The Bat Segundo Show: Gary Rivlin

Gary Rivlin appeared on The Bat Segundo Show #340. Mr. Rivlin is most recently the author of Broke USA: From Pawnshop to Poverty, Inc. — How the Working Poor Became Big Business.

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Condition of Mr. Segundo: Considering the advances of a seductive loan shark.

Author: Gary Rivlin

Subjects Discussed: [List forthcoming]

EXCERPT FROM SHOW:

Rivlin: One in every five customers is taking twenty or more payday loans a year. So suddenly this effective interest rate of 400% becomes the actual interest rate. I mean, if you’re taking out twenty payday loans a year, that’s pretty much a loan every two weeks. And so you’ve got a couple million people a year in this country who are essentially paying 400% for their money to put it into dollars and cents. For that $500 loan, they’re paying $2,000 in fees for the year. So it’s the trap that a payday loan becomes, that I focus in on.

Correspondent: I wanted to talk about Martin Eakes, the man behind Self-Help and the Center for Responsible Lending. He offers a more reasonable APR through his credit union. His crusading has helped to initiate reform in numerous states. High-interest loans. Mortgage premium penalties. He’s been on it. His opponents, they point to his self-interest in creating caps that are uniquely beneficial to Self-Help. I want to address this. I mean, what of a credit union’s interest fees on overdrafts? Just to give you an example, if a consumer gets a hit, the median overdraft fee is about $27 on a $20 debit card transaction. They repay the charge in two weeks. And, according to the FDIC, that’s a 3,250% APR. That far outshines that $33 per $100 cap in Indiana. That works out to 858% on a two week loan. So I’m wondering if credit unions are, in some way, just as problematic. Or perhaps even more problematic on the overdraft charge than payday lenders, when we consider this?

Rivlin: Right. You’re giving the argument that the payday lenders make that I was starting to make myself before. That you could look at our 400% interest rate. But go start doing the math. As you just did. On bounced checks or late credit card fees. And again, that’s a legitimate point. Martin Eakes is one of the main characters in my book. He’s just a really interesting, quirky fellow. A few fun facts. He claims he’s never had a sip of alcohol in his life. He testifies all the time before Congress. Gives speeches. He owns a single suit to save money. His wife cuts his hair. My favorite quote from him is “Half the people I know would take a bullet for me and the other half would fire the pistol.” And that’s accurate. He’s really been out there as a leading crusader, not the leading crusader, against subprime mortgage abuse. Against the payday lenders. Against some of the more abusive policies.

Correspondent: And the people who work for him have salary caps as well. It’s not exactly a lucrative prospect to work for him.

Rivlin: The payday lenders and others try to tar Martin Eakes. But he’s a little bit Ralph Naderish in that way. He’s hard to tar. There’s a rule within his credit union that no one can be paid more than three times more than the lowest paid employee. And that means that this guy, who runs essentially a billion dollar operation — they’ve done a lot of home loans — is getting paid $69,000 a year. I guess everybody roots for the receptionist to get a raise.

Correspondent: Yeah. Well, hopefully the MacArthur money was disseminated around. But you do have to make some kind of money. And as we’ve determined with this overdraft situation, that’s quite an interest.

Rivlin: Well, a few things. One way you misspoke was that his credit union doesn’t offer payday loans. His colleagues in North Carolina. The big North Carolina credit union for teachers and state employees. They offer a payday loan with an effective annual interest rate of 12%. 12% versus the 400%. And I met with the fellow who runs that credit union. And he called it the single most profitable loan that they offer. But getting back to the criticism that they level at Martin Eakes — that isn’t he just a competitor? Isn’t he just fighting the payday loan industry because he’s looking out for the bottom line of his own credit union? Well, one problem with that is — it was in 2001 that Martin Eakes and others in North Carolina kicked the payday lenders out of the state. Martin Eakes’s credit union — you’re only eligible to participate if you live in North Carolina. So he won the fight in 2001. Why is he still fighting the payday lenders across the country given that his bottom line is only affected in North Carolina? I find the argument — I heard it from every payday lender I met with — that Martin Eakes is just a competitor; it’s just very specious. He’s a crusader. He might see the world in black and white, where these things should be outlawed period. But I think he’s genuine in his criticism. I don’t think it has anything to do with his credit union. His credit union doesn’t even offer credit cards to rack up the late fees.

Correspondent: But how much does he charge for overdraft fees?

Rivlin: Twenty bucks.

Correspondent: Twenty bucks.

Rivlin: I was really curious about that question too.

Correspondent: I mean, that’s just — you’re still dealing with a pretty substantial APR. When does that $20 kick in?

Rivlin: Yeah. Well, you know, the problem with APRs on a bounced check is that it depends upon how long it takes for you to become whole again. I mean, there’s that $20 fee. But then there’s interest and other penalties when you’re late. But we can just say it’s enormous. It’s typically higher than 400% for the payday.

Correspondent: It’s below the median rate. That’s for sure.

Rivlin: Martin Eakes runs a not-for-profit credit union. He charges a bounced check fee like everybody charges a bounced check fee. It’s lower than the average, but still high. You know, I don’t know what to say about that. But I do think, as long as we’re talking about Martin Eakes, that this credit union he started, dating back to the 1980s, they’re a subprime mortgage lender. I mean, I hasten to add, given the association people have that he’s a different kind of subprime mortgage lender and started charging four or five or six or seven percent above the conventional rate. He charges 1%. You know, his loans didn’t have huge up-front fees. He made sure that you could pay it back. That if you make $25,000 a year, that you’re buying a house for $50,000, let’s say, rather than a $300,000 house that you’re never going to be able to afford. But this credit union is specifically for those of modest means. About half his customers are single moms. About half the people who bought homes using loans from him are people of color. He’s making loans in rural communities. People who live in trailers who can move into a modest-sized house and have, as he would put it, a bricks-and-mortar savings account. A home. He is doing a lot of good. Thousands and thousands of North Carolinans are living in a home who wouldn’t otherwise.

The Bat Segundo Show #340: Gary Rivlin (Download MP3)

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Obama, the Medicare “Doughnut Hole,” and the Working Poor

Last night, on Twitter, I got into a lively exchange relating to last night’s Obama infomercial. I had initially watched ten minutes of this broadcast, and I grew increasingly upset by the manner in which basic realities about health care and the working poor have been severely overlooked in this presidential race. Upon being pressed, I watched the whole thing from the beginning. “Those weren’t the working poor in that video? The 72 year old guy working at WalMart not poor enough?” argued Seth Harwood. While retired railroad man Larry Stewart putting on his Wal-Mart badge and taking out a loan on his house to help his ailing wife is indeed a crushing story (beginning at 7:30 in the Obama video), at least the Stuarts have a house to take a loan on. What of the doughnut hole created by a Republican-led Congress through the Medicare Modernization Act of 2003? What of those trapped in Medicare with chronic conditions who skip out on vital medications because they don’t have the money? The situation is this: Under the Medicare Part D prescription drug program, if a senior has more than $2,250, but less than $5,100 in annual drug costs, the senior is required to pay these costs out of pocket.

Now consider the case of 65-year-old Frances Acanfora. Thanks to the MMA, this retired school lunchroom aide saw her drug costs jump up from $58 to $1,294 courtesy of the doughnut hole. She even had to temporarily stop taking her drugs after talking with her doctor. Did Acanfora have a partner or a home to fall back on? We know that she had a credit card. But is she still alive? One wishes that the Washington Post would conduct a followup story. Meanwhile, other seniors have stopped taking their drugs altogether. They couldn’t afford it.

While it is true that Obama advocates the federal government negotiating with the drug companies to reduce prices under the Medicare Part D drug program (similar to what the Department of Veteran Affairs now gets), permitting citizens to purchase prescription drugs from outside of the United States, and closing the doughnut hole, let’s consider why this policy was effected in the first place. The MMA came into being because of rising costs in prescription drugs and the inability of the federal government to allocate enough funds to pay for it. What we have here is a scenario in which the pharmaceutical companies hold all the cards. The companies set the prices. The generic drugs that were supposed to save people money have proven to be more costly thanks to the MMA. The companies claim that the drug prices are high because the companies need to spend this money on R&D. And, of course, the drug companies have lobbyists.

And if the drug companies hold such power, how can there possibly be negotiation? I can see the conversation going something like this:

Government: We need you to lower the costs of drugs. Now we’ll be happy to take them all off your hands, guaranteeing X number of drugs over the next five years, if you’ll lower the prices.

Drug Companies: You’re already going to be getting X number of drugs over the next five years from us. With all due respect, what’s changing here? We’re your supplier. And wait a minute. I thought we agreed back in 2003 that we wouldn’t be negotiating.

Or as Robert Laszewski put it, “If you go to a car dealer and tell him you’re going to buy his car no matter what, and then try to negotiate, you’re not going to get a very good deal.”

Which puts the government in the awkward position of going overseas to import its drugs for Medicare. But if Medicare’s chief drug source comes from another country, how then can the FDA provide the essential oversight for the drugs? This leaves the government coming back to the pharmaceutical companies with its tail between its legs. I’ve looked around numerous places, but Obama has not specified how he can “negotiate” with these draconian realities in place. But to his credit, he did issue a press release last year condemning the Senate’s failure to consider legislation permitting Medicare negotiation.

Let’s return to the issue of Larry Stewart and Frances Acanfora. The rhetoric in this presidential race has involved speaking to Main Street and the middle-class, who we are told increasingly are having to “tighten their belts” to make ends meet. But what is not really being talked about by either camp are the 29.4 million Americans — up 4.7 million from 2002 to 2006 — living below the national poverty line. Tayari helpfully directed me to this Democracy Now! segment from a few days ago, which goes into this issue at some length. And indeed why should either candidate talk about low-wage workers when Obama leads 2 to 1 over McCain? (Incidentally, a majority of low-wage workers polled in this article indicated that their personal finances were unlikely to change — even with an Obama presidency.)

When you consider Medicare’s reliance upon pharmaceutical companies and this regrettable framing emphasis away from the working poor, what Obama essentially presented to us last night was comfort food for the middle-class. (So flexible is the term “middle-class” that one can make a six figure salary and still remain lodged within an income bracket that likewise includes someone making $20,000 a year.) But none of this takes away from the fact that nearly 30 million Americans are impoverished, and that 47 million Americans are without health care. What this nation needs more than “hope” is a concrete and realistic plan. We need something more than promises to “negotiate” in nonnegotiable situations. Something that returns us to the dialogue kickstarted by John Edwards last year. Something that ensures that the dread P word spelling out our poverty will return to our national dialogue with neither shame nor flash, but with the maturity and grace that Obama has built his campaign image upon.