1/6/2012 1:57 PM ET|
5 businesses that rip off the poor
Those who are struggling financially should avoid several industries that aim to exploit them. Fortunately, they can do so by considering some alternatives.
As Americans' incomes shrink and credit gets harder to come by, several industries have stepped in to make it harder for people to get from paycheck to paycheck.
These businesses claim they're filling a void left by mainstream lenders. But if you fall into the clutches of any of these outfits, you can find yourself in a far deeper hole than you're in now, with much less money available to help you climb out.
Here are five businesses that you should be wary of and some alternatives that make more sense when money is tight.
1. Payday lenders
Only a handful of companies provided these high-cost loans in the early 1990s. Today, there are more than 19,000 payday loan outlets across the United States. (To give you a point of comparison, McDonald's, the largest fast-food chain, has about 14,000 restaurants in the U.S.)
To get a payday loan, you write a postdated check (with the date usually coinciding with your next paycheck) and accept a smaller amount as your loan. For each $100 you borrow, the fee is typically $10 to $15 for a 10-day loan, although it can be higher. That fee would translate into an annual interest rate of nearly 400%.
Your effective interest rate will skyrocket if you can't cover the check when payday rolls around and you opt to renew the loan.
Payday loans were taking such a toll on our military men and women that a 2007 federal law limited the interest rate that service people could be charged on these loans (as well as vehicle title loans and tax refund anticipation loans) to 36%. Payday outlets that had infested areas near military bases cleared out virtually overnight.
Such protections don't apply to most civilians, however. Although payday loans are banned in 17 states -- Arkansas, Arizona, Connecticut, Georgia, Maine, Maryland, Massachusetts, Montana, New Jersey, New Hampshire, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont and West Virginia -- and the District of Columbia, they're allowed in others and available online, so you'll need to protect yourself by steering clear.
Your best bet is to scrape up a few hundred bucks that you can keep in reserve so you won't need a payday loan. Read "Why you need $500 in the bank" for more about how to do that.
If a crisis hits before you have the cash, consider these alternatives:
- Ask your employer for a real payday advance. If you need money from your paycheck early, some companies will advance it to you without charging fees or interest.
- Get help paying your bills. Churches and other faith-based organizations may offer members emergency assistance. Low-income folks may be able to get help with utility bills, living expenses, child care costs, housing and a variety of other expenses. Start your search at Benefits.gov.
- Get a loan from a credit union. These member-owned organizations often have better interest rates and more flexible lending standards than mainstream banks do. You can use Find a Credit Union if you're not already a member.
- Take a cash advance from a credit card. Normally cash advances are a bad idea, since you usually pay an interest rate of 21% or more and there's no interest-free grace period. But if you have a credit card and your only alternative is a payday loan, the cash advance is clearly the better of bad options.
2. 'Buy here, pay here' car lots
Before the financial crisis, people with troubled credit often could get conventional, if high-interest, loans to buy cars.
These days, such subprime loans are harder to find, and millions have turned to "buy here, pay here" car lots -- so called because the dealers offer financing themselves, rather than through third parties, and borrowers typically have to show up at the lots to make their monthly or biweekly payments.
These dealers offer older, high-mileage cars, often with steep markups and loans that carry interest rates that can exceed 20%. The costs are so high that many borrowers fall behind on the loans, allowing the dealerships to repossess the cars and sell them again. Repossession rates are around 30%, according to the nonprofit Center for Responsible Lending, which says "collections and repossessions (are) a critical part of their business model."
Buy here, pay here lots now far outnumber conventional new-car dealerships, with 33,000 lots, compared with the new-car dealers' 20,000, according to CNW Marketing Research. Buy here, pay here dealers sold nearly 2.4 million cars nationwide last year, up from 1.3 million in 2000, CNW estimated.
Obviously, people would be far better off saving up cash to buy used vehicles from private parties or reputable dealerships. But your current car may give out before you have enough saved. If you don't live in an area with good public transportation, your alternatives may be few.
A credit union is certainly one place to turn for lower-cost loans, although not all potential borrowers will qualify. The Los Angeles Times, in investigating buy here, pay here dealerships, found about 160 charitable groups that help connect low-income people to affordable cars. But many areas have no such programs.
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newdawn...Sorry but the rich don't NEED to be sooooo rich. The rich don't need OUR money to keep them that way. If they can't learn to live within THEIR means, why should WE work 3 jobs so they can have limitless profits?
Another point...How rich do rich people think they intend to get? Is a billion enough? A trillion? And while they are amassing every dime in circulation, how won't that cause mass hardship when the money is funneling "Up" only?
Money always runs out. This time around, the money is going to run out top only. Too many Americans are already unemployed, tapped out, ripped off and bilked out of their hard earned paychecks. Now, comes the blowback.
The housing market isn't going to ever be what it once was because rich bois blew it big time with their greed. Wall Street thinks it's yo yo games is the only way to make money. Rich bois are dumping trillions into offshore taxfree havens and think it will go on and on and on and on....So...who really is "terminally stupid"?
Greed always causes lack of reason and rationality.
ole rooster...How enslaved were people like my parents who saved their hard earned money in banks in 1929 and then ooooops....bank doors slammed shut with every dime they saved. Sorry, but the government is the ONLY buffer between our home grown Madoffers and bankruptcy.
People who bash Medicare and Medicaid must have tons of money to pay out of pocket. As for Social Security, that was a fail safe to prevent what happened in 1929 when speculators got their thieving mitts on money that wasn't theirs and spent it like it was.
It's time right wing neoconservatives stop this distortion of truth. The Madoffers can't get their hands on money the government is managing. Madoffers always look for money everywhere but in their own pockets or where ever goverment isn't watching over it.
5 BUSINESSES SPECIFICALLY DESIGNED TO PROFIT FROM THE TERMINALLY STUPID!
I agree with MAD SPEEDER AND TUCKDIVER2.
People needs to make sacrifices', work two jobs if necessary, save their hard earned $ and make good decisions. We all know what "living within your means" mean. Not everybody has to be rich in this country but everybody should at least be able to afford what they NEED (not what they want). I came here empty handed. I don't envy anybody because I don't need much to live. If my neighbor has a boat good for him but I will not try to emulate him. I will not pawn my possessions just to watch overpriced athletes or celebrities. If I could not effort living room furniture I sat on the floor, if I could not effort a bed I slept on the carpet until I was able to either pay cash or buy it on good credit terms. However, I always ate and took care of all my basic needs. I am now helping 2 of my children finish college and my youngest one finish high school. Anything is possible in this great country. The secret is try to make more good decisions than bad decisions (I made some bad ones also). Resist living life on other people's terms. Everything is negotiable. If you are trying to buy something but conclude is not in your best interest, walk away. Nobody can force you into a high interest loan, overpriced house or used car. Or make you accept less money on your income taxes just because you want the money today. America still is the land of opportunity. The power is within you. If you have a healthy body and don't put anything inside that will poison it that is all you need (too many great lives have been destroyed by drugs). Dare to be happy!!! with less.
The government needs to stop looking the other way at business frauds and stop treating them as "white collar" criminals. The color of a collar shouldn't determine the degree of criminality. Madoff may be in prison but every hour another Madoffer is out there looking for a way to get his hands on something that is't his. Covetous morons always want things that don't belong to them.
The government can do much to protect consumers from business frauds if it would put teeth into existing consumer protection laws and stop allowing businessmen to slide past the rules and regulations. Yet, all you hear from these Biggie Piggies is ooooh...wah wah wah....regulations....BAD....rules....Not for Us...Wah....Too much paperwork...Baloney...they detest anything that leaves a trail that marks them as the frauds they really are.
Anybody want to venture a guess what would happen if every busines today had to be shut down because it was operating unethically? It's too funny to even consider...the entire US business community would be stock still for the first time in a century.
If there is one industry in this country that needs thorough investigation, it's Big Insurance. Instead of insurance, they are in the business of extortion. They are supposed to SELL insurance. They are not supposed to use our insurance claims in a free-for-all high risk investment addiction they can't control. This is why healthcare is in the mess it's in.
Oh sure. They came out with all those long-winded, pleading excuses about how high the cost of healthcare is. But if ever their ledgers were transparent, you'd see that up to 80% of the premiums we pay aren't used to pay our claims...they are used for high risk investments.
And if those investments go sour? Well then....it's time to raise the cost of the premiums, drop policies they consider too negative to their much needed investment revenues and when that doesn't work, they jack the price of healthcare for small businesses. Wouldn't it be great if we could all lose money on high risk investments with nary a fear of ever running out of everyone else's money to fund our investment addictions?
Since when does an insurance company need to investment in real estate before they pay out on ALL claims? But, this is the line of cow dung you get from them...that and a lot of back room salivating over the next premium increase. God help you if you dare file a claim...they'll wring you out and hang you on their clothesline.
It always amazes me how the honchos of business can find more justifications for fraud, deception, lack of business ethics and downright thievery. When you consider what businesses of the new millennium do to their employees with their "Bait and Switch" routines at time of hiring interview, it's a wonder any business person these days can be trusted.
Oh sure. They like to justify dumping their business expenses on taxpayers and then help themselves to landfills of tax exemptions that reduce what they pay in taxes. Comes time for a salary increase for their employees, these Biggie Piggies only see ANY employee's salary increase as a loss in their own salaries.
This is "business"? Or is it really shyster business where the Grand Pubbahs of business amass their rip off talents and laugh up their sleeves while they dump the cost of healthcare and pensions on stagnated salaries of half a decade? Course now, you'd be hard put to find that poor lil business boi hurting for a new car or Wifie Most Greedy doing without their three vacations a year. After all, don't you know? THEY work for their money...their employees don't. This is just another silly excuse for stingy, greedy businessmen on the take, take, take, to keep riding that Gravy Train.
Stick it to a businessman...if he can't run his business with transparency and honesty, make him obsolete in a hurry.
The Government is the biggest institution preying on the poor, they use scare tatics to buy your votes. Tell the truth, there are more people inslaved to the government, welfare, housing, food stamps, low cost loans, medicare, medicaid, WIC, and all the other Government Programs to make us dependent on them. Democrat extraordinare, Lyndon Baynes Johnson said, "when I get the Great Society Program rammed thru Congress these damn --------will be voting for us til
hell freezes over."
Everything you say is true. That is exactly why I do not now, never have, and never will offer RAL's or RAC's. I prefer to make my money preparing tax returns, not sucking money from those that can least afford it. When someone asks for a RAL I educate them.
dewed rinse cowboy has been smokin too much medical ganja!
As once a small businessman who lost his shirt keeping my leaseholders and employees happy but who earned a negative $1.00 for every hour of my 80 hour work weekI I can tell you people like mr. dewed is the problem with this country.
His indignation that 'some' employers take advantage of its employees (by making them work and perhaps at a 40 hour a week clip) bespeaks his ignorance of the marketoplace and his role in it. He aludes to special people that need special consideration in the workplace because they have special needs! Wrongo mr. dew! As the old saying goes, if you don't like the heat get out of the kitchen. Ours is a risk-reward marketplace where education is available to everyone and is the key to opportunity. I am going to guess that his special need folk have little or no educational background because of their own lack of ambition or enterprise and now want that Obama gravy train to take care of them. Please all of you mr. dews, please please move to Europe or someplace like Greece that will at least temporarily take care of your needs.
Regarding the article - I couldn't agree more. Those are all rip-off busineeses and situations. Buyer beware is and always will be the watchword!!
Hey Liz, what about the business product that preys upon everyone, poor and rich alike? MORTGAGES. Paying twice what a house is worth? Sometimes three times? Amazing that so many rush to do so but would totally scoff at paying $40,000 for a Camry or three times the price of a refrigerator.
We have told our kids that when they graduate college and get a job, we will let them live with us for 5 years at a very low monthly rent to save up enough money to pay for a house outright. That's our gift to them. More parents should do likewise!
What has six balls and rapes poor people?
Much of mainstream America equates 'poor' with 'stupid' and 'lazy,' etc. Such is not the case. In some instances, the poor remain poor because they may lack some quality, personal or otherwise. In other instances, persons may remain poor because their background failed to supply necessary resources, while they are deliberately barred from advancement because the stingy, spiteful persons with undue influence, who deliberately deny them opportunities for advancement.
You’re obviously one of the 1% looking down on people from your ivory tower when you have no idea what their lives’ are like.
The people who use check cashing shops know what the fees are and they’re happy to pay because those are the only places that provide the services they need. In some cases the money is used to feed their kids that day, if they can’t borrow money their kids go hungry. What would you do?
It may also be used to pay an electric bill that is due that day, the check cashing fees maybe high, but if the power is cut they have to pay a disconnection fee and a reconnection fee as well as the past due bill and late fees. Those fees are far more egregious than the check cashing fees. In addition to that as soon as the power is turned off the electric company alerts that state to a case of child neglect if in case there are children in the home, so not having power may also land them in legal trouble. The check fees, to them, are well worth the cost.
The rent to own places are not a good deal for someone like you who can pay cash for appliances whenever you want. Others have two choices, a refrigerator from a rent to own place, or no refrigerator.
You do not live paycheck to paycheck as many other people do, so you don’t get it. They have few choices and the check cashing store is better than a loan shark. Banks and credit unions won’t deal with them, so they use the services that are available to them.
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