Many different businesses and schemes are making money off of low-income Americans, Tom Edsall writes in a New York Times opinion piece. Earlier this month, a report by the Center for Responsible Lending (CRL) found that the average annual income of a typical payday-loan borrower was $22,476, with an average loan amount of $350. The median consumer conducted 10 transactions over a 12-month period and paid a total of $458 in fees, not including the loan principal. The report shows how payday lenders' profits depend on those borrowers who take out repeated loans. A recent letter from the Community Financial Services Association stated that loans to repeat borrowers generally constitute between 70 percent and 90 percent of a lender's portfolio.
Many major banks, including JPMorgan Chase and Bank of America, have acted as intermediaries to allow online lenders to collect money directly from borrowers' bank accounts. This has become more controversial as many payday lenders establish online operations to evade statewide interest-rate caps. Another profitable route for businesses that lend to cash-strapped consumers is the auto-title loan. According to the CRL, the average title loan is $951, and carries a monthly interest rate of 25 percent, amounting to 300 percent a year. A typical borrower will pay $3,093 in total interest and principal for a car loan of $951. In other financial areas, an effort by the District of Columbia to collect overdue property taxes has helped enterprising real estate operators and encouraged interest in buying tax liens. Edsall recommends further restraints on predatory lending, and a revived public discussion about the impediments that restrict opportunities for the American poor.