On a hill high above Cleveland, Tennessee, stands a manor modeled after George Vanderbilt’s Biltmore.
A stone-and-stucco pile topped by a copper dome, the house is perched on a 650-acre (263-hectare) estate that features two artificial lakes, a regulation-sized football field and a three-story tree house, plus stables, a greenhouse and an aviary.
If this sounds like a scene from Robert Frank’s “Richistan,” guess again. It’s a description Gary Rivlin offers in “Broke, USA,” an unsettling look at entrepreneurs who have become wealthy by extending credit to the working poor.
The estate owner is W. Allan Jones Jr., a man who made his wad by giving Americans small bridge loans -- $100 here, $150 there -- to tide them over until their next payday. The founder of Check Into Cash Inc., Jones owns planes, yachts and a vintage Rolls-Royce, Rivlin writes. In 2002, he dropped $12.3 million to buy a dude ranch in Jackson Hole, Wyoming.
Jones -- described here as a bald man with a beard and a big belly hanging over his frayed jeans -- is just one outlandish character in a vast cast Rivlin introduces in this queasy journey through what he calls “Poverty Inc.,” the business of making money off Americans who scrape by on jobs that pay $30,000 or less a year.
Pawnbrokers and high-rate lenders have long been with us, of course. What “Broke, USA” shows is how deregulation and Wall Street backing have turned fringe financing into an industry raking in more money than all the nation’s casinos combined -- a business with corporate logos and the creepy homogeneity of McDonald’s.
Poverty Inc. was a roughly “$150 billion-a-year industry at its peak,” Rivlin calculates after totting up revenue at pawnbrokers, payday lenders, money-wirers, rent-to-own operators, tax preparers who offer instant tax “refunds,” subprime credit-card providers, subprime-mortgage lenders and all the rest. Mom-and-pop shops on the down side of town have given way to publicly traded companies such as Dollar Financial Corp., Cash America International Inc. and Rent-A-Center Inc.
Rivlin, a former New York Times staffer, is what we used to call a shoe-leather reporter. He digs through the files of fair-lending activists, spends hours talking to people who’ve lost their homes, hangs out with Legal Aid Society attorneys and consumer activists.
He sits down with William T. Myers, a 73-year-old worker with “a pleated face” -- you can see him -- who has been living with his wife in a sad trailer park on the edge of Dayton, Ohio, since they fell victim to a predatory lender.
‘Instant Tax Refunds’
He gets to know Fesum Ogbazion, an Eritrean-born go-getter who at age 35 was running a tax-preparation service in 39 states offering what are commonly called “instant tax refunds,” loans in which an expected refund serves as collateral.
He also meets William M. Webster IV, better known as Billy. He set up Advance America, Cash Advance Centers, Inc., after showing a financial backer a piece of paper with two lines: One traced the cost of a payday loan, the other tracked the rising cost of fees on bounced checks and late credit-card payments.
“When those lines crossed,” he said, “the industry just grew and grew and grew.”
Both lines also illustrate “how extremely expensive it is to be poor,” as author James Baldwin once put it. Though the fees allowed on payday loans vary from state to state, they are daunting when calculated as annual percentage rates. The $15 per $100 payday lenders could charge in a stricter state such as Ohio, says Rivlin, represented an APR of 391 percent.
Rivlin strives to be fair and balanced throughout this often depressing account. He eschews hyped language and lets the evidence speak for itself.
Angels or Vultures?
The book does bog down in places, especially when Rivlin recounts legislative battles -- won and lost -- against subprime and payday lenders. At times, this reader felt battered by the evidence, pro and con. Yet I came away with an admiration for how evenhanded Rivlin was in addressing his central question about enterprises that cater to the working poor.
“Were they financial angels to the country’s great hardworking masses?” he asks. Or “were they vultures carelessly adding to the economic woes of a single mother of two working as a chambermaid at the local Holiday Inn?”
This thorough and thoughtful piece of reporting has much to teach us about the challenges the U.S. faces today, especially when it comes to improving financial literacy. It should be required reading for legislators and lenders across the land.
“Broke, USA: From Pawnshops to Poverty, Inc. -- How the Working Poor Became Big Business” is from HarperBusiness (358 pages, $26.99). To buy this book in North America, click here.
(James Pressley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)