Before the Wall Street Crisis, There Was "Poverty, Inc."

For the most part, the narrative of the economic crisis has featured teetering banks from Wall Street to Main Street, a tide of bad mortgages, and countless distressed, middle-class homeowners. But in Broke, USA: From Pawnshops to Poverty, Inc.—How the Working Poor Became Big Business, journalist Gary Rivlin says there is another dimension to the story. Since the early 1990s, pawnshops, rent-to-own dealers, check cashers, subprime credit card providers, and payday lenders found ways to make a killing from low-income Americans, creating a multibillion-dollar industry that Rivlin calls "Poverty, Inc." It was the example of their sorts of profitable, "predatory" practices, says Rivlin, that inspired mainstream banks and other businesses to relax credit rules and other safeguards in order to cash in on the middle class. Rivlin, a former New York Times staffer, recently talked with U.S. News about what he learned from working on his book. Excerpts:

What do you mean by Poverty, Inc.?

It's businesses that see, as their market, people living on the economic fringe, the working poor. This is an upside-down world where customers who have no money in their pockets are good for business.

When and how did it emerge?

In the 1980s, the federal government deregulated the home-loan market and that brought us the subprime mortgage, which began as a Poverty, Inc. business and then spread to the middle class as larger brand-name lenders saw the money to be made. People also came up with clever ideas, like the instant tax-refund loan. And once you put a clever idea out there, a lot of big companies say, "There's a lot of money to be made here."

Why has the industry soared under the radar?

Just as there are signifiers that you're in a middle-class community—the Pottery Barn next to the Restoration Hardware next to Barnes & Noble—there are signifiers of working-class communities: the Rent-A-Center next to the pawnshop next to the Ace Cash Express. It's like two parallel worlds.

How do check cashers and pawnbrokers make so much money?

The truth is that the average payday lending store or the average check casher doesn't make much money. The trick here is that people put together thousands of these stores, and then you're talking about big money. In the end, there are a lot of people who have made tens of millions of dollars, if not hundreds of millions of dollars, even though these are small-time loans of $100 to $300 apiece.

Are there any good guys in the poverty industry?

There is ethical subprime lending, where you take into account a person's ability to pay. Then there's predatory subprime lending, where you don't care whether someone can pay. You just want to turn them upside down and shake as much money out of them as you can, before selling the loan off to Wall Street.

What other loan options are there for the working poor?

One group, Homewise [a Santa Fe-based nonprofit], has a really creative idea that lots of nonprofits are using around the country: You sign up and they give you financial education courses so you're saving money, paying all your bills on time, and helping to improve your credit score. So after six months or a year, your credit score goes up and you actually qualify for a conventional-rate loan. They have a sensible plan: Let's help people learn about mortgages, let's instill some good habits, and we'll be their adviser and help them find a home and a rate that's good for them.

You covered race- and class-based tensions in Chicago before writing about technology from Silicon Valley. What inspired the turn back to the working poor?

I began this project trying to keep an open mind—you know, what do you do if you don't have a rich uncle? What do you do if you don't have a credit card and your car breaks down and you need to get to work? But once I had seen the aggressiveness with which these businesses sell their products, I really felt like they weren't just sitting there waiting for people who had an emergency; they were creating some of the demand.

What can Congress take from your book?

I'm fairly impressed with the financial reform bill. There's now strong language that says lenders have to take into account a consumer's ability to pay. And now we are going to have an agency on the federal level that's charged with monitoring consumer loans, everything from home loans to pawnbroker loans.

What surprised you most about writing this book?

I started off thinking that the payday loan might make some sense. But in practice, it's a runaway product in desperate need of further regulation.

What will surprise readers?

What a huge business this is. The fact is that these aren't rinky-dink businesses but are major corporations.

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