Inside the ugly world of vulture finance

By Dan Okrent, contributor


FORTUNE -- By his own admission, Allan Jones of Cleveland, Tennessee, has had to tighten his belt. He apparently still has his two jets, his vintage Rolls, his Bentley, and the Maybach his son drives to high school when the boy's own car is in the shop. But Jones did have to sell the 157-foot yacht, and the $25 million ranch near Jackson Hole.

"People say I'm making all this money off of payday," Jones told reporter Gary Rivlin, "but even I'm cutting back."

okrent_review.03.jpg

"Payday," as Jones and his fellow titans call their line of work, is shorthand for the payday-loan business, which flourishes in virtually every poor neighborhood in the nation. If you're two weeks from your next payday and you're out of cash, there's a guy in an office down the street or at the strip mall happy to lend you $500 at 15% interest.

Annualized, that's an effective APR of 391%. But they usually don't tell you this. And that's the point of Rivlin's fascinating book, Broke USA: From Pawnshops to Poverty, Inc. -- How the Working Poor Became Big Business (Harper). Rivlin opens up, dissects, and eviscerates the gigantic industry of vulture finance, a world where raptors like Allan Jones (and not a few of our biggest banks) feast on the unwitting road kill of the American economy.

They try to cloak themselves in civic virtue, pointing out that no one else would give credit to people earning less than $30,000 a year. But they don't mention the 391% in that speech, either.

If you're not the sort whose blood comes to a boil because of rackets like these, you could instead read Broke USA to learn how to make a bundle by legally bilking America's poor. One tip: call your lobbying organization, as the payday lenders do, the Coalition for Fair and Affordable Lending. Another: Play "Money, That's What I Want" at your annual convention. (Honest.)

More specifically: get into the tax preparation business. First, you collect a fee for filling out a customer's 1040. Then you offer an "instant tax refund," which is not a refund at all, but a loan against the customer's anticipated refund, at an APR exceeding (but rarely stated as) 100%. And then you collect another fee -- by cashing the check you've just handed to your prey.

Is this a great country, or what? Just ask Allan Jones. Near the book's end, he does some quick math and points out that the profit from each of his payday stores is just $7.93 an hour. "That's practically minimum-wage rates," he exclaims. Of course, multiplied by the 1,300 stores in Jones's chain and the hours they're open, it comes to $23.4 million a year.

That's not minimum wage. That's robbery.  To top of page

Just the hot list include
Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET

Sections

Bankrupt toy retailer tells bankruptcy court it is looking at possibly reviving the Toys 'R' Us and Babies 'R' Us brands. More

Land O'Lakes CEO Beth Ford charts her career path, from her first job to becoming the first openly gay CEO at a Fortune 500 company in an interview with CNN's Boss Files. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.