Business boom on the backs of the poor

March 01, 2000|By Ralph Nader

THIRTY YEARS AGO, David Caplovitz wrote about a situation that the poor have known for years. He called his book "The Poor Pay More." At the time, his documented evidence created quite a stir and many articles were written about these intensive consumer abuses against people least able to endure them or fight back. Some protective legislation was passed and some good court decisions were written.

Now in the year 2000, the National Consumer Law Center in Boston reports that business crime, fraud and abuse are thriving on the backs of poor Americans. The laws are not enforced much and cannot keep up with the creative scams that pour forth, not just from retail sharks, but, in impact, far more from larger companies and their law firms.

Some of NCLC's findings:

Auto fraud -- "An astonishing percentage of car sales involve fraud, deception or unfair conduct. Consumers are sold both new and used cars that are `lemons' or are defrauded by car dealers who do not give a full disclosure of the car's wreck or salvage history, its prior use as a rental vehicle, history of mechanical problems, or other defects."

Auto title pawn -- "These transactions are a recent phenomenon in which the car-owner pawns title to the car in exchange for a sum of cash. The effective interest rate of an auto title pawn can be astronomical (sometimes more than 900 percent APR). If the consumer falls behind on the monthly payments, the car will be at risk of repossession no matter how much has already been repaid on the loan."

Home equity fraud -- "Home improvement scams and deceptive lending practices are among the most frequent problems experienced by low-income homeowners. In many communities they lack access to traditional banking services and rely disproportionately on finance companies and other less regulated lenders. Often in desperate need of home repairs (e.g. roof replacement, structural reinforcements), unsophisticated homeowners fall prey to unscrupulous home improvement contractors who promise easy access to credit. Many of these loans have inflated interest rates, outrageous closing costs and unaffordable repayment terms."

Payday lending -- "This exploitive form of short-term lending can devastate the finances of cash-strapped consumers. The consumer provides the lender a post-dated check and receives an amount less than the face value of the check. The check is then held for one to four weeks (usually until the customer's payday) at which time the customer redeems the check by paying the face amount or allowing the check to be cashed. Payday lenders charge exorbitant fees for the loans, and the effective interest rates can top 1,000 percent."

Rent-To-Own -- "RTO businesses are essentially appliance and furniture retailers that arrange exorbitant lease agreements for those customers who cannot buy goods with cash. Consumers who buy from rent-to-own businesses often pay two to three times the cash price for their purchases. The RTO industry aims its marketing efforts primarily at low-income consumers by advertising in ethnic media, public transportation and housing projects."

Arbitration of Consumer claims -- "Creditors and merchants are increasingly inserting clauses into the fine print of their contracts that prohibit consumers from filing lawsuits and force all disputes to mandatory arbitration hearings. Arbitration clauses are carefully drafted to stack the deck against the consumer: They allow companies to select the arbitrators, arrange for the arbitration in places convenient for the companies but not the consumers, forbid class actions, limit discovery, and prohibit recoveries such as punitive damages and attorneys fees."

What opened the door to unconscionable interest rate gouges that form the core of many of these rip-offs was the repeal of the usury laws in state after state during the 1970s. The companies called this law reform.

Weaker enforcement of laws and sharp reductions in public funding for civil legal aid (the latter accomplished by the Republicans who control Congress) permit fertile soil for business frauds.

Even this is not enough for corporate predators. By these fine-print binding arbitration clauses, consumers give up their constitutional right to go to court. The standard form contracts, uniformly used by alleged competitors, have reversed what contracts are supposed to be -- namely a meeting of the minds. Instead the seller minds and the consumer signs -- on the dotted line.

Ralph Nader, a consumer advocate with the Congressional Accountability Project and presidential candidate, wrote this essay for Knight Ridder/Tribune News Service.

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