Poverty Premium: Rent to Own

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In some ways, the business harkens back to the subprime boom of the early 2000s, when lenders handed out loans to low-income borrowers with little credit history. But while people in those days were charged perhaps an interest rate of 5 to 10 percent, at rental centers the poor find themselves paying effective annual interest rates of more than 100 percent. With business models such as “rent-to-own,” in which transactions are categorized as leases, stores like Buddy’s can avoid state usury laws and other regulations.

And yet low-income Americans increasingly have few other places to turn. “Congratulations, You are Pre-Approved,” Buddy’s says on its Web site, and the message plays to America’s bottom 40 percent. This is a group that makes less money than it did 20 years ago, a group increasingly likely to string together paychecks by holding multiple part-time jobs with variable hours.

“We’ve always talked about the benefits and costs,” she said on the drive home. “Because with a family you can’t just say, ‘I want this, I’m going to get it.’ But growing up having the chair, the recliner, the love seat, the couch and everything, you just get used to the normal stuff. Sometimes it’s hard to break from the normal stuff and get to reality.”

Rental America: Why the poor pay $4,150 for a $1,500 sofa, Washington Post, Chico Harlan, 10/2014.

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Then in the fall of 2001, Motta discovered Rent-A-Center. Situated in mostly poor neighborhoods, this chain’s 2,600 stores offer big-ticket items like furniture and electronics to millions of people with no credit. Hiking up prices and charging exorbitant interest, using a scheme critics have called “pay now, pay later,” the company racks up sales in the billions and is a key player in what one market research firm calls “the poverty market.”

But the story didn’t end there. Monthly bills continued to arrive, late fees stacked up, and “incomplete” payments were rejected. Rent-A-Center employees routinely called her at home, says Motta, and even came by in person to pressure her to pay. After two years, Motta had paid Rent-A-Center almost $2,000. “I was giving and giving and it was never done,” she recalled. “I told them to take their sofa.” The company would not comment on her case.

Darnley Stewart, an attorney who is leading a New York class-action suit against the company, finds this outrageous. “Rent-A-Center explicitly targets poor, largely minority neighborhoods and has no qualms about selling a cheap television for $700 to people who can’t afford it,” she says. Stewart’s suit, which is awaiting a ruling from the state Supreme Court, alleges that Rent-A-Center engaged in deceptive and fraudulent business practices by misrepresenting the actual costs of its merchandise and coercing customers with a “high-pressure sales scheme.”

In the face of steady complaints, Rent-A-Center argues that it is offering a service to an otherwise excluded demographic, and that its mission is simply to “improve the lives of our customers.” But others, like attorney Darnley Stewart, are not even mildly persuaded: “I don’t think you are doing the poor a favor by gouging them.”

Pay Now, Pay Later, Mother Jones, Anya Schiffrin, May/June 2005

Poverty Premium Research (Harvard Business Review)

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Multinationals that failed to take these realities into account saw their best-laid business plans go bust. P&G’s PUR sachets were envisioned as a low-priced competitor to bottled water; in reality, though, poor households are used to boiling their tap water or drinking it untreated. Grameen Danone’s real competition among rural populations wasn’t expensive store-bought yogurt—it was homemade yogurt that consumers produced for a fraction of the cost.

In places where poor consumers benefit from lower prices, they often incur other costs. For example, the informal economy fails to ensure safe working conditions and reasonable wages, product quality controls, or taxes for the state. The brunt of these externalities is borne by the poor, as workers, consumers, and beneficiaries of government funds. Such places may have a “poverty premium” that multinationals could help eliminate, but that premium does not take the form of higher prices.

The Problem with the “Poverty Premium,” Harvard Business Review, Ethan Kay and Woody Lewenstein, April 2013

Ethan Kay gave a Ted Talk about creating cookstoves for poverty survivors.

Should Not Have To

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I usually don’t post from my cellphone, but these quotes stood out:

“We shouldn’t have to explain that the punishment for even the most heinous crimes in our country is not a public execution without a trial.”

“We shouldn’t have to explain why we fight back when we are attacked.”

This Is Why We’re Mad About the Shooting of Mike Brown , Jezebel.com, written by Kara Brown

Boston Library Update

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“In Boston, the physical changes reflect the evolving nature of libraries…

“As it happens, the entrance, on Boylston Street, is close to the finish line of the Boston Marathon, where bombs last year killed three people and injured more than 260 others. With this wound at their front door, the architects are even more determined for the library to be inviting.

“This is a strong statement of pride in the city and its civic life, in spite of what happened across the street,” Mr. Gayley said. “The library is opening its doors and not retreating behind solid walls.”

Breaking Out of the Library Mold, in Boston and Beyond by Katharine Q. Seelye at the New York Times

Other innovative libraries:

Water, the Lifeblood of Society

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“Too much is being asked of the Delta. The levees that define the region’s water channels are aging…Native fish species are on the brink of extinction in part because of this massive water-transfer apparatus…

“The Delta, they fear, could end up wiped out like Owens Valley, once home to a 100 square mile lake, which Los Angeles drained like a cold beer on a hot day. Chinatown was made about that battle, and Delta residents don’t want to be immortalized in a sequel…

Go to a faucet. Turn it on. This—water flowing out, clean, drinkable, always-on—this is the lifeblood of society…

“Add water and anything—people, alfalfa, nine-hole golf courses, swimming pools—can proliferate endlessly. According to the logic of half a century ago, when the word ecosystem was just coming into the common parlance, water in a wet place does humans no good. Water in a dry place? Well, that’s Los Angeles…

“The state’s water system and the farms and cities it feeds are perceived to be so important to the functioning of the country that when a drought hits California, the White House pays attention…”

The Town Los Angeles Drank by Alexis Madrigal at Mother Jones

(Emphasis Mine)

Poor always with us but they don’t have to freeze to death

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“One of their greatest sources of both advocacy and support is the Coalition for the Homeless, the nation’s longest-standing organization of its kind. It was founded in 1982 but dates back to 1979 when, in the landmark Callahan V. Carey lawsuit, the coalition’s founder Robert Hayes took New York to task for the clause in the state constitution that reads “The aid, care and support of the needy are public concerns and shall be provided by the state…”

“For over 20 years, Coalition for the Homeless has been led by Mary Brosnahan, its executive director.

“The obscenity of people having to live on the streets really hit me,” she said. “It was a good thing to leave New York and come back to it because it made me realize how many, many people were living homeless on the streets here. It seemed unthinkable that so many people had so survive this way, and that there were so many different types of people suffering, because homelessness is so solvable. The quote from the Bible is ‘Jesus said the poor will always be with us.’ But that doesn’t mean they have to freeze to death on the streets.” 

The woman looking out for New York’s 52,000 homeless, by  Sheila Langan (@SheiLangan) at irishcentral.com

(Emphasis mine)