Poor and working people’s debt has spawned an explosion in get-rich-off-the-poor industries for capitalists across the U.S. For instance, payday lenders, who provide expensive short-term cash loans, have grown from 300 in the early 1990s, to more than 25,000 today. Subprime loans to people with poor credit ballooned to $1.3 trillion in 2006. These loans entice borrowers with low starting rates, then rocket higher, trapping the unwary in even worse debt. As many as a million working families will have their homes repossessed as a result.
Since workers’ inflation-adjusted wages have remained stagnant for the last thirty years, while the costs of necessities such as housing and health care have soared, they have had to borrow more and more just to get by. According to the Federal Reserve, from 1989 to 2004, the amount owed by households making $30,000 a year or less has shot up 247 percent to $691 billion.
According Business Week, (“The Poverty Business” May 21, 2007), this debt is not only due to increased borrowing , but also the increased cost of this borrowing, especially for poor and middle income workers:
“Federal Reserve data show that in relative terms, the debt is getting more expensive. In 1989 households earning $30,000 or less a year paid an average annual interest rate on auto loans that was 16.8 percent higher than what households earning more than $90,000 a year paid. By 2004 the discrepancy had soared to 56.1 percent. Roughly the same thing happened with mortgage loans: a leap from a 6.4 percent gap to one of 25.5 percent. ‘It’s not only that the poor are paying more; the poor are paying a lot more,’ says Sheila C. Bair, chairman of the Federal Deposit Insurance Corp.”
Fees and other charges are also shooting through the roof, along with interest rates for loans aimed at the poor. In a report by the Government Accountability Office, Congress’s investigative arm, it was found that late fees on credit cards went from an average of $13 in 1995, to $34 today, while some credit card issuers impose penalty rates of more than 30 percent on consumers who pay late or exceed their credit limit. Added to this burden is the increase in the number of charges, such as for paying a phone bill or groceries by credit card, or the multiple varieties of interest rates for different types of transactions. It goes without saying that this most affects working people.
These businesses and their practices have a strong incentive to offer loans and lines of credit to people who will have a great deal of difficulty paying them back without incurring penalty charges and mounting interest rates. Since capitalists, in general, are compelled to make the greatest amount of profit in as short a time as possible, we have seen a dramatic escalation in this predatory behavior in the last few years. Untold millions have been thrown into even worse poverty with no foreseeable escape as they pay off their “debt” to the rich.
However, this source of short term profit can only go so far before it is transformed into its opposite, becoming a source of instability for the economy and eventually leading to the collapse of many of these businesses. If you keep trying to squeeze blood from a stone – which is what preying on the poor to continue economic growth amounts to – eventually that stone is going to crumble. We can see examples of this already. In 2007 at least 35 subprime mortgage companies have gone belly up, and out of the 25 biggest, about half are out of business or unable to make any new loans. The depth of this problem and its possible repercussions throughout the global economy have yet to be fully felt.
In the eventuality of an economic downturn, it will be the working class that faces the direst consequences for the capitalists’ crimes. Instead of taking this lying down, workers should demand the cancellation of all their debts to the “poverty business”, and the seizure of these banks and companies’ holdings, with no compensation to their owners. The assets of these companies, which came from exploiting the most economically vulnerable, should be used to create a fund to address the most pressing needs of working people and the poor, including the need for quality jobs and housing. With well-paying jobs and affordable housing for all, there would be no need to borrow from these predators in the first place.