The same weeds creep along El Barrio, Spanish Harlem, and seem to sprout from storefronts on every drab block:
- The lonely, linoleum Laundromat survives by selling sample-sized soap and consuming quarters like a whale slurping plankton.
- The 99 Cent Store is missing the N and both Ts from its sign, but inside it's stuffed with the miscellany of apartment maintenance – toilet brush for the bathroom, spackle for the drywall, coasters for the coffee table.
- The bodega awning announces ATM, BEER, LOTTERY in bold, block type and there's a hand-written “We Take Food Stamps” sign taped to the door. Here you can buy coffeed-down water, King Cobra and a Megamillions ticket to paradise.
Dandelion is to Tulip what Co_ner G_ocery is to Trader Joe’s
Companies hesitate to contend with high insurance rates and market their product to an under-educated, poor populace. Deliberate geographic barriers constructed by racist urban planners further prevent the appealing flowers from being planted in these low-income neighborhoods [1]. So the weeds fill the niches and provide the services.
Most of these weeds are ugly but useful. Others, however, thrive by inextricably coiling around useful plants. Imagine ragged ropes of poison ivy snaking up an apple tree. The apples are high up in the branches. You’re hungry and you need to get those apples, but you have to climb that toxic vine to reach them.
You get your apple but not without feeling some pain.
* * *
A check cashing office is an empty room with a counter on one side and a few, presumably, bulletproof windows on the other. A slim opening at the bottom of each pain of glass provides enough space to slide a paycheck or Benefits card in exchange for cash. Posters advertise – in English, Spanish, Korean and Mandarin! – all the fantastic ways Pay-O-Matic, Nexiscard, Green Dot and other cunning companies will screw you out of your money. You have to get that apple -- you need to get your cash -- but the poison ivy vine is the only route.
I work at a supportive residence for formerly homeless adults. The tenants are strong individuals who have survived the street, escaped the shelter system and earned secure, relatively comfortable permanent housing. Most make an earnest attempt to live successful, healthy lives, but there are still some problems. Money is the root of most.
One tenant recently complained to me about a loan shark in the building. He grumbled that the loan shark was charging too much interest. In his experience, the going rate of interest on a loan among New York City usurers is 30%.
New York State usury law limits the amount of interest on any loan at 16%. Anyone who has paid interest higher than that 16% can file a civil lawsuit to recoup the difference. Usury becomes a felony when the interest rate reaches 25%.[2] Most states have similar usury laws to prevent loan sharking among individuals.
Yet, hese laws do not apply to many businesses that deal primarily with poor people like my clients. In his 2005 book Shortchanged, author Howard Karger attacks the “fringe economy,” which he defines as “corporations and businesses that have a predatory relationship with the poor by charging excessive interest rates or fees, or exorbitant prices for goods or services.” He takes specific aim at check-cashing outlets and cites customers who pay $40 for a $200 payday loan – 20%! Well within civil usury territory.
The payday loan is a perfect example of how businesses prey on the poor. A payday loan is made after the borrower guarantees that within an established time period, he will pay the money back in full with an extra fee tacked on. The money borrowed is typically less than $500 and the borrower is supposed to pay it back as soon as he receives his next paycheck, Supplemental Security Income (SSI) or other form of payment. Paying money to access money you’ll soon get anyway sounds silly, but consider a scenario. A guy living hand-to-mouth has to pay his $700 rent on the first of the month but faces an unexpected expense, like emergency car repair, and is left with only $300. His rent is due on May 1st, a Tuesday, but he doesn’t receive his paycheck until Friday, May 4th.
To make his rent payment on time, the unlucky guy takes out a $400 payday loan at a check-cashing outlet — time to climb the poison ivy to reach the apple. The guy easily secures his $400 in cash. Since the company charges 20% interest on every two-week loan, the guy writes a $480 check that the company will promptly cash when the loan expires. If he doesn’t have sufficient funds in his account, too bad; the check cashing company will take him to court for bouncing the check.
When the guy gets paid on Friday the 4th, he has enough to pay back the $480 he owes. Unfortunately, before he does, his crappy refrigerator breaks. He buys a new fridge but no longer has enough money to make that $480 payment on time. So he extends the loan. Now he owes an additional 20% ($80) on top of the $400 loan, bringing the interest to $160. The two-week extension approaches, but June’s rent is due and he extends the loan again, accumulating another 20%. After just six weeks, he owes $240 in interest – a staggering 60% APR – on his $400 loan.
According to the Southwest Center for Economic Integrity, 60% of payday loan borrowers fail to pay their loan by the first two-week deadline. Thirty percent extend the loan for more than seven weeks.[3] Payday loan companies are the most toxic of the weeds; their tendrils slither into low-income urban blocks and slowly choke the residents. While twelve states, including New York, have sprayed their cities with herbicide and killed payday loans, there are no federal regulations against this legitimate loan-sharking except regarding loans to members of the military.
Although states have begun to crack down on such blatant rapaciousness, more subtle strategies persist. In 2010, AP reporter Candice Choi spent a month using New York City’s fringe economy services for all her financial needs. After paying to cash checks, send money orders and simply use her prepaid cash card, she spent $93. Multiply that by twelve months and it equals more than $1,110 without one single benefit or return. In 2012, people receiving SSI in NYC got $785/month (that amount increased to $797/month in 2013). That's just $9420/year. Holy shit. $1,110 is a lot of wasted money! [4]
Some tenants I work with use Nexiscard, the same prepaid cash card Choi bought, in place of a bank. They are misinformed or simply uninformed and feel they can control their money better if it is loaded on a card snug in their wallet. The first time I spoke with one woman about switching from the Nexiscard to a local credit union with real benefits and lower rates, she just laughed:
“You can’t keep everything,” she said. “They’re going to take something regardless.”
She is right, of course. Yet, while companies like Nexiscard and big banks charge low income-customers steep, exploitative fees, credit unions take the smallest bit of their customer’s money. If my jaded client opened a checking account at Union Settlement Federal Credit Union (USFCU) in Spanish Harlem, she would pay a $3 monthly maintenance fee any time the amount in her account dipped below $100.[5] In comparison, Bank of America, which has various checking account tiers and low-balance penalties, charges a $14 monthly maintenance fee on a regular checking account with a daily balance less than $1,500.[6]
USFCU has a $5 annual membership fee, but they offer three free ATM withdrawals a month and charge $0.75 for each subsequent withdrawal. This should go without saying, but USFCU does not charge you an additional fee when you use your debit card to make purchases. Nexiscard, on the other hand, charges a fee on every transaction! They charge $1 per purchase and $1.50 per purchase with a PIN number. The act of poking a few numbered rubber buttons costs $0.50. Customers pay another $1 to add money to their Nexiscard account and $2 to withdraw from an ATM. There is also a $4.95 inactivity fee initiated after 120 days.[7]
In March, the government will stop issuing paper Social Security checks. This has spurred a serious campaign by the prepaid-card companies to get welfare recipients to deposit their checks directly onto scam-cards. Recipients can also pay $20 or more to access their money three days early. That should be an illegal payday loan on a secure government check!
One of my clients has struggled with gambling addiction for years and spent much of last Spring trying to recoup the money he lost betting on the Patriots instead of the Giants. He chose to pay his bookies rather than his landlord. At the end of April, he got a three-day cash advance by paying a $28 fee. He then took a bus to Atlantic City, blew his money and fell deeper into rent arrears. After this debacle, he agreed to make my organization his representative payee. He rerouted his SSI check from his Nexiscard to a bank account our organization set up for him. Each month, the organization deducts the rent and gives him his remaining money. He's saving hundreds of dollars a year.
I soon found out that these lawful payday loans are common practice among my clients. Far too many people hand over a substantial chunk of their paltry benefit checks to diabolical corporations that grow more robust as they prey on society’s most vulnerable citizens. These are the under-educated, unwell, mentally ill, developmentally disabled. They are poor and their paltry resources are wrapped in poison. They endure significant financial pain to get that apple.
[1] ie: Numerous highways, such as the Dan Ryan Expressway in Chicago and Eight Mile Road in Detroit, split cities, corralled blacks and separated the middle- and upper-classes from the poor.
[2] http://www.davidrichlaw.com/new-york-business-litigation-and-employment-attorneys-blog/2011/01/what-rate-of-interest-may-my-company-lawfully-charge-in-new-york/
[3] http://faculty.msb.edu/prog/CRC/pdf/Mono35.pdf
[4] http://articles.boston.com/2010-10-05/business/29292273_1_check-cashing-fee-money-orders-credit
[5] http://www.unionsettfcu.org/join.html
[6] https://www3.bankofamerica.com/efulfillment/documents/51-11-3000ED.20120227.htm
[7] http://wvgazette.com/ap/ApBusiness/201010030164
All the fantastic ways Pay-O-Matic, Nexiscard, Green Dot and other cunning companies will screw you out of your money.
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