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How the working poor became big biz

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Kai Ryssdal: You know the credit crisis we’ve been dealing with for the past couple of years? Banks not really lending to each other, never mind cracking down on mortgages and student loans. Well, that really only applies at the middle and upper ranges of the income spectrum. For the working poor — or for anybody, really who’s got a decent job but who’s just a little bit short waiting for their paychecks — there’s cash to be had all over the place. For a price, of course. Payday lending is everywhere, and it’s nicely profitable.

Gary Rivlin writes about the business of making money off the poor in his new book “Broke USA.” Good to have you with us.

Gary Rivlin: My pleasure.

Ryssdal: How do we go from in this country, you know the every now and then, mom-and-pop check cashing shop, to in some places, in some cities in this country, they’re on every corner.

Rivlin: Check cashing dates back to the 1930s, but today, there’s no less than seven publicly traded companies. They’re in the check cashing business. payday lending, which didn’t even exist 20 years ago, there’s now six publicly traded companies in the payday lending business. And so they competing with each other. They had a lot of funding; big banks loaned them money. And by 2006, there were 24,000 payday lenders, which was more than the combined number of McDonald’s and Burger Kings in the country.

Ryssdal: Help me with the business model though. If their customers have so little money, where’s the profit margin?

Rivlin: Well, it’s a nickel-and-dime business, but the good news for those who are in it, is there’s lots of nickels and dimes.

Ryssdal: You have this anecdote actually, where you’re talking to the guy who, I think you called, the “father of payday lending,” and he basically makes that argument. And then you pull out your calculator.

Rivlin: Actually, I asked him to borrow his calculator.

Ryssdal: Remind us of this guy’s name. Tell us who he is.

Rivlin: Allan Jones. I met with him for a couple days in Cleveland, Tenn. And he starts taking the amount of money his company is making and dividing it per store, per week, per hour. And he shows me, like, “Look, I’m only making just under $8 per hour in a store that’s minimum wage.” And I say, “Can I borrow your calculator?” And he had told me he has 1,200 stores, so I start multiplying 52 weeks and 1,200 stores and it turns out that he’s bringing in around $22, $23 million in after-tax profit a year.

Ryssdal: We had a commentator on the broadcast, maybe, I don’t know two months ago, as financial reform legislation was just getting started. And he defended his interest and he said, “We are not the bad guys. We provide a service.” And while we certainly got a share of letters from listeners that said payday lenders are terrible and horrible, we got far more than I would’ve expected from people who said he does provide a service, I need this kind of thing, leave him alone.

Rivlin: So, let me give the payday lender argument. They’re not holding a gun to anyone’s head. It’s transparent; you walk into most stores and it is posted on the wall, “We charge $15 for every $100 you borrow for two weeks.” And that works out to an annual percentage rate of 390 percent. The problem with the payday loan is the person who’s so desperate today that they’re borrowing money at that kind of rate, two weeks from now, how are they doing to have the extra money to pay back the borrowed amount, plus the fee?

Ryssdal: Describe the tactics these guys use. You tell about store managers who are under immense pressure to reach out to previous customers to make sure they come back in, to get ’em going again. It’s a hard sell.

Rivlin: There are some chains that have set up their computers so they automatically spit out the names of the people, everyday, who haven’t been in at least 60 days. And the store managers are under pressure to call those people. There’s the up-sell. I come in, I ask for $200, but I make enough money that I can borrow $500. They’re going to have their people ask, “Are you sure you don’t want to borrow $500. You know, you qualify for $500.” And so, suddenly, their argument of “well, we’re just here when people need us” evaporates.

Ryssdal: “Broke USA” is the most recent book by Gary Rivlin. Gary, thanks a lot.

Rivlin: Thank you.

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