Living in America’s Fringe Economy
By Howard Karger, Dollars and Sense. Posted December 29, 2006.
Millions of Americans live on the margins of the American economy, depending on the likes of payday lenders and pawnshops, who charge excessive interest rates and superhigh fees for their services.
Ron Cook is a department manager at a Wal-Mart store in Atlanta. Maria Guzman is an undocumented worker from Mexico; she lives in Houston with her three children and cleans office buildings at night. Marty Lawson works for a large Minneapolis corporation. (The names have been changed to protect the privacy of the individuals.) What do these three people have in common? They are all regular fringe economy customers.
The term “fringe economy” refers to a range of businesses that engage in financially predatory relationships with low-income or heavily indebted consumers by charging excessive interest rates, superhigh fees, or exorbitant prices for goods or services. Some examples of fringe economy businesses include payday lenders, pawnshops, check-cashers, tax refund lenders, rent-to-own stores, and “buy-here/pay-here” used car lots. The fringe economy also includes credit card companies that charge excessive late payment or over-the-creditlimit penalties; cell phone providers that force less creditworthy customers into expensive prepaid plans; and subprime mortgage lenders that gouge prospective homeowners.
The fringe economy is hardly new. Pawnshops and informal high-interest lenders have been around forever. What we see today, however, is a fringe-economy sector that is growing fast, taking advantage of the ever-larger part of the U.S. population whose economic lives are becoming less secure. Moreover, in an important sense the sector is no longer “fringe” at all: more and more, large mainstream financial corporations are behind the high-rate loans that anxious customers in run-down storefronts sign for on the dotted line.
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