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EXPOSÉ: Reporters Answer Viewer Questions

We thank BUSINESSWEEK reporters Brian Grow, Paul Barrett, Keith Epstein, and Robert Berner for taking time to answer your questions about their story on "The Business of Poverty."

Please note that the views and opinions expressed by the reporters are not necessarily the views and opinions held by Bill Moyers or BILL MOYERS JOURNAL.

Question: Are there any efforts in Congress to instate new usury laws?

--Marion

Answer: While there are moves afoot in Congress to address credit card rules, including how interest rates can be changed, there do not appear to be any efforts to instate new usury laws. Usury laws are generally implemented at the state-level and have been in place in most states for some time.

Question: Re your report on the poverty business. We used to have monopoly laws like the one that broke up Ma Bell and we used to have usuary laws – Do you know anything about how these laws have been eroded away over time - how that happened stage by? Thank you soooooo much for the work you are doing. Please keep it up.

-- Judith

Answer: Thanks, Judith. It’s not clear that anti-monopoly laws would be applicable in industries we described in “The Poverty Business” and other stories, as no one company has a dominant position; and most states do have usury laws which set a maximum interest rate that companies can charge. One way, however, in which some companies such as payday lenders, tax-refund loan issuers and others appear to get around state usury laws is by classifying their charges as “fees.” These “fees” are often, in effect, a type of interest charge. And when the “fees” are calculated as an annual interest rate, they very often exceed state limits. Some states are moving to set rules which cap the fees according to their equivalent rate as interest.


Question: My niece went to payday loan companies about a year ago to get a "quick loan" to help pay for wedding expenses. When she and her husband-to-be brought the loan agreements to me for help in paying out the loans the interest rate on one was 549%. Not so many years ago anything over a 21% interest rate on a loan was consider usury and criminal. I want to find if there are any organizations or groups that advocate against these companies/practices that I can volunteer time to.

-- b d bounds

Answer: Dear B.D. Bounds – Your niece’s experience is a very common one with payday loans. Several states have cracked down on payday lenders and capped the effective interest rate they can charge. The state of Ohio recently passed such as legislation. Advocacy groups such as the National Consumer Law Center, The Center for Responsible Lending, ACORN, Consumers Union and a range of local groups such as Legal Aid societies all advocate for the reform of payday lending. Many of them have local chapters where you might be able to volunteer.

Question: It is interesting to read two of the posts shifting responsibility to the individual and indirectly protecting current business practices. How can people pull themselves up by the bootstraps if the bootstraps are not even on the boot or the boots are in concrete?

-- Anthony

Answer: Anthony, that is indeed a challenge that has been highlighted by some economists and by others who study the impact of prices and interest rates. For instance, while costs may go up for all of us, and many of us borrow money, some economists note that costs can impact or rise disproportionately for those at the lower rungs of the socioeconomic ladder. And certainly someone who finds himself or herself in spiraling debt can find those boots sinking on a lowering floor.

Those who, as you put it, shift responsibility to the individual, sometimes also point to a commonplace reality in which the individual – through lack of education or awareness, for instance, and the inability to make a realistic assessment of the situation – have walked into a precarious financial condition and bootstrapped themselves.

Extending loans – even high-interest loans – to the poor also promises to provide access to goods, services and opportunities they might not have been able to achieve otherwise. Microlending thrives around this ideal. (Of course, even microlending sometimes falls short of the goal; see our story on >The Dark Side of Microlending, Roxanne Tsosie, the Navajo woman whose situation was highlighted in this program, appears to have been trying to exercise individual responsibility; to keep her job, to avoid returning to the reservation and welfare, and to improve her life, she needed a car. She went to one of the few places she thought she could obtain one.

Question: I say we pass a law preventing anyone who can't pass a financial literacy test from getting any type of loan. Wonder what Mr. Moyers and the BusinessWeek writers would say about that?

-- tarsus4

Answer: Well, Tarsus4, there are some initiatives around the country aimed at improving financial literacy. I recently had lunch with someone who aims to start a national organization that would help improve individuals’ awareness of their financial options, which he describes in almost epidemiological terms; more than half of all Americans at most income levels, he says, have no idea they could pay less on their loans or earn more with investments. In places such as Latin America, some microlenders require that borrowers undergo a rudimentary course in borrowing, complete with lessons on calculating interest rates and setting budgets, so they better understand what they’re getting into.

As for a requirement to get a loan? As writers at BusinessWeek, we don’t take positions in favor or against laws. I don’t think there’s any serious momentum for Congress to pass a literacy test requirement for loans. But there are many people who worry that borrowers know too little and should be taught. Some advocates would like to see financial literacy at least become part of the nation’s high school curriculum, or even earlier. Some states and school districts offer or require such classes.

Some bankers are even rethinking how they approach this subject. A PNC Bank manager in Pennsylvania, quoted recently in the following article, says “we feel financial literacy should be almost mandatory, not just with schools, but with parents” and that “if you look at some of the issues plaguing our economy now, we are a country of debtors. We’ve lost the concept of savings.” (see )">http://www.oregonlive.com/kiddo/index.ssf/2008/09/teach_financial_literacy_early.html)

Question: So the woman in the piece "buys" a car, uses it for x number of days to get to work, defaults on her loan, the car goes back to the dealer and she's back at square one. All she's done is rent the car. It's not exactly exploitative. If she doesn't know she'll default on the loan, she should. If she goes into it knowing she'll default on the loan, signs on anyway, then the inevitable reposession comes, who loses. She can do this again and again and it becomes the dealers problem. Credit score? Is building credit even a goal for the woman in the piece. If you can't afford a car and someone is willing to give one to you for no money down and not expect to ever get paid for it, that seems like something a "borrower" can exploit.

-- jason

Answer: Until BusinessWeek entered the picture and started asking questions, one customer had forfeited a – to her – significant deposit. That would have made the car a rather expensive rental indeed. Imagine paying half your income to rent a car.

As you point out, though, a person who pays a high price, even an unexpectedly high price, isn’t necessarily “exploited.” In our stories we never reach that conclusion.

Some people would argue that some consumers are at a disadvantage because of what you call their lack of “knowing” – lack of education, awareness, understanding, even a basic understanding of how interest rates are calculated. Is a car dealership aiming for this demographic, whose members often lack sufficient credit to get a car loan on better terms elsewhere, taking advantage of them – or offering them a badly needed service? And if the terms are difficult to handle, who is responsible? Some have argued on this site, as elsewhere, that the individual always is; others say it’s the business; others say it’s society overall.

Those working for the dealership we wrote about said they had created a socially beneficial business model – one, in fact, that can help no-credit, or bad-credit customers establish credit. For the woman highlighted in our story, it doesn’t appear to have been much of a benefit, and the manager of the dealership said it should never have extended the loan to her.

Question: Great report, even if it was in May 2007. Is there a follow up report? Thank you for all your work! Keep on!!

--marie

Thanks, Marie. We’re always on the look-out for more interesting story opportunities and BusinessWeek has and is doing more work in the area of consumer finance. If you have any ideas, send them our way!


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Comments

Hmmm....reminds me of some of these convenience stores here in Okla. city whose prices is twice the prices on some products at the same brand stores elsewhere, the difference being that the high priced store is located somewhere that their main customers are poor and go there because they have to walk. I'm soooo tired of crooks. ThXs for these stories. Helps me understand just how they rip us off.

Mr.Moyer,
I am not clear on the reasons for early voting. Where do they keep these votes? How do they cross check these votes against the regular polling places on the 4th? Are there more problems involved with keeping these record (votes) secret until the day of the electionn? Why?
Thank you

As talk turns to another stimulus package, is it simplistic to think that reducing credit card interest would in itself be a stimulus package and cost the tax-payer nothing?

People don't have economic rationality anymore. They look at buying a house or playing the lottery as pretty much the same proposition, since you can't count on either no matter how diligently you work. Even if a disease or accident doesn't kill you it could ruin you financially and make you unemployable. Preachers on TV say its God's Swill anyway. I don't think even bank executives are economically rational. Unless they are top players, usually with an elite background, the rationality of the market and their employer as it is imposed on them is about the only thing keeping them on course. Business people are educated not to have empathy or morality so it is no surprise when they break faith with their superiors and go on some manipulating or embezzling rampage. Pack-like cronies, a tiny colluding elite, seem to run everything, behaving as if the rest of us were imaginary cartoons in a Grand Theft Auto game.
Unless people get out face to face talking straight there is no hope for our way of life. One young guy on here said the other day that blogging solves nothing. He's right if that's all you do. Even studying issues is not enough with no means of applying pressure. Voting for a president you can push is the next thing. Then we must put ourselves on the line in protest. I'm ready to march on Washington. How many others are? I'll probably be laid off in time for the Inaugural protest march, since Wachovia is being sold, and they were my account. Hey, I'm regaining economic rationality already.

Political parties stink. Don't believe me ? here's a small part of what George Washington had to say about them in his farewell address.
" There is an opinion, that parties in free countries are useful checks upon the administration of the Government, and serve to keep alive the spirit of Liberty. This within certain limits is probably true; and in Governments of a Monarchical cast, Patriotism may look with indulgence, if not with favor, upon the spirit of party. But in those of the popular character, in Governments purely elective, it is a spirit not to be encouraged. From their natural tendency, it is certain there will always be enough of that spirit for every salutary purpose. And, there being constant danger of excess, the effort ought to be, by force of public opinion, to mitigate and assuage it. A fire not to be quenched, it demands a uniform vigilance to prevent its bursting into a flame, lest, instead of warming, it should consume."

Bill,This may be off the subject but.. I've just returned from a political discussion with a psychiatrist who believes that JOHN MCCAIN shows early symptoms of PARKINSON'S disease due to an apparent stiffness he notices when the candidate moves his arms. This can be accompanied by dementia. Many of us think that his behavior has changed and this could possibly be an explanation. If this is the case it's obvious why I'm writing you this with great apprehension. Could you delve into this more? A very serious matter. I don't care whether my e-mail is published.Just investigate.Concerned voter, Linda D Martin

Bill,This may be off the subject but.. I've just returned from a political discussion with a psychiatrist who believes that JOHN MCCAIN shows early symptoms of PARKINSON'S disease due to an apparent stiffness he notices when the candidate moves his arms. This can be accompanied by dementia. Many of us think that his behavior has changed and this could possibly be an explanation. If this is the case it's obvious why I'm writing you this with great apprehension. Could you delve into this more? A very serious matter. I don't care whether my e-mail is published.Just investigate.Concerned voter, Linda D Martin

Billy Bob: That car load of ethnically challenged economists should have robbed that joint when they had the chance: That's where the big money is: Just look at Wall Street. The professor was mistaken. Laborers value social cohesion more than the big traders. Higher education teaches nihilist accumulation and results in anti-social behavior. Oil them prison doors!

A marketing professor at USF told of a research study he oversaw which questioned why (in the 60s)a car loaded with black laborers would pull up to a convience store and when a man purchased beer it was a 'tall boy' say 20oz for $.99 when a six pack of 12oz cans cost $1.25.

Turns out the answer was that he did understand economics. He got to drink 20oz vs 12oz as his friends would grab the other 5 cans.

One does not have to be formally educated to learn about econimics. Motivation plays a major role in what we do.

If a stupid money man wants to sell a $300,000 house to someone that can barely make the payments with 2 jobs and the house is foreclosed on and a Mtg. company loses money then Am. taxpayers should kiss the wound and make it all go away! Now, that is economics Mtg. Cos. can sink their teeth into.

A greedy buyer,
A greedy mtg. broker
A greedy mortgage co.
A greedy mortgage ins. co,
A bloodied taxpayer again!
ONCE AGAIN!

Billy Bob, Florida where the DNP said our vote was not good enough for them.

Your principles of economic reform need specific steps for implementation, David Eddy. The people on this blog are capable of hashing your concepts out and providing proposed solutions. It has been my experience though that upper middle-class persons like Bill's audience offer no expertise or labor without recompense or vested interest. I ask you well-educated and imaginative ones now to overcome your monetary socialization and think of the commonweal. David Eddy has exhibited his naive and pure heart on these pages and is deserving of your honesty and knowledge. Who will help?
Even if you provide only a rational slogan for a sign at the Inaugural March it is something.

Economics is a human invention and is intended to provide the means to exchange goods and services. Is it true that people need the necessary funds to provide the demand side of economics? Is it not true that if people's wages prevent them from maintaining the demand side of economics; the supply side of economics collapses and everyone suffers the consequences?
Is it not true that excess interest and monopoly prices undermine economic stability?
I would think that the solutions to our economic problems would be to raise wages, minimize interest rates and break up monopolies.

"Dialogue is the oxygen of change."
Jim Maclachlan

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