can use it as a cushion for unexpected medical expenses, car repairs, the replacement of an appliance, an emergency family loan, or a trip to visit ailing or dying relatives. It is also a bridge between real household earnings and consumption decisions.1 Credit allows us to purchase products or services immediately, some of which we would otherwise be unable to afford. Payment options are flexible for those of us with good credit, and collateral isn’t required. Middle-class people can purchase goods or borrow cash while they retain their possessions, since loans are secured by the borrower’s creditworthiness. Neither trust nor the presumption of goodwill exists in the fringe economy, however. A low-income or credit-challenged consumer who applies for a loan typically must provide collateral such as a secured bank account, a postdated check, household goods, or a car title.

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