Eaten Alive

Rent-to-own stores, pawnshops, payday lenders -- it's hope for sale, with interest

"To hell with this," she decided. "I'm grown."

And just like that, Tinita put an end to her shopping sprees. Her financial woes didn't go away, however. This August, she enrolled full-time in the University of Houston Graduate School of Social Work. David stayed home to care for the children, and her student loans and substitute teaching salary couldn't pay the bills. At the end of the month, her electricity was cut off.

Still, Tinita resisted the urge to visit a fringe lender. "I might be broke as a joke," she says, "but if I didn't have the money, I didn't have it. That's just how I looked at it."

Tinita Samuels Dorsey pawned her ruby-studded high 
school ring for $20.
Daniel Kramer
Tinita Samuels Dorsey pawned her ruby-studded high school ring for $20.
With 1,371 stores in 37 states, Irving-based ACE 
Cash Express dominates the check-cashing industry.
Daniel Kramer
With 1,371 stores in 37 states, Irving-based ACE Cash Express dominates the check-cashing industry.

Her new approach to money didn't make life much easier. A former co-worker, plea-bargaining with the authorities, implicated Tinita in a scheme to defraud SBC. In May, she was arrested. Her attorney advised her to stay in jail so that she wouldn't have to serve time during the school year if she was convicted. "It was like an all-day-every-day slumber party inside four walls with a bunch of women," she says. It was also expensive. Every two weeks David brought her $50 to help supplement her meals of wieners and Kool-Aid with packets of barbecue corn nuts and Vienna sausages from the commissary. She spent 42 days locked up. David scraped together her $2,000 bail. She claimed innocence through the whole ordeal; her attorney fees reached $3,500.

When Tinita returned home, utility bills and her car note had piled into mountains. The fringe economy beckoned.

In late November, she applied online for money from Lending Tree, which offers unsecured personal loans. She was denied because her paycheck was too irregular, she says. Yet hundreds of other offers from companies eager to give her "fast cash now" suddenly flooded her inbox. She received so many that she considered changing her e-mail address.

Internet lending is the fringe economy's newest gold rush. Traditional payday loan companies eye its growth nervously. "That's something everybody is looking at, trying to figure out how to rein in and manage," says Cynthia Vega, communications manager for Financial Service Centers of America. "They're not always legal; sometimes they're even based with companies that are offshore. There's no protection, there's no safe harbor. Really, buyer beware."

Tinita now can't believe she even considered taking out another loan. "I don't know what was wrong with my mind where I went back to Lending Tree to try to do it again," she says. "I can't do that."

On the near-north side, Davidson Street leads past weedy lots, sagging bungalows and the occasional stumbling panhandler. Set close to the street on an overgrown acre, Tinita's house, built by hand by her grandfather, is shedding paint and casting off shingles. She sits inside on a leather couch, in front of advertisements flashing from her 55-inch Magnavox. The screen gives off the only light in the house; Tinita is trying to slow the growth of her $500 energy bill, which she still hasn't figured out how to pay.

At least she knows how she won't pay her bill: with another loan. In fact, Tinita thinks loans to people like her should be illegal. "You're going to end up chasing me," she says. Simply turning down the money can be tough, she adds: "You know, we have the ability to say no, but how can you say 'No, man' when you sitting up and trying to figure out where your next piece of anything is going to come from? You've got four boys -- my boys are 15, 14, 12 and six -- and they don't want cereal for dinner. I can't feed you the T-bone steaks, but you want some fried chicken and some corn and some mashed potatoes, you want some food. And it's crazy, and you're sitting here, and these people call you, and they're like, 'Don't worry about it, we're going to give you a chance because you deserve it.' "

"Don't give it to me," she says. "I need these people to step up and tell me no."

Still, banning fringe lending across the board could backfire. Karger believes outlawing high-risk loans would simply bring back an era of black-market loan sharks who collect debts with baseball bats. Instead, he suggests modest reforms. States should cap loan and check-cashing fees and outlaw short two-week repayment terms. They should regulate the rent-to-own prices and rein in interest rates on car loans. And they should spend more money educating consumers about credit unions and other businesses that offer fringe-economy services at fair prices.

Yet until society addresses the deeper roots of poverty and debt, Karger says, the fringe economy will continue expanding. Advertising-induced consumer culture is only part of the problem. The rapid increase in fringe lending has coincided with massive cuts in social programs and wages for the working poor. The welfare reform measures of 1996 cut the rolls of the program in half. Many people entered the workforce earning salaries that put them below the poverty line. In fact, the minimum wage, last increased in 1997, is 26 percent lower in inflation-adjusted terms than it was in 1979. "Unless people can make it through the end of the month on their income," Karger says, "the fringe economy is going to continue to grow."

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Payday loans or title loans are very helpful if you manage them properly. Otherwise they can create more problems than they were meant to solve. These loans already have a high interest rate but with the passage of time the interest increase even more. So if you delay the repayment of your loan, you will pile up a huge amount of debt for yourself.

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