Capitalism, as we all know, is a dandy system for creating wealth, but it doesn’t do squat for social justice. No reason to expect it to – that’s not its job. Its moral imperative is: “Buy low, sell high.”
Of course, there are corporate chieftains with social conscience, and many companies do a great deal of good in their communities beyond providing employment and making good widgets. But as we are so often reminded by heroes like “Chainsaw Al” Dunlop, a C.E.O.’s job is to increase corporate profits on behalf of the shareholders, period.
Unregulated capitalism is not a pretty sight, which is why we have labor laws, environmental regulations, health and safety standards, unions, much-eroded consumer protection laws, and other checks on the system. Barring a few glitches, like the fact that corporations keep buying our government, this is not a bad deal for lots of us, and it’s not capitalism’s job to help those who don’t have enough power to deal with the system. It would be helpful, however (from a PR standpoint if nothing else), if corporations would quit picking on poor people in particular.
The latest example of this practice comes from the drug industry, which is charging higher prices to uninsured customers than to people with insurance. President Clinton released a study in April showing that elderly people without insurance – that’s half of all seniors – pay 15 percent more than people with insurance for the same medicine. Furthermore, this gap has doubled in the past four years. Clinton is pushing for Medicare coverage of prescription drugs and so plans to hold a big-deal conference this summer about how pharmaceutical companies set their prices. The drug industry could stand investigation on several fronts, including its charming practice of contributing enough money to members of Congress to get them to extend the patents that allow the companies to charge ridiculous prices; but that’s another story. What we’re concerned with here is the practice of preying on the poor.
“The Poor Pay More” is the title of an old book about such abuses, and as Ralph Nader observed recently, the title is just as true today as it was when the book was written thirty years ago. In fact, the financial industry is so given to preying on the poor that Fed Chairman Alan Greenspan, of all people, made a speech last month against predatory lending. Greenspan, Boy Populist. Good grief.
Predatory lending is practiced by mortgage and home-equity companies that seek out low-income borrowers and then charge them excessively high fees and interest without disclosing what those rates are. The result is that the borrowers end up with unaffordable payments, they lose their equity, and the banks foreclose on their homes.
Another form of legal robbery is “payday lending,” a practice that makes mob loan sharks look good. The Public Interest Research Group and the Consumer Federation have been bird-dogging this industry; they report that the payday lenders are charging interests rates of 300 percent or more. Not only that, but they are stepping up their lobbying efforts to weaken state laws preventing usury by forming alliances with national banks. In Texas, where payday lending is prohibited, the lenders are partnering with banks and thrifts that claim they don’t have to comply with state interest-rate ceilings. Nationally, the average Annual Percentage Rate is 474 percent for a two-week loan, according to the report. Most payday lenders interviewed for the report either failed to quote an APR, denied that an APR applied to the loan, or wrongly quoted the low two-week rate rather than the correct annual rate. In a typical payday loan, a consumer writes a personal check for $115 to borrow $100 for two weeks – until payday. The APR on this loan is 390 percent. At the end of two weeks, the consumer often “rolls the loan over,” or pays an additional $15 to carry it for two more weeks, thus paying $30 for a $100 loan.
It’s not just big business that rips off poor people. An oldie but goodie is practiced by furniture and appliance stores that sell to people who cannot pay cash. They “rent to own,” often charging two or three times the cash price for a refrigerator or a sofa under exorbitant lease agreements. A newie but goodie is auto title pawn, where a car owner pawns the title to the car in exchange for cash. The interest rate on this pawn can be astronomical – sometimes more than 900 percent APR. Naturally, if the consumer falls behind on the monthly loan, the car will be repo’ed, no matter how much has already been paid on the loan.
Another revolting development lies in arbitration clauses. According to the National Consumer Law Center, “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 consumer, forbid class actions, limit discovery and prohibit recoveries such as punitive damages and attorney’s fees.”
There are many other examples of this kind of legal ripping off of poor folks. If our legally corrupted legislatures allow it to continue, it’s all going to give capitalism a very bad name.
Molly Ivins is a former Observer editor and a columnist for the Fort Worth Star-Telegram. Her new best-selling book from Random House, with Observer editor Louis Dubose, is Shrub: The Short and Happy Political Life of George W. Bush. You may write to her at [email protected]