5 Questions With Keynote Speaker Gary Rivlin

We recently sat down with Gary Rivlin, journalist and author of BROKE USA: From Pawnshops to Poverty, Inc. – How the Working Poor Became Big Business for a brief interview. In BROKE and his other works, Rivlin has focused on how businesses have preyed on low-income families and turned their misfortune into millions. We asked Gary what he thought about the future of this industry and how organizations in the community tax preparation and asset building field can fight back.

Don't miss Gary's keynote speech and participation in a panel discussion at our 2011 National Conference!

Where do you see the predatory lending industry headed, with the possible end of Refund Anticipation Loans (RALs)? How do you think the industry will react?

If nothing else, two years of reporting from the economic fringes has taught me that those in the poverty industry are a resilient bunch. These businesses are too profitable and the stakes too high to simply give up without a fight. Legislators in North Carolina, for instance, banned payday loans in 2002—and more than five years passed before regulators finally shut down the state’s last payday stores.  In 2008, Ohio’s electorate overwhelmingly voted in favor of a 28 percent rate cap – and several years later, payday lenders are still making high-rate loans in the state, using workarounds that let them charge steep fees that often translate into interest rates exceeding the 391 percent APR that gave rise to the rate cap. 

By my estimate, the country’s instant tax mills generate around $4 billion a year. That’s a lot of revenue for a business that lasts around a month each year.  John Hewitt, the founder of both Jackson Hewitt and Liberty Tax, says the future of the RAL depends on who is elected president in 2012. (See my article “1040 Sleaze” in the March-April issue of Mother Jones.)  If Obama is reelected, Hewitt says, the RAL is probably dead. He rests his hopes on a Republican winning the White House next year. Others speculate that private equity firms, operating outside the regulatory apparatus, might move into the RAL business.

But even if  the RAL is history, don’t expect these instant tax mills to close without a fight. The real profit center for these shops hasn’t been the RAL but the $300 or so they typically charge customers to do a fairly straight forward tax return that might take them 15 or 20 minutes. The RAL has been a means to an end: the product that gets people in the door.  Increasingly, the RAL is being replaced by the RAC—the Refund Anticipation Check. According to the most recent annual report from the National Consumer Law Center and Consumer Federation of America, just under 13 million taxpayers paid $30 or $40 fee to get a RAC in 2009. 

Do you believe the newly created Consumer Financial Protection Bureau can play a role in limiting the predatory practices you describe in BROKE USA? If so, what actions should they take?

It’s great that the CFPB will soon be part of the consumer finance landscape. I believe if there were a CFPB in place ten years ago – if there had been a federal agency that emphasized consumer protection rather than placing the priority on safety and soundness – we would have prevented the worst of the subprime mortgage mess. 

But the bureau is limited in what it can do to reign in the payday lenders, auto title lenders, check cashers, and others I write about in BROKE. These businesses are regulated primarily by the state. Want to do something about the exorbitant rates charged by rent-to-own operators? Feel that the payday lenders charge too steep a fee for its services? Think there should be a limit on how much a check casher can charge to cash the paychecks of the unbanked? If so, then that means taking the fight to your local state legislature.

In other words, the creation of CFPB is a great step but hardly a panacea.

Are predatory lending and similar schemes more prevalent in certain areas of the country? Are there certain areas of the country that are leading the charge in fighting these practices?

The poverty industry is thriving in every state in country but the worst abuses seem to go on in the south. That’s where payday lending first took hold in the early 1990s; it’s also where auto title lending, which I would argue is the most abusive of all these loans, is most prevalent. 

With that said, the south has also been leading the fight against predatory lending. North Carolina and Georgia were the first states to aggressively take on abusive subprime mortgage lending, and the North Carolina legislature was the first to change its mind about the wisdom of allowing payday lenders in its midst when in 2002 it allowed its payday enabling legislation to expire. (On the other hand, many of the northeastern states never granted the payday lenders the exemption to existing usury laws they needed to set up shop.) Georgia and Arkansas were the next two states to kick out the payday lenders, followed by New Hampshire, Oregon, Ohio, Arizona, Montana,…

You have received overwhelmingly positive reviews of BROKE USA in the media. What has the response been from the public?

Thank you very kindly for noticing. The response from the public has been equally gratifying. It’s so easy to find me via the Internet (email address at www.garyrivlin.com) and I’ve received dozens of messages from strangers who’ve felt compelled to write after discovering my book. Occasionally, I’ll hear from a payday lender or someone else in the poverty industry. These haven’t been exactly “overwhelmingly positive” but I found these equally interesting. And it’s more than just email messages. These days anyone can review a book at Amazon. Happy to report that more than half the reviewers of my book gave me 5 stars and majority of the rest gave me 4 stars.  

What sorts of schemes or tricks should individuals in the community tax preparation field be aware of, in order to better inform their clients?

I spent a few days in a tax prep store in early 2010.  Shocking experience. Deception everywhere, starting with the signs posted in the window. This particular store wasn’t able to offer RALs yet the signs in the window advertised a next-day return. He’d then explain, inaccurately, that NO ONE was offering RALs. Some of you reading this might say, ‘well, good,’ but it’s still deception. 

People would ask how much it’d cost to do a return. The store owner, an accountant, was a precise man in every way except when asked this question. “A couple of hundred dollars,” he’d tell people – though every return I saw him do was $300 or more. He sold people RACs even when they had a checking account, which meant paying an extra $42 extra on a fed and state return. One man, a janitor at a local hospital, protested this extra charge. The store owner responded that he’d be happy to make the charge go away – but was he willing to wait an extra 6 weeks for a check to appear in the mail? In truth, the man would get his return FASTER with direct deposit than a RAC (with a RAC, he’d need to first pick up the check and then deposit it) but of course a RAC guaranteed the tax preparer would get his money faster.

I was also struck by the inferior service people received despite paying a steep fee. I’ve used a tax preparer for years. She faithfully encourages me to put away some money for retirement. These tax preparers, however, didn’t even broach the topic, though these early filers tended to people coming into thousands of dollars. I also asked the tax preparers if they ever recommended that people increase their number of dependants. That way they could maximize their income over the year and wouldn’t defer so much of their income until the start of the next year. “That’s advice for a more sophisticated clientele,” I was told. In other words, he was happy to charge customers top dollar ($300 for 20 minutes of help) but in return they received far less service than a more prosperous client.