BusinessWeek: The Poverty Business
May 22nd, 2007
Note: This is kind of an aside as I don’t usually write about money matters. We’ll soon return to our regularly scheduled programming.
While in the dentist’s office over the weekend (yes, our dentist works on Sundays – it’s awesome) I read this really timely and depressing BusinessWeek article wondering about “predatory lending” regarding businesses that sprung up to make a pile of money off of those who don’t have much.
I can’t really do the article justice by describing it here, but I had a sad realization while reading it:
- Person A has excellent credit, earns a high salary, has money in the bank to pay any bills that come their way. Because of this, this person is given the best lending terms. So when they buy the HD television set, they pay the price off in full or borrow at a low interest rate and pay it off shortly afterwards, probably before they accrue any interest.
- Person B has crappy credit, a low salary, no savings, and can’t pay cash, nor do they have a credit card (or perhaps all the credit cards are maxed out). So when they buy the HD television set, they are given a high interest rate, and an even higher one should they fall behind on payments.
Therefore, person A will likely pay much less for the exact same product than person B, who with interest added, might pay for the HD TV twice over.
Now just think about this for a second: Rich person A essentially pays less for the exact same product than poor person B.
That’s screwed up. In a fair world, you might think the person with less money would get cut a break and therefore the cheaper price (this might be called charity). But because of the above reasoning and its relationship to credit, our society considers it normal to reward the rich and punish the poor. And in the most twisted of logic, a conservative would argue that it’s for the poor person’s own good that they pay more, otherwise what would be the incentive to earn more money? Now, that’s just cruel.
Am I missing something, here?
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Person B gets a worse credit rating because they’re living beyond their means. Person A is living within or close to their means.
A gets a much better rating because A is so much less risky to lend to. The extra interest B pays (in theory — in reality they’re being gouged) is to make up from the money lost from the other people B who default on their loans.
Insurance is the same way, if you’re high risk you pay more for insurance than if you’re low risk.
I completely agree that there are inequalities, but I don’t think lending money is ever a charitable action… it’s a business that you do in order to make interest on the money being lent.
True. Maybe my choice of words was a bit off, but I get the sense that the more charitable action here, would not be the lending of the money but to not lend money at such high interest rates to people ill suited to handle borrowing it.
This business of lending money to people who have a difficult time paying it back and therefore accruing interest is extremely profitable. But I think it’s one of these cases where the ethics behind said profit is really headshakingly questionable. To me, anyways.
(maybe it’s the combination of this article and The Shockwave Rider).
It’s the same thing with how banks move out of poor neighbourhoods and those Money Market type places move in.
Money is never ethical.
Not letting people who are in debt get into more debt is a great idea, but you know there’d be people arguing about how the man is keeping them down from expensing their college education on credit cards or something.
I hear you. America’s love for capitalism over all else means we value the right to buy the noose we hang ourselves with over well, the realization we’re hanging ourselves.
well, really not fair justice in life but here’s a humble attempt to make the salary information more transparent – the SalaryBase project at http://www.salarybase.com