Shortchanged: Life and Debt in the Fringe Economy (Bk Currents) [Hardcover]

Howard Karger (Author)

Book Description

Series: Bk Currents | Publication Date: September 1, 2005

"Shortchanged" takes an uncompromising look at the corporate vultures that prey on America's working class. Made up of pawnshops, payday lenders, check cashers, credit card companies and the like, the fringe economy entices vulnerable consumers into an economic netherworld of high interest rates and ever-increasing debt. The book examines the factors behind the fringe economy's rise -- stagnant wages, rising numbers of working poor, and the 12 million U.S. households without bank accounts -- and investigates the sleazy practices -- instant credit, cash-for-your-title loans, predatory mortgage lending, E-Z home equity loans -- that result in phenomenal growth for the industry and a nightmare for the consumer. Powerful analysis is combined with moving personal stories of the mothers, fathers, and families whose lives have been put on the line for the perpetuation of this economy. Ruthless, compelling, outrageous, and often enraging, "Shortchanged" puts the spotlight on the shady side of America's economic underbelly.

Editorial Reviews

From Publishers Weekly

Starred Review.
Low-income consumers-and, increasingly, the financially strapped middle class-serve as prey in the predatory economic food chain of what Karger coins the "fringe economy." (Buy-here-pay-here outlets, check cashers, payday loan businesses, credit card companies and pawn shops that charge excessive interest rates, high fees, or inflated prices.) Unable to buy outright or qualify for reasonable lending terms, poor consumers fall into exploitative lease-to-own or subprime financing schemes that end up costing them vastly more than the fair market values of the goods and services financed. The lenders, increasingly partnered with mainstream banks, commonly charging triple-digit interest rates and pile on hidden or unnecessary fees. Because of their historically low-rent image, such businesses have long stayed beneath the radar, but the fringe economy's explosive growth and entrance into mainstream America (most notably with pre-paid cell phone plans and the appearance of check cashing services at well-known retailers such as Wal-Mart) have prompted consumer groups to call for reform. With rationality and calm restraint, Karger argues for responsible government regulation and stricter enforcement of usury laws, but concedes the "marketplace that has lost its moral center" can't be reformed by regulation alone. An eye-opening read in the school of Barbara Ehrenreich's Nickel & Dimed, Karger's book shines a bright light on the economy's darker side.
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Review

A must-read for anyone who wants to understand the impact of predatory economic practices on the poor and credit-challenged. -- Jody Williams, Nobel Laureate for Peace (1997)

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Product Details

• Hardcover: 252 pages
• Publisher: Berrett-Koehler Publishers (September 1, 2005)
• Language: English
• ISBN-10: 1576753360
• ISBN-13: 978-1576753361
• Product Dimensions: 9.4 x 6.1 x 1.1 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (11 customer reviews)
• Amazon Best Sellers Rank: #808,344 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

18 of 22 people found the following review helpful:

5.0 out of 5 stars Best source for understanding the American consumer economy, September 28, 2005

By 

Peter A. Kindle (Kansas City, Missouri) - See all my reviews
(REAL NAME)   

This review is from: Shortchanged: Life and Debt in the Fringe Economy (Bk Currents) (Hardcover)

In 1996 the Personal Responsibility and Work Opportunity Reconciliation Act transformed welfare to workfare, and the lives of the poor were radically altered. In 2001 Barbara Ehrenreich (Nickel and Dimed) showed us the health and housing woes of the working poor, concluding, among other things, that minimum wages must rise. Last year David Shipler (The Working Poor) expanded Ehrenreich's experience, concluding:

". . . [W]orking poverty is a constellation of difficulties that magnify one another: not just low wages but also low education, not just dead-in jobs but also limited abilities, not just insufficient savings but also unwise spending, not just poor housing but also poor parenting, not just the lack of health insurance but also the lack of healthy households" (p. 285).

In this volume Howard Karger makes an amazing contribution to our understanding of the working poor. He moves beyond Ehrenreich's simple solution (give the poor more money and they will not be poor), and he avoids the scent of victim-blaming that clings to Shipler's work despite his sensitivity and compassion. Instead, Karger analyzes the alternative financial services sector, or fringe economy, and shows how it systematically stalks the poor, working poor, and vulnerable middle class.

What is the fringe economy? Karger describes it as "corporate and business practices that have a predatory relationship with the poor by charging excessive interest rates or fees, or exorbitant prices for goods or services" (p. x). Laying aside the obvious counter-argument that high risk deserves high rates of return, who are the primary customers for the fringe economy? Karger notes that it is the 28% of American adults without a bank account, the 40 million Americans without health insurance, the 33.1 million foreign born residents, especially the undocumented segment, and the high debt, low asset segment of the middle class.

Does high risk justify high rates of return? Secured credit cards assume no risk, yet charge high origination fees, high monthly service fees, and high interest rates. Pawnshops rarely loan up to 50% of the value of surrendered collateral with interest charges as high as 24% for a single month. Payday loans are secured by check or electronic debit with the debtor liable for criminal charges for non-payment and earn interest equivalent to 800% a year. In 2002 tax preparation services, refund loans, and check cashing fees related to government-backed Earned Income Tax Credits cost the working poor $1.31 billion. Rent-to-own stores routinely price furniture and electronics at more than double the prevailing purchase price. Independent used car lots do the same.

The sad fact is that the fringe economy assumes almost no risk. Because the clientele does not have access to mainstream sources of credit, the fringe economy is able to set prices at will, and does. Whether one is looking at the credit card industry, used car sales, housing, telecommunications, or even the get-out-of-debt industry, the story is the same. Almost no one is barred from access, but for those without good credit, the costs just continue to escalate.

I have been a certified public accountant for over 20 years, but I learned a lot by reading this book. I can think of no better source of information on how our American consumer economy actually operates. I became more enthusiastic about the book with each chapter I read, and you will, too. Reading it, however, might entail a bit of risk. It is likely to change your own consumption patterns, and it is likely to result in the purchase of multiple copies, especially if you have people close to you that you would like to help!

8 of 9 people found the following review helpful:

5.0 out of 5 stars The Underbelly of the American Economy, October 11, 2005

By 

David Stoesz - See all my reviews
(REAL NAME)   

This review is from: Shortchanged: Life and Debt in the Fringe Economy (Bk Currents) (Hardcover)

Shortchanged is essential reading for anyone concerned about economic justice in America. By chronicling the fiscal ravaging of America by check-cashers, sub-prime lenders, buy-here-pay-here auto lots, rent-to-own furniture and appliance stores, and the like, Karger details how predatory scams bleed the poor and working-class of vital income. Karger's reforms are logical and plausible, making the book within the best of the American Progressive tradition.

8 of 10 people found the following review helpful:

5.0 out of 5 stars Excellent Book!, December 27, 2005

By 

Loyd E. Eskildson "Pragmatist" (Phoenix, AZ.) - See all my reviews
(HALL OF FAME REVIEWER)    (REAL NAME)   

This review is from: Shortchanged: Life and Debt in the Fringe Economy (Bk Currents) (Hardcover)

"Pawn shops, check cashers, rent-to-own stores, payday and tax-refund lenders, auto-title-loans, buy-here-pay-here used car lots - what seems to be small independent storefront operations turn out to be part of an economy dominated by well-financed corporations with little-no oversight and increasingly strong ties to mainstream financial institutions" - so claims "Shortchanged" summary material. The book then goes on to provide stories of real people trapped in perpetual debt, usually starting with overpriced goods, and acerbated by high interest rates and required extra charges.

Karger admits that serving the poor can cost more, and thus would justify higher prices. However, he cites examples of pawning a vehicle for 1/3 its value and paying interest of up to and over 300%/year to get it back, depositing $100s-$1,000+ in low-interest savings accounts to acquired a secured credit card that charges 30%/year rates (and more) to use, check cashers paying 3% to cash relatively risk-free government checks - and concludes that clearly the line separating "reasonable" from "unreasonable" was crossed.

Karger's material is well-documented, providing sources for his claims - eg. "almost 10% of unbanked households' net income is spent on alternative financial services,." "consumer debt, excluding mortgages, averaged about $19,000/family in '04," "68% of EITC and CTC eligible families use tax preparers (average cost $305 in '01; total of $1.3 billion vs. $EITC payouts of $30 billion." However, sometimes these claims, despite documentation, do not seem to hold water - eg. Karger states that the "bulwark of public assistance programs cost $125 billion/year or less (low-income housing, AFDC and its successor program, food stamps, WIC, school lunch), compared to check cashers, payday lenders, pawn shops, rent-to-own growing $78 billion in '01 - the problem is that the $78 billion did not appear substantiated by the detail.

Information on how these purveyors of credit to the poor avoid usury laws is provided - eg. require a loan applicant to sell up to three household items to the lender, and then lease them back.

The material on home mortgages for the poor was particularly eye-opening - balloon payments, shared appreciation mortgages (due at maturity), extra insurance fees, foreclosure "help" that often takes the customer's equity, and high interest rates (location, credit rating). Car sales (over-priced to begin with) that allow the seller to break-even in about three months, accompanied by a 30% repossession rate for "buy-here-pay-here" and frequent profitable trade-ins upon breakdown. (They even have companies that rent tires - at high fees and rates!)

Debt counselors get about 15% from money paid to credit card companies - some counseling firms are reputable and provide good service. Others steer money towards the credit card companies, neglecting home mortgage and car payments. Only 26% complete the process.

So, one wonders, if these firms are making so much money, why don't others come in and compete down the charges. In some cases this is happening - Wal-Mart is now providing check-cashing services at far lower charges than check-cashing stores. On the other hand, there is also a problem with low-income consumers being their own worst enemies - eg. not knowing that they could cash a payroll check free at the issuing bank, or even the advantages of having a bank account. (I'm left wondering how President Bush's privatization of Social Security would possibly avoid these people being taken advantage of.)

An excellent book, even for someone like myself who thought he knew it all already!