Since Lehman Brothers imploded in 2008, publishers have stocked our bookstores with dramatic stories about the fall of Wall Street. Newspapers regularly report on how small businesses and home owners can get loans on Main Street. Fewer people have paid attention to what's happening in downtrodden districts. That is, until Gary Rivlin wrote "Broke, USA."
This book tells the story of the back-and-forth battle between a spirited group of consumer advocates and the merchants of sub-prime debt. It has been waged in legislatures, in the press, and on street corners for the last twenty years. It threads are anchored in just a few epicenters. Certainly, the first would be in North Carolina, where Martin Eakes and his peers convinced the North Carolina General Assembly to outlaw payday lending. Then there are the scores of
advocates in Ohio, from Bill Faith to Jim McCarthy. Oddly enough, the innovative entrepreneurs have their own backyards: Tennessee, Indiana, and other portions of the Rust Belt and the Midwest.
Where this story does not go is to New York or Washington, DC. Although these cities host most of our national financial regulators, their voices are absent. That is for a reason. There are few national regulators doing anything about these products. There's also little reference to any national policy organizations weighing in on the problems.
A recurring theme in this book is how alternative financial institutions congregate together. Rivlin spotlights how payday lenders and check cashers took over Dayton, Ohio.
"By 1999, Allan Jones [Check Into Cash] and Billy Webster [Advance America] had each opened seven stores in the greater Dayton area, and Toby McKenzie had opened six. Jared and David Davis, the brother tandem behind Check 'n Go, had added another four. It was as if the demographics from this one unprepossessing blue-collar city in the heartland had been poured into a database and bells started clanging and lights started flashing JACKPOT! on computer screens in the corporate development offices of payday chains across the country."
Rivlin suggests that Dayton attracts these businesses because it is down on its luck. Once the "city of a thousand factories," it now sports a unemployment rate of 11.3 percent. It could also owe its status as prime turf for quick cash shops because of its military base. He cites a 2005 CRL study which found that one in five members of the military takes out a payday loan in the previous year.
In my hometown (Durham, North Carolina), we have 78 check cashers, along with scores of instant tax refund shops, rent-to-own furniture stores, Buy-Here Pay-Here car lots. You can get a title loan, although there are more options to take a loan against your car in Southeast Raleigh. We would have payday loan stores, but for the wisdom of our state legislature. North Carolina outlawed payday lending several years ago.
Rivlin also connects the dots between these strip mall money lenders and the money center banks that bankrolled their efforts. He has examples to convict Citigroup, Bank of America, HSBC, Wells Fargo, JP Morgan Chase, and the old Wachovia for their role. He spends some time talking about Sandy Weill's history with subprime debt. His investment in Associates helped to fuel the acquisition spree that ultimately created Citi.
The mainstream banks play an important role in many of these businesses. Some have served to run their initial public offerings. Some use the storefronts as brokers for their own consumer loans (HSBC for H&R Block). Others act as their principle lender (Wells Fargo for Jackson Hewitt), while many are now buying these store front shops and integrating them into their corporate families.
I have to admit that part of the pleasure that I experienced in reading this book should be attributed to vanity. I suppose that I have email correspondence with at least seven people that are mentioned, and I recognize many more from working in the community development field. Rivlin is trying to narrate the David and Goliath battle that advocates have fought, and he has done an excellent job of finding those people.
Rivlin emphasizes that proprietors target these stores in low-income communities. He shies away from claims made by others that they are co-located in minority areas, because he sees that the natural expansion of demand for credit has brought those stores to working class white communities as well.
It is the same story in Durham. They are hardly distributed across our community. Instead, they are located in three distinct clusters. There is one near the intersection of Miami Boulevard and 98, another off of
A check cashing storefront on Roxboro Road in Durham, North Carolina. There are two pawn shops and another check casher on the same block.
Roxboro Road near Club Boulevard, and another in the Tuscaloosa/Lakewood community. They're all places where there are lots of poor people. The first is an African-American neighborhood, the second is a burgeoning center for new Latino families, and the last has a healthy mix of both groups. There are no clusters near Duke University, in the Research Triangle Park, or near the large shopping center in South Durham.
In the biggest cluster, where Holloway ("98") meets Miami, the only "bank" is a distribution center for the Food Bank of Eastern North Carolina. It is still a large retail area, of course, because there are probably 15,000 people living within one mile of the intersection. Just no banks. That is part of the problem.
I like the systemic view that Rivlin takes to show why subprime debt became so pervasive. There were all kinds of people coming up with innovative ways to provide risky products. It wasn't just those players, though. It wouldn't have happened without the regulators, who ignored the evidence on the ground out of a belief in abstract prinicples about free markets. You can't have this crisis without the appetite for the debt. Last, there wouldn't have been so many consumers seeking these loans if the mainstream banking system had a better way of providing appropriate credit products for low-income households.
He has an important point. You can't pillory the actions of the payday lenders and RAL shops without also giving some attention to the banks, which have decided to close their branches and increase the costs for their basic checking accounts.
This is not the book to read if you are seeking some kind of pronouncement on the pressing questions in bank policy. He isn't going to weigh in about the question of how CRA did or did not contribute to the subprime debacle. He's not going to review the opportunities posed by a CFPB. He's not going to talk about how to fix credit cards. Rivlin's aim is to create a narrative that is both readable and expansive. His own signature to his emails would suggest that its intentional:
"the non-fiction writer's greatest task is to illuminate complex social issues in human terms impossible to ignore."
I can't find a citation for that quote. Maybe it is his own statement. I can say this: "Broke, USA" is that kind of book. It is plain spoken and clear cut. Anyone engaged in the debate surrounding alternative financial services should find a way to read it.