The story of our times

The proliferation of subprime lending--creditors targeting those with bad or no credit, with the intent (or at least willingness) of having the consumer default--is far broader than the housing market. We see it everywhere: payday loans, cash checking institutions, credit card companies, car dealerships, health care, to name a few. There are dozens of such places within a 5 block radius of where I live in Crown Heights.

Bill Moyers reports on two illustrative cases that capture the times we live in: JR Byrider, a subprime national car dealership (with a heavy credit line from Bank of America), and a billing agency that gets contracts from nonprofit hospitals and charges nearly 6% interest for those without health insurance. It's a great short piece (27 minutes) that summarizes the reporting of a Business Week investigator who broke the story. (The Moyers' piece is also fascinating as a window into good investigative reporting -- e.g., how Business Week got the dirt.)

Key points:

• The debt of those earning less than $30K a year (25% of the US) increased 250% from 1984 to 2004. This means the "poverty business" has proliferated like never before.
• Companies are using complex crediting software to develop "opportunity pricing" schemes-- looking at a consumer's credit vulnerabilities to develop optimally exploitive pricing schemes. They're using technology to tighten the screws.
  
• The poverty business is franchising and mainstreaming (as we know from the trend towards securitizing subprime mortgages on Wall St.). The product is the loan, not the car or house. In other words, the creditor is not only ok with the consumer's default (money is still made with high interest and resale potential), but designs loans explicitly with this in mind. I'm reminded of the recent Times' cover story on the mechanics of subprime mortgage financing -- a good process piece on how money is made lending to the poor.
  
• State regs. are behind the ball on this, and -- surprise surprise-- the poverty business has an organized, cohesive, and powerful lobby.

This is real scary stuff, and we all need to get smart on it.