By Chris Lane
By Jeff Balke
By Aaron Reiss
By Angelica Leicht
By Dianna Wray
By Aaron Reiss
By Camilo Smith
By Craig Malisow
If you'd know the value of money, go and borrow some. -- Benjamin Franklin
Halloween was coming up, and 17-year-old Tinita Samuels wanted to go trick-or-treating with her cheerleading squad, the Acres Homes Bears. She had recently graduated from high school and sold her pom-poms and cheer skirt. Renting a set would cost $30. She didn't want to beg the money from her mother, Gwen, whose cash always came with conditions: Don't date this boy, don't buy those sneakers, don't stay out so late. It was 1992, and her mom, as the old folks put it, was always planting shade trees to sit under.
So Tinita instead went to Ace Pawnshop. Her $400 ruby-studded class ring, a graduation gift from her mother, plunked onto a scale. The pawnbroker indifferently picked it up and announced, "Fifteen bucks." Tinita scrunched her face in disbelief. Perhaps reading the reaction as skepticism, the broker upped his bid to $20 and said it was the best he could do. Tinita took the money, listened to him breeze over the legal terms, the 50 percent interest rate and the 30-day repayment period and rushed out the door.
The small loan felt liberating, like a financial declaration of independence. Tinita's mother had been a nagging annoyance ever since she had discovered earlier that year that her daughter was pregnant. "You ain't gonna be nothing but another welfare mama like all of these other stupid bitches out here," she'd said (and she held some authority on the subject, having given birth at 21). She'd wanted Tinita to get an abortion. The demand lingered in Tinita's head and increasingly seemed to have been hypocritical to the young mom, whose son was now eight months old.
The extra $20 pulled Tinita through Halloween, but it was soon forgotten in the blur of her busy days working as a receptionist at an insurance company, late nights tending to her son and the crush of friends who were fresh out of high school and ready to party. She went to reclaim the ring two days past the 15-day grace period and found it for sale beneath a display case. The broker would give it back only if she paid his new sticker price: $439.95.
Tinita slunk away. "I didn't know what the hell I was gonna tell my mom," she says.
Far from teaching Tinita a lesson, the pawnshop incident was her introduction to a parallel world of finance for the working poor and credit-deprived, an industry on the margins of legality, fraught with dubious and endlessly creative offers of instant cash. It is a world of title pawns, payday lenders, rent-to-own stores, buy-here-pay-here car lots, high-interest credit cards and exploitative income tax services that cater to people who see few other ways to make ends meet. University of Houston professor Howard Karger, author of the recent book Shortchanged, calls this rapidly expanding sector the "fringe economy." "In some ways," he says, "it represents a war on the poor."
Yet the targets of the fringe economy are just as often people who might not look poor at all, people with college degrees and desk jobs, people like Tinita. Clawing her way up the educational and corporate ladders has left her credit shot and her resources stretched to the breaking point. She faces a $500 electric bill this month. And the only way to keep the lights on might be to apply for yet another usurious loan.
I believe that banking institutions are more dangerous to our liberties than standing armies.-- Thomas Jefferson
Judging by the width of their televisions and the tonnage of their cars, Americans are increasingly well-off, but they're also deeper in debt than at any point in the nation's history. According to the Federal Reserve, household debt is at a record high compared to disposable income. Whereas Americans saved 10 percent of their incomes in the early 1980s, they now save close to nothing. In fact, nearly half of us spend more than we earn and nearly a third owe credit card companies more than $10,000. Repaying these debts has become increasingly onerous: Between 1983 and 2003, bankruptcy filings increased more than 400 percent.
Consumers, facing exhausted credit and mounting bills, are relying ever more on the fringe economy. Between 1985 and 2000, the number of pawnshops in America tripled. There are now more payday loan outlets in America than McDonald's restaurants. Plano-based Rent-A-Center began in 1986 with eight stores and now dominates the rent-to-own industry with more than 2,500 outlets in 50 states. And the nation's largest tax preparers, such as H&R Block and Jackson Hewitt, more than doubled their earnings between 1998 and 2001 on fringe-economy "fast cash" products targeted to low-income customers.
Fringe services have blunted Tinita's rough-edged finances for years. In 1992, she opted to receive her first ever tax refund check a month early, via a tax refund anticipation loan from a local accountant. The loans often cost about $200 for a $2,000 tax return, which is about what Tinita says she paid that year and every subsequent year for more than a decade. At first, she says, "It was just the thrill of having a little extra money, so I could go out and do what I wanted to do."