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."
Shortchanged author Karger, a lecturer at UH's Graduate School of Social Work, says tax refund loans are among the industry's most exploitative. They pose almost zero risk to lenders because they're automatically deducted from government checks. "The outrage really is the loans are taking money out of the federal treasury that was really divined for these people," he says, "and not tax refund lenders."
Tinita's tax return had already mostly vanished when she gave birth in 1993 to her second son. The 20-year-old wanted to move out of her mother's house and into an apartment in Bear Creek with her boys' father, and she needed furniture. Her salary of $5.15 an hour was just enough, she thought, to cover a $150 monthly rent-to-own payment on a Botaflex imitation-leather furniture set from Rent-A-Center. The store asked for five references and proof of employment and delivered the couch the day she moved in. "It was easy," Tinita says. "When you don't have much, you need easy."
But Tinita's life quickly got more complicated. Two weeks later, she walked into her bedroom and found her boyfriend's closet stripped bare. She burst into tears. He'd bailed to his mother's house. "I just don't want to struggle," Michael Joyce told her, "and I know that's what we're going to do if we stay there."
Tinita resolved to pay rent by herself. She applied for food stamps, Medicaid and Women, Infants and Children program money. Her mother tended the children while Tinita worked during the day. But the young mom missed the $150 payment on her furniture. The next day, two Rent-A-Center employees pounded on her door and demanded the couch and chairs. Handing them over would mean losing the payments she'd already made toward owning them, so Tinita resisted. The men threatened to call the police.
The Houston Better Business Bureau fields complaints against rent-to-own companies. More than half of the 40 industry-related grievances received since 1999 mention either excessive calls made to workplaces and family members, foul language or simple harassment -- mostly on the part of employees with Aaron's Sales & Lease, which has 14 stores in Houston. Some consumers reported that repossession attempts intensified when they were on the verge of paying off appliances and owning them. Billie Garcia, a Texas City cafeteria worker, says he made all of his required payments on a washer/dryer set, including two payments after it broke. When Rent-A-Center employees took the unit from his house in 2001, he thought they intended to repair it. They were in fact repossessing it. Garcia never got it back. "I am out all this money," he wrote, "and they have the w/d set to re-rent." (A Rent-A-Center spokeswoman didn't return calls from the Houston Press.)
Still more troubling to consumer advocates are the stores' rental rates, which make Reliant Park beers look like bargains. Garcia paid nearly double the suggested retail price of his washer/dryer set, and Tinita's second-rate vinyl furniture was going to cost her $2,700 to own. According to BBB president Dan Parsons, there's little difference between renting at such rates and loan-sharking. "It's just another way to gild the lily to disguise it," he says, "and to get around laws that were designed to protect people from predatory lending."
Some consumer groups argue that rent-to-own transactions should count as credit purchases, qualifying them for disclosure laws and interest-rate caps. But attorneys with the Association of Progressive Rental Organizations, the industry trade group, have always persuaded state lawmakers that no credit is involved in renting to own; they argue that customers can return their products at any time without a penalty.
The distinction didn't much matter to Tinita, whose vinyl couch became just another prisoner of her finances. November rent was overdue on her apartment; a lockbox barricaded the door. She squeezed through a window in the living room and called her family. They rolled up in the middle of the night, quietly loaded all of her belongings in a pickup truck and carted them away. But they left the rental furniture behind. Maybe Rent-A-Center could convince someone else to buy it.
Tinita and Michael saw each other off and on, despite their official separation. She and her kids moved in with his sister, Jenny. Rent was an easy $100. Yet there were other expenses: child care, to be sure, but also Levi's, BCBG, Polo and knock-off Gucci. "I still felt like I had to dress," Tinita says, "so my money was pretty much going in the air."
Tinita's fashion demands outstripped her meager salary, so she pawned her 19-inch television for $110. This particular shop, off I-10, allowed her to keep the television, but recorded its serial number and used it as collateral for the loan, which was due in two weeks. (The strategy was popular in the early 1990s, Parsons says, because it allowed stores to circumvent usury laws.)
The extra cash didn't last. Tinita put a down payment on a red Hyundai Excel, writing a $300 check, which bounced. Her salary hadn't increased even though her boss was now asking her to quote insurance prices on cars and houses without a broker's license. In mid-1994, she collected a $140 car insurance down payment from an old lady and spent it on clothes and other random expenses. She was unable to replace the money as she'd planned and too embarrassed to show up at work. Her boss forgave her, she says, but she felt ashamed; after repaying him through a friend, she never went back.
Tinita was lucky to have marketable skills: a high typing score and a smooth phone voice. She went to work for an answering service, routing calls to out-of-office executives for $6 an hour. She avoided paying the pawnshop, which had stopped trying to repossess her television, probably because it had gone out of business, she says. But she was still living beyond her means. After two checks written on her Texas Commerce Bank account bounced, she closed it rather than paying the penalty fees and became one of the roughly 27 million people in America who don't have a bank account.
Taking home money suddenly meant doling out hefty fees to check-cashing companies. The largest among them, ACE Cash Express, charges between 2 and 6 percent per check in Texas -- more for personal checks -- plus a $3 fee for new customers. Still, many ACE patrons say it's their only option. Paul Jones is a former Yellow Cab driver who couldn't make money after 9/11 and overdrafted his bank account by $140. His new salary at an automobile auction company, $180 per week, doesn't leave much extra to repay the debt. Last month he walked out of the ACE Cash Express store on Fannin and Gray, which he has visited every Friday for two years. ACE is tiding him over until he can save money. "It's a stopgap measure," he says, "to get me from point A to point B."
Texas doesn't cap check-cashing fees, a decision supported by Financial Service Centers of America, the industry's trade group. General counsel Bob Rochford says fee caps would put some check cashers out of business, hurting the many consumers who have a "vital need for check-cashing operations."
Check-cashing businesses are popular with undocumented immigrants, who tend to avoid opening bank accounts for fear of being deported. Even legal immigrants often shun banks out of habit; in many Latin American countries they're frequented by only the wealthy. A young pregnant Latina, who declined to give her name, said she had a bank account but got cash from ACE every Friday anyway. "I get it faster," she said.
Most consumer advocates don't discount the demand for check-cashing companies but argue that the companies could easily lower their fees: ACE uses a system for assessing the risk of each check transaction and reports losses of less than a quarter of 1 percent. Its profits rose from $600,000 in 2001 to more than $27 million last year, even as the company opened new stores and franchises at the rate of nearly one per week, according to the company's Web site.
"We need companies to step in with a social conscience, companies that are not driven by quite as much avarice as some of these fringe companies, and not paying their CEOs $2 million, who can bring down rates," Karger says.
During the height of Tinita's check-cashing days, a dollar lost here or there was sometimes an afterthought, sometimes fodder for a shouting match. A dispute over a late videocassette, of all things, sparked a rancorous fallout with her roommate, and Tinita moved back in with her mom. She was 22. Going back felt like "the worst thing in the world," she says. Most humiliating of all was when her mother one day asked her what had happened to the high school ring and Tinita had to confess she'd pawned it.
Tinita describes her relationship with her mom as love-hate, with an emphasis on the hate. When Tinita was a middle schooler, Gwen was working long shifts as a nurse and raising her children alone. She learned one day that Tinita wasn't studying and punished her by removing the spiked collar from the family's rottweiler and slapping it across Tinita's neck. Before the daughter could react, her brother knocked her to the ground and yelled, "You ain't gonna kill my mama!"
At least her mom's role was clear. The other side of the equation was murkier. Tinita had always considered her mom's boyfriend Edward Jenkins, a.k.a. Pigeon, to be, in effect, her father, but he moved out shortly after decking her mom and waking her up with a bucket of ice water. A man named Sydney later pulled 14-year-old Tinita aside at a party and said he was her biological father. Her mom tearfully agreed. A letter arrived a few months later informing them that he was dead. Her mom soon began dating an old boyfriend named LeRoy Ford, who said he was actually her real father, but Tinita was dubious.
Now that she was an adult, Tinita dated men who were even more vicious than the boyfriends of her mom's past. DaSalle, a DJ and occasional burglar, slit her neck with a knife, leaving a scar, and might have killed her, she says, if she hadn't twisted away.
Tinita spent a year with her mom and eventually found a way to turn her personal history of violence, insult and indebtedness into a tool. She went to work as a debt collector. She already knew all the cop-outs people used to plead poor ("You can't squeeze blood from a turnip"); the company taught her all of the comebacks ("Turnips don't bleed"). She most often simply chatted with retirees, single moms and the unemployed and politely asked them for money. But sometimes her boss would slam his fist in his palm and say, "Dun 'em." This was the industry term for the nuclear option. She'd call her debtors and use everything she knew about them -- and herself -- to cut them down. "What kind of mom are you?" she'd ask the single mother. "Are you just gonna teach your kids to be deadbeats?"
Tinita was dunning people to settle their debts even as she was racking up more of her own. Anticipating that a bank would repossess her Hyundai at any moment for missed payments, she decided to preempt the problem by simply buying another car.
The used-car dealership off I-45 North was a small lot of decomposing jalopies window-plastered with neon deals. Without ever submitting to a credit check, Tinita put $500 down on a gold 1980s ragtop Jeep. Overlooking the Jeep's larger faults, it might have been worth twice that. But Tinita signed a contract obliging her to pay another $150 every two weeks for about a year. She'd been classically suckered by one of the city's many buy-here-pay-here car lots.
The buy-here-pay-here industry constitutes roughly 22 percent of the national used-car business and is growing fast. It could account for 30 to 40 percent of sales within a decade, trade officials say. Unlike traditional, franchised dealers, buy-here-pay-here lots tend to sell older cars and finance them themselves, offering interest rates upwards of 25 percent to people who normally wouldn't qualify for loans. The high rates easily make up for the fact that a third of buy-here-pay-here cars are repossessed; in fact, buy-here-pay-here lots are more profitable than their traditional competitors, Karger says.
They also uniquely benefit the poor, says Ken Shilson, founder and director of the Houston-based National Alliance of Buy-Here-Pay-Here Dealers. "Just because you have bad credit doesn't mean you don't need transportation," he notes. That's all the more true in cities such as Houston, where weak public transit leaves many people stranded. The lots are especially adept at appealing to low-income Latino immigrants with a lack of paperwork and a willingness to deal in cash.
But the allure of buy-here-pay-here can evaporate soon after purchase. Since 2003, the Texas Office of the Consumer Credit Commissioner has received 2,579 auto finance complaints -- four times as many as it received for pawnshops and payday loan companies combined.
Tammy Castro purchased a vehicle from Castillo Auto Sales last year without signing a contract or receiving the title. According to her complaint on file with the Texas Office of the Consumer Credit Commissioner, the car broke and the dealer refused to fix it. After she stopped making payments, however, the dealer wanted to repossess the vehicle. The credit commissioner's office informed her that there was nothing it could do because the transaction had been in cash. (Since then, Castillo Auto Sales apparently has gone out of business.)
Abuses in the buy-here-pay-here industry are difficult to prevent. More consumer education, stricter limits on repossession and tighter usury laws (Texas allows auto loan rates up to 26.75 percent) would help, Karger says. Still, car lots -- sometimes little more than a few rows of autos on a weedy strip of blacktop -- often artfully dodge any heat.
Soon after Tinita drove her Jeep off the lot, she noticed a soft spot in the mat beneath her feet. She peeled it back and found the floorboard was rusted out in a jagged circle large enough to give a bird's-eye view of the street. Furthermore, the ignition stopped working after a week and she had to crank the engine by sparking two loose wires. Driving produced a unique noise roughly conveyed as "squiggle, squiggle, squiggle."
Tinita returned to the car dealership and demanded that the problems be fixed. "Oh, don't worry about it. We're gonna take care of you," the owner told her. And then, Tinita recalls, he quickly added: "Look, I'm having a get-together at my house tonight. Why don't you come by? You know, I'm just inviting all the customers. We're just gonna have a good time; let's just go on and have some fun!"
Tinita immediately forgot about her car troubles, dressed up that night and drove down 1960 in a cacophony of squiggles to her car dealer's McMansion, a towering brick monstrosity. "It was the baddest house on the block," she says. And it was packed with people and staircases. "He had stairs coming all out everywhere," she says. "He had five different ways to get to one bedroom."
She found the car dealer, a fat, oily man, sitting with friends around a glass coffee table snorting coke.
That's when she left.
A few days later, she drove her ailing Jeep to the car lot. Every trace of the lot had vanished.
New car, caviar, four star daydream / Think I'll buy me a football team. -- Pink Floyd
The Hyundai was repossessed in late 1997 and the Jeep gave out, but Tinita's financial life was on the mend. Her mother used her own unblemished credit to buy a Geo Tracker for Tinita, who dutifully made the payments. A friend who worked at Wells Fargo bypassed Tinita's hot-check records and opened a new bank account for her. And most important, Tinita landed a sales job in 1998 at Southwestern Bell. It paid an impressive $8.50 an hour and came with top-notch health benefits.
Tinita was upgrading her personal life, too. She grew a little closer to her mom and began calling her supposed father, LeRoy Ford, "Dad." She also met a soft-spoken forklift operator, David Dorsey, and moved into his $295-a-month one-bedroom apartment in the rundown Garden Oaks Apartments on the south side -- "a nice little slum area," Tinita thought, but no place where a little cash couldn't transform a bachelor pad into someplace livable.
Yet a handful of purchases quickly turned into a hot-and-heavy shopping binge. The couple bought a rug set and a new television, an $800 couch set and a $350 radio. Tinita's kids wore Air Jordans and Old Navy, Baby Gap and Gymboree. She wore $250 braids. She was pretty sure her neighbors thought she thought she was all that. She looked bougie. But she was only living bougie. "I didn't think ahead for anything," she says. "Financial strain wasn't even on my mind."
Tinita was suffering from the early stages of what John de Graaf, in the title of his recent book, dubs "affluenza": "a painful, contagious, socially transmitted condition of overload, debt, anxiety, and waste resulting from the dogged pursuit of more." De Graaf, a veteran producer of PBS documentaries on consumer culture, traces the root of affluenza to ubiquitous advertisements and marketing. Between 1935 and 2004, adjusted for inflation, U.S. media advertising expenditures increased by nearly a factor of ten. The fastest-growing advertising sector for more than a decade has targeted children, who now tend to be highly brand-aware, even in low-income families. "The whole purpose of this is to train people from a very, very early age on that it's about spending everything you have, more than you have, in many cases," de Graaf says. "Because life is about the stuff, it's about the brands."
Tinita's brand obsession of the moment that year was Compaq. She couldn't afford a computer after making her other purchases, so she leased one from Rent-A-Center. Getting online for the first time quickly led to a string of inadvertent chat-room confrontations that ended in Tinita's giving out her phone number. People called and said, "Bitch! What you say?"
Those calls were much easier to stop than the indignant ones from Rent-A-Center asking her why she'd missed payments. Months of installments still left her owing roughly half of the ridiculously inflated $1,200 rent-to-own price. Rent-A-Center employees called Tinita at work and even rang her "references" -- friends she'd listed on her rental contract. Tinita fought back. She consulted an attorney and sent Rent-A-Center a stern cease-and-desist letter. She never heard from the company again.
The victory convinced Tinita that she could win against the fringe economy.
Maybe she could even be smart enough and tough enough to live off the meat of the loan sharks.
Money often costs too much. -- Ralph Waldo Emerson
In November 1990, Tinita and David gave birth to a son, and money was tight. They owed payments to the gas company, the cell phone company and Tinita's mom for the truck note. A $300 electric bill arrived with a disconnection notice. Tinita had received a promotion at SBC and was raking in $20 an hour, "but after taxes and four kids," she says, "that was nothing."
Tinita got on the Compaq, did a search for something like "money," and found a payday loan outlet in a bank building on Richmond Avenue. The terms looked attractive. She'd get $500 up front as soon as she dropped off a check for the amount, plus $95 in interest. The company would deposit the check on her payday two weeks later -- an attractive deal to Tinita because "it was just plain and simple."
Fourteen days later, however, complications arose when the loan matured just as more bills arrived. Tinita called the payday outlet in a fit of nerves, worried that the check she'd already handed over would bounce. She was quickly reassured. All she had to do, the clerk told her, was pay the $95 interest and renew the $500 loan for another two weeks. Paying $95 was easy. So she renewed again two weeks later, then again, then again, all the while owing the same mighty $500 principal. "I was stuck," she says.
Borrowers such as Tinita, locked in months-long cycles of debt, are fueling explosive growth in the payday loan industry. Between 2000, when the Consumer Credit Commission began regulating the industry in Texas, and 2003, the last year for which data is available, payday loan volume in the state grew sixfold, to more than $600 million. Stores called ez Money, Cashcow Payday, Check 'N Go, Fast Bucks and Payday Today dot low-budget strip malls across Houston, often jockeying for customers block to block. In general, most of the companies' profits come from people who take out ten or more loans a year, people who are using the loans "on a regular basis to make ends meet," Karger says.
The loans are well designed to suck people in and their money out. The two-week term affords little time to recover from a financial hardship completely enough to repay a debt. And the fees (typically 500 percent annual interest -- double the rate of pawn loans) make the harshest credit cards look cheap. "Even Tony Soprano would charge less," Karger says. But the terms and conditions of payday loans often mean little, former customers say. All they were thinking the moment they signed the borrowing form was that they needed money, and they needed it fast.
Three months after Tinita took out her payday loan, after she'd spent nearly $400 to borrow $500, she finally paid it off in a fit of tears and proclamations that she'd never go that route again. But her financial life wasn't getting any easier. In January 2000, she enrolled full-time at the University of Houston-Downtown while still working full days at Southwestern Bell. David quit his job to stay home and care for the children. In addition to spending money on books and tuition, Tinita bought airline tickets to visit David's family in Los Angeles on spring break and again during the summer. She spent a September pay bonus on a $1,500 55-inch TV, even as she maxed out a Capital One credit card and her phone buzzed with calls from bill collectors. They annoyed her so much that she bought a call-screening device known as the Zapper.
Tinita's buying habits might look extreme, de Graaf points out, but they're far from unusual. Only half of the personal bankruptcies in the United States (more people declared last year than graduated from college) are filed because of unanticipated problems such as illnesses; the other half, he says, "have to do with really spending above your means."
The problem underscores a need for better credit-counseling services, which advocacy groups say are in a state of crisis. A 2003 report by the Consumer Federation of America lamented cutbacks in funding for counseling groups and a rise in bogus services that charge high fees and offer bad advice. Many people with credit problems never see a counselor. Throughout her checkered financial life, Tinita says, she encountered "no suggestions for anything like that whatsoever."
Still, Tinita's paycheck could almost support her profligacy; she had inherited her grandfather's house, was living there with David rent-free, and was one of Southwestern Bell's highest-grossing sales reps, she says. In January 2002, however, her supervisors demoted her for allegedly misleading customers. She felt the charges were false -- and unfair, considering that SBC's sales tactics were designed to sell people products they didn't necessarily need. Her enthusiasm for selling waned. One day a distressed woman called asking Tinita to disconnect her Internet service because she was too poor to afford it. SBC protocol required Tinita to try to pitch her a slew of other products before transferring the call to the Internet division. Instead, she simply patched it over. For this, she claims, she was fired.
Without a job, Tinita sped toward a financial brick wall. David still wasn't working. Half her unemployment benefits simply went to servicing her credit card debts. She miscalculated her bank balance, wrote a bad check and gave up her account. Utility disconnection notices grew into a stack. So she convinced herself that maybe she should check out another payday company, find a better one and deal with it in a smarter way; she took out another $300 loan.
Two weeks later Tinita was holding a $300 unemployment check and an $800 pile of bills. Paying off a cent of the loan, even the interest, was unthinkable. A debt collector phoned every day for months and flung the same threats and insults that Tinita had once hurled at others: You're a deadbeat, you're a bad mom, you're going to jail. Ignoring the calls didn't help Tinita pay much of anything else. She fell short. And on a cold winter's night, her gas was shut off.
Debt is the slavery of the free. -- Publilius Syrus
Freedom was elusive.
Tinita owed creditors so much money by her early thirties that appeasing them seemed like it would take a lifetime. Her credit report spanned 15 years and read like a contract of indentured servitude. It mentioned the unpaid rent from her first apartment, the unpaid Hyundai note, unpaid Capital One and Foley's cards -- some 30 unpaid bills totaling more than $10,000. The payday company fortuitously went out of business and stopped bothering her. Still, the Zapper was always busy.
In 2003, Tinita took note when her friend Anastasia discovered a path to credit salvation. Anastasia had paid a credit repair service to help her quibble with the accuracy of her debt history on file with Equifax, the credit reporting agency. None of Anastasia's creditors countered the claims, and Equifax wiped her credit history clean. The UH student promptly went to a car dealer and put down a payment on a BMW.
Tinita scraped together $300 for the credit repair service and was freed of half her bills. Gone were the apartment lease and the buy-here-pay-here Jeep. The better-organized companies, such as Capital One, responded and insisted that her debts were real. Still, the modest improvement in her finances, combined with the relief of starting a new job as a Houston Independent School District substitute teacher, felt like a fresh start. She resolved to be more responsible.
In January 2005, Tinita married David in a Los Angeles rose garden and spent seven days honeymooning on a cruise ship between Puerto Vallarta, Mazatlán and Cabo San Lucas. The whole affair cost more than $2,500. She financed a sliver of it by pawning her camcorder, an old model that she says she didn't need anyway. But she paid for most of the trip with savings she'd squirreled away over the course of two years. It was the first time she'd saved for anything.
Her mother didn't attend the wedding; she disliked David, who'd been born to a drug addict and held down jobs with difficulty. Tinita tried not to let the boycott faze her. She'd begun to blame her mom's criticisms -- the needling assertions that she'd end up a "welfare mama" -- for her own spendthrift habits. "I've based my life on trying to prove her wrong," she says. "I change my house around every two weeks, I can't stand dirt, I don't like clutter, I have to stay clean, everything's gotta be wiped down, it's just got to be in order. She never comes by, but it's just that thought. It's just the thought, you know, and it's crazy."
"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."
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."
The next breadbasket for fringe lenders may well be the struggling lower-middle class. In 2005, real median household income -- the earnings of people in the middle of the income distribution, adjusted for inflation -- fell for the fifth year in a row. An 11 percent spike in employer health insurance premiums last year has eviscerated many corporate health plans. And the recent fight over pensions for New York City transit workers underscores a looming crisis of vanishing retirement benefits. It's no wonder that payday lenders often run ads featuring cheerful, blue-eyed white women. The industry, Karger says, "represents capitalism with its teeth bared."
Tinita knows that winding her way out of the snake pit of debt will be tough. In an effort to pay her light bill, she and David recently plastered lampposts along FM 1960 with ads for a homegrown business venture, "DT's Touch and Clean" janitorial service. They sat back and waited for the calls to come in. Nothing happened. Then, one night, the phone rang. The caller ID flashed "Lone Star Advantage." A woman named Maureen was asking them to call her over the answering machine.
"That must be a bill collector," David said. They hesitated. Maureen hung up. And they were left to replay the message, to divine the relative threat and promise carried by Maureen's professional, slightly stiff, very white tone of voice, to decide, in the end, if they should risk a call back.
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