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Thursday, May 17, 2007

The Poverty Business

Business Week published an article entitled "The Poverty Business" which explains how some businesses are taking advantage of those with poor or no credit "subprime" by charging them extremely high interest and other dubious practices.  This article has gotten attention throughout the blog world.  One notable link is to Get Rich Slowly.

Cover ImageNobody, poor or rich, is compelled to pay a high price for a used car, a credit card, or anything else. Some see the debate ending there. "The only feasible way to run a capitalist society is to allow companies to maximize their profits," says Tyler Cowen, an economist at George Mason University in Fairfax, Va. "That will sometimes include allowing them to sell things to people that will sometimes make them worse off."

Others worry, however, that the widening income gap between the wealthy and the less fortunate is being exacerbated by the spread of high-interest, high-fee financing. "People are being encouraged to live beyond their means by companies that are preying on low-income consumers," says Jacob S. Hacker, a political scientist at Yale.

Once, major banks and companies avoided the poor side of town. "The mentality was: Low income means low revenue, so let's not locate there," says Matt Fellowes, a researcher at the Brookings Institution in Washington, D.C. Now, he says, a growing number of sizable corporations are realizing that viewed in the aggregate, the working poor are a choice target. Income for the 40 million U.S. households earning $30,000 or less totaled $650 billion in 2004, according to Federal Reserve data.

• A new study by The Brookings Institution in Washington uses Federal Reserve data and an analysis of more than 12 million credit reports to illustrate how the supply of credit in lower-income markets has dramatically increased in recent decades. The effect: rising indebtedness among lower-income households, and a growing struggle among those borrowers to pay bills.

• A 2006 study by Brookings documents the higher costs paid by lower-income families across a broad range of goods and services—from auto insurance to appliances. The report argues that reducing the cost of living for lower-income families by 1% could add $6.5 billion in new spending power to the economy.

• In The State of Working America, 2006/2007, researchers from The Economic Policy Institute in Washington present an exhaustive analysis of the nation's working families. Among the study's key findings: stagnant wages among lower-income workers despite rising productivity, growing income inequality, and less upward mobility for workers on the bottom rungs of the economy.

Its crazy that companies are targeting low-income, under-educated individuals to "help" them, but keep them in their clutches. 

If you didn't know, now you do.  AVOID THESE SCAMS!

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