Why the Poor More, Edited by
Gregory D. Squires (Praeger, 2004)
Although there has been some progress in the fight against poverty, poverty is still getting worse. Between 1970 and 1990 the number of poor people living in high poverty neighborhoods, (where poverty rates exceed 40%) rose from 1.9 million to 3.7 million. The concentration of poverty is much greater for racial minorities with 33.5% of African-Americans and 22.1% of Hispanics living in poverty, compared with just 6.5% of the white poor residing in these areas.
However, knowing that poverty seems linked to social status, race and place does not explain the mechanisms that make this happen systematically. An important book, Why the Poor Pay More outlines one of those mechanisms and tells what might be done about it.
The book focuses on the predatory portion of subprime lending usually associated with mortgages and housing markets. Predatory lending practices often are linked with poor peoples’ attempts to live “the American dream” by buying a house. While the marketing of this “dream” can be part of the problem, the book looks at a range of lending techniques that profit from the poor. According to the book, in some cases large financial organizations systematically prey on poor people – especially minorities and the vulnerable – including blacks, Hispanics, women and the elderly.
Why the Poor Pay More outlines a range of predatory loan practices including: Higher interest rates and fees that can be justified by the risk posed by the borrower, high prepayment penalties, fees for services that may or may not have been rendered, negatively amortized loans and loans for more than the value of the home, and balloon payments.
This book, edited by Gregory Squires of George Washington University, is a well-organized and well written volume. It carefully balances detailed information and research on the extent and variations of predatory loan practices with case studies and good, solid advice on how they can be tackled. The nine chapters deal with everything from a definition and introduction to the issue to advocacy techniques for combating predatory lending.
The first chapter lays out the basic issues and trends in predatory lending. The second chapter deals with the targets of discriminatory lending, while the third chapter uses a case study of Philadelphia to outline the devastating consequences of the practice. Chapter four deals with behavioral implications and chapter five covers legal and economic inducements to predatory lending practices.
The book then turns to efforts to overcome predatory lending. The sixth, and seventh chapters deal respectively with community organizing and advocacy (with a detailed case of successful action including a class action suit to hold a predatory lender accountable) as well as legal remedies and legislation design. Chapter eight looks at these issues from a global perspective, as predatory lenders look overseas for profits partly because of the lack of regulation in the global arena. The final chapter shows in detail what can be done about “predatoriness.”
Predatory lending ruins both individuals and neighborhoods, as Squires explains that it can strip assets from people and communities leading to long-term poverty traps. And he adds that this process benefits “loan sharks in pinstripes” — a few powerful financial organizations.
On an individual level some people blame themselves for entering into these relationships.” … Many homeowners feel that the problem is their own fault. They often believe that if they were taken advantage of, it is a reflection on their own foolishness or ignorance and are often deeply embarrassed about being in any kind of financial difficulty, and about how they got there.” Squires explains that this is a very serious problem that can prevent holding unscrupulous lenders accountable. People who feel that they may have been taken advantage of should know that help is out there. And they should speak out and get help. This may not only help them, but others as well.
The overall lesson is this: borrowers cannot count on others to offer fair lending arrangements and must take action if they find themselves trapped in a predatory situation. Luckily, there are champions and help out there. This book outlines the options and the resources available.
… Jon Anderson
