Some 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 in the press 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 comes the National Consumer Law Center (NCLC) out of Boston to report that business crime, fraud and abuse are thriving on the backs of poor Americans. The laws are not enforced very much and can not 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.
Here is a sample of NCLC’s findings.
1. 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 carts wreck or salvage history, its prior use as a rental vehicle, history of mechanical problems, or other defects.”
2. Auto title pawn–“These transactions are a recent phenomena 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 over 900% 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.”
3. 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 premise easy access to credit. Many of these loans have inflated interest rates, outrageous closing costs and unaffordable repayment terms.”
4. 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%.”
5. Rent_To_Own (RTO)–“RTO businesses are essentially appliance and furniture retailers which 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.”
6. 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.”
The Center has also embarked on an initiative to help distressed older Americans who lose billions of dollars a year to home improvement fraud, scams involving medical aids, useless supplemental insurance, and high pressure door-to-door sales and telemarketing schemes.
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 nineteen seventies. This allowed what was once illegal and severely punishable to become legal. The companies called this law reform.
Weaker enforcement of existing laws and sharp reductions in public funding for civil legal aid programs (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.
(For more information about NCLC, log on to consumerlaw.org or write to 18 Tremont Street, Boston, MA 02108)