Broke USA Part 1

Broke, USA.

From p.a.w.nshops to Poverty, Inc.- How the Working Poor Became Big Business.

by Gary Rivlin.

Prologue.

Tommy's Angel.

DAYTON, OHIO, DECEMBER 2008 2008.

Seventy-three-year-old William T. Myers lives in a forlorn trailer park on the industrial outskirts of Dayton, Ohio. Pine View Estates, a tightly packed community of about 250 mobile homes, sits along a heavily trafficked commercial thoroughfare battered by a nonstop, noisy parade of dump trucks, cement mixers, and other heavy equipment. Despite its name, Pine View Estates has no pine trees-nor are there any views except those of the trailer park's closest neighbors: a metal salvage yard and a large asphalt plant. When giving directions to his home, Myers, who goes by the name Tommy, jokes about the railroad tracks a visitor must cross to reach the modest gray and white aluminum-sided trailer that he, his wife, a dog, and a cat have called home over the past few years. "I suppose you can say I live on the wrong side of them tracks," Myers said in a high, reedy voice. He punctuated his crack with a crazed, Walter Brennanlike cackle.

I met Tommy Myers and his wife, Marcia, in 2008, shortly before Christmas. I was still in my car when a small, wiry white man built like a bantamweight fighter bounded out of his trailer and made a beeline for my door. "Ain't no way you want to park there," he advised in a squeaky voice tinged with the Appalachian tw.a.n.g one hears a lot in southwestern Ohio. His next-door neighbor, he explained, stands at least six foot five inches tall and belongs to the Outlaws motorcycle club. Apparently I was taking the s.p.a.ce the man considered his personal parking spot. "It might be best to just move your car," he said. I did.

Inside, a spindly, spa.r.s.ely decorated Charlie Brown Christmas tree sat by the entranceway. There was a living room large enough to fit a couch, a couple of chairs, and a tiny dining room table.

"It's not too bad," Myers said.

"Easier to clean than the house," Marcia said.

"We make do." A large wooden crucifix was nailed to one of the living room walls. A lot had happened in Myers's life over the past ten years but the cross reflected a recent change. A neighbor had invited the couple to a screening of The Pa.s.sion of the Christ The Pa.s.sion of the Christ and soon Marcia and Tommy were attending church for the first time since either was a teenager. "She made me start going to church with her," Myers said. "It's been a blessing ever since." and soon Marcia and Tommy were attending church for the first time since either was a teenager. "She made me start going to church with her," Myers said. "It's been a blessing ever since."

Tommy Myers has a pleated face and a broad, toothless smile. He had five kids from his first marriage, to a girl he had gotten pregnant shortly before graduating from high school in Dayton, and a sixth if you include the baby Marcia had given birth to less than two months before the couple met. He has worked as a delivery driver for most of his life. For years he drove a truck for Pepsi, then for a beer distributor. More recently he made deliveries for a restaurant supply company. Marcia, whom Myers sometimes calls "Momma," is a cafeteria worker at a local high school. "My wife's tougher than a crocodile and alligator combined," he said, causing Marcia to roll her eyes. She has a nice smile, a round face, and a curly mop of thick strawberry blonde hair that was somewhat wilted after a long day over the cafeteria's steam tables. "She knows it's best sometimes just to ignore me," Myers said with a shrug, flas.h.i.+ng his gums and emitting another whoop. Marcia, who was dressed in flannel sweatpants and a blue "Life Is Good" T-s.h.i.+rt (a freebie from the school), drifted in and out of the room as we spoke. She hates to even think about the topic that had brought me to their trailer on the outskirts of Dayton that day.

The pair met in West Palm Beach, Florida, when Myers was thirty-five and Marcia was nineteen. Tommy had grown up in Dayton, but after his divorce he arranged a transfer through Pepsi. There he worked with Marcia's brother and played with him in a softball league, which is how Myers and Marcia came to meet shortly after she had given birth to a baby boy. Life was good in Florida, Myers said, but he missed Dayton, and eventually they moved north.

Home in Florida had been a trailer, but once in Dayton the couple decided to buy a home they found in a white working-cla.s.s neighborhood. The house cost only $60,000, but for Myers, who was about to turn sixty, and Marcia, in her forties, it felt like a small palace. There was an upstairs and a downstairs and a finished bas.e.m.e.nt with a washer-dryer. The place had three bedrooms, or four if you included the utility room that seemed a wild extravagance after so many years fitting their lives into a cramped double-wide. They had a decent-sized backyard, where Marcia liked to tend to her plants. The monthly payment was $526 including property taxes and insurance. They painted their new home white and, because Marcia loved her home team, trimmed it in Miami Dolphins teal.

Myers started thinking about retirement. He would turn sixty-five in 2000 and it would be nice to slow down. But then Marcia got sick and he thought about all the calls he had been getting from a man he's now inclined to refer to, sarcastically, as his guardian angel. He was a salesman for the consumer finance giant Household Finance Corporation, phoning one name on a long list of prospects. By 2001, when the Myerses borrowed $95,000 from Household, this venerable U.S. corporation would rank as the country's top subprime lender.

Household Finance was established in 1878 by a Minneapolis jeweler named Frank J. Mackey, who sensed the money to be made through loans to people of modest means. Through the late nineteenth century and into the twentieth, banks were conservative inst.i.tutions that loaned money to affluent citizens at a slightly higher interest rate than they paid those same citizens for their deposits. In the name of reducing risk, they categorically excluded potential customers who had jobs but did not look, act like, or even speak the language of their prosperous, mostly property-owning clientele. So Mackey started loaning money to those heretofore excluded people out of the back of his jewelry store at an interest rate high enough to protect against the increased risk but low enough to remain affordable.

Business was good for both Mackey and his credit-starved customers. The working people who borrowed money from Mackey-the working poor, if we were talking about them today-proved themselves to be a diligent and largely dependable lot. Mackey created a system by which people made regular partial payments on what they owed him. That enabled families living paycheck to paycheck to purchase big-ticket items such as furniture and iceboxes and handle emergencies too great for their weekly paychecks to accommodate. Mackey might have seen himself as doing nothing more ambitious than providing credit to people at the bottom of the economic ladder but essentially he invented the unsecured installment loan. He moved his company to Chicago and, in the 1920s, HFC went public.

It was an enormously profitable business that for decades could be sustained simply by opening offices in new locales, but in the 1960s the company grew restless. Flush with cash, HFC acquired an airline, a car-rental company, and a supermarket chain, among other properties. None proved anywhere near as lucrative as the personal loan business, however, and in the second half of the 1970s management decided that it would follow in the footsteps of giants such as Citibank and American Express and transform itself into a one-stop financial supermarket. It sold off most of its recent purchases, bought an insurance company, and moved into branch banking and even private wealth management. When this new strategy produced the same disappointing results as the previous one, the company decided to look for a new chief executive outside its senior ranks.

Their savior was a Brooklyn-born dockworker's son named William Aldinger, who had been working as a top executive at Wells Fargo. Aldinger sold off the insurance company. He gave walking papers to those who had been hired to beef up its private banking business and fired the company's art curator. The people generating the real profits, he understood, weren't those in s.h.i.+ny shoes and sober dark suits looking to woo the business of the very wealthy. It was all those sales people in their off-the-rack JCPenney specials manning the company's mini-empire of strip mall storefronts. Under Aldinger, the company's consumer finance division would no longer need to compete for the bra.s.s's attention.

The turnaround reigns as one of the financial world's cla.s.sic feel-good tales, and it fell on a Wall Street Journal Wall Street Journal reporter named Jeff Bailey to tell Household's story in 1996, two years after Aldinger's arrival. During that time, Household's share price had more than doubled. "At Household, formerly a sprawling and ill-focused conglomerate," Bailey wrote, "a single-minded devotion to consumer loans is leading a significant turnaround." Aldinger had refocused Household on what Bailey dubbed "lunchpail lending." Loaning money to the little guy, whether via a credit card, a used car loan, a home equity line, or a furniture store, was proving far more profitable than nearly any alternative banking activity-and Wall Street was beginning to notice. reporter named Jeff Bailey to tell Household's story in 1996, two years after Aldinger's arrival. During that time, Household's share price had more than doubled. "At Household, formerly a sprawling and ill-focused conglomerate," Bailey wrote, "a single-minded devotion to consumer loans is leading a significant turnaround." Aldinger had refocused Household on what Bailey dubbed "lunchpail lending." Loaning money to the little guy, whether via a credit card, a used car loan, a home equity line, or a furniture store, was proving far more profitable than nearly any alternative banking activity-and Wall Street was beginning to notice.

On one level, Aldinger, a man with humble beginnings, was returning Household Finance to its original roots. Yet it seemed the new Household and the company Frank Mackey had started more than a century earlier shared nothing aside from the same core customer base. Before Aldinger, Household had competed for consumers by offering lower interest rates. Under Aldinger, the company raised its rates but also intensified its marketing efforts. The gambit worked. Loan volume went up, not down, and profits soared. The company would deluge working-cla.s.s neighborhoods with mailers-and then follow up these come-ons with repeated phone calls. "n.o.body applies for a loan," a Household executive told Bailey. "It's all push."

To make its point, the company invited Bailey to play a fly on the wall at a branch the company operated on the suburban fringes of Chicago. There, in an office next to a Jenny Craig weight-loss center, he sat watching as local branch manager Bob Blazek and his staff trolled an internal database in search of customers deep in credit card debt who also owned a home. "I love to see five to ten" credit cards, Blazek explained. "We target them first." When Blazek reached a couple who owed $28,000 on eight cards, he treated them like prime prospects rather than dangerous credit risks. He sold them a high-rate home equity loan sized to pay off their credit cards and upped their credit by another $20,000, "just in case the spending bug bites again." Later, Blazek confessed to Bailey that had a second customer, a retiree, gone to a conventional bank instead of talking with him, he almost certainly could have gotten much more favorable terms than the 15.25 percent annual interest rate he would be paying to Household.

The company made little effort to collect from borrowers who were falling behind on payments. Those customers, executives explained to Bailey, were instead treated as top prospects for a new loan-at a higher rate, of course, and with a new set of up-front fees tacked on. Many sales people chose to leave the company, and Household fired another three hundred during Aldinger's first two years for failing to meet company quotas. The company, Bailey found, experienced a 60 to 70 percent annual turnover rate among its sales people. Those who could stand the pressure, though, were paid far more than they were likely to earn elsewhere. Branch managers were paid a salary of $40,000 a year plus performance-based bonuses that let top managers such as Blazek make as much as $100,000 a year.

In 1998, a few years before Tommy Myers would become a Household customer, Aldinger made his boldest move yet. Household bought its best-known compet.i.tor, Beneficial Finance. So where once HFC could claim roughly 1,000 storefronts in working-cla.s.s neighborhoods across the country, the company now operated nearly 2,000. The deal increased Household's debt, placing even more pressure on the sales staff to make loans. The Beneficial employees, who had been working on a straight salary, saw their wages slashed and replaced by the possibility of the rich commissions and sales bonuses they might earn peddling Household's high-priced products.

Not everyone was as impressed as Wall Street by the creative means that businesses like HFC were devising to earn fat profits off those with thin wallets. "They're sucker pricing," one critic, Kathleen Keest, a deputy in the Iowa attorney general's office, told Bailey. Keest's quote high up in the Journal Journal's story-and the presence of the phrase "sucker pricing" in the article's headline-showed that even the paper sometimes called Wall Street's daily bible was queasy about the changing nature of lunchpail lending.

Unfortunately, Tommy Myers didn't read the Wall Street Journal Wall Street Journal.

The calls started shortly after the Myerses moved into their home in 1995. "Every month we were getting another letter from Household," Myers said. After a time, the phone started ringing as well. "h.e.l.lo, Mr. Myers, how are you today?" It was the same man who was signing the letters from Household. "I was never so popular," Myers said, "as when I owned that house."

Myers doesn't consider himself a sucker. The mortgage on his home was a standard A-grade loan obtained through a mainstream lender. He's never resorted to borrowing money from a p.a.w.nshop and he never wasted a 2 or 3 or 4 percent share of his paycheck relying on a check casher. He can't imagine himself ever going to one of those rent-to-own stores that long ago figured out how to sell $500 television sets for $1,200. I asked if he'd ever gone to one of the thousands of shops around the country offering "rapid refunds" to people so desperate for quick cash that they'll give over a portion of their tax refund to save waiting a couple of weeks and Myers looked at me as if I'd insulted him. "Never, never, never," he said. "I would never pay a third of my money for that."

His reaction to a question about payday loans was even stronger. Stores offering a cash advance against a person's next paycheck were sprouting up all around Dayton starting in 1997 yet he had never been tempted to stop at one. The rates they charged, he said, $15 on every $100 borrowed, were too high. "I may just have me a kindergarten education," Myers said, "but they ain't never getting me with one of them things."

At first the salesman from Household was as easy to ignore as the rest of these peddlers of high-priced credit. He'd employ any number of gambits, Myers recalled, to convince him to start using his home as a kind of ATM machine. You're building up equity in your home, he would counsel; make that equity work for you. Fix up your home. Consolidate your bills. Take that pretty wife of yours on a trip, he'd cajole. Myers would always politely decline.

But then in 2001 Marcia started to have trouble breathing. Walking up a flight of stairs left her feeling as if she had just run a marathon. She couldn't go to work and then the news got worse when the doctors discovered a congenital heart problem and told her she needed surgery. The long recovery meant the pair would be without her paycheck for the better part of a year.

Myers puzzled over what to do about their new, more perilous financial situation. They were suddenly carrying more than $10,000 in credit card debt. They were paying a relatively low 7 percent on their mortgage but getting hit by interest rates as high as 10 percent on their three credit cards. "My thinking there was 'Let's refinance the house, put everything in one bill, it'd be easier to handle,'" he said. Now it was Myers who was calling Household.

It turns out that the salesman who had been calling was also a Household broker who could write loans. "He tells me, 'How about me taking your house, your credit card bills, everything, and we'll combine it into a single loan at 7.2 percent?'" He would end up owing more in princ.i.p.al and pay a slightly higher interest rate than they were paying on the mortgage but one that was significantly less than the interest on their credit card debt. That sounded great to Myers, who told the man to draw up the papers. "We want to get this all taken care of and get you back on your feet," Myers remembers him saying.

The nearest Household Finance office was just off the interstate in a first-ring Dayton suburb called Huber Heights. There on a Friday evening in the fall of 2001, out by the big air force base, in a shopping center populated by an Applebee's and an Uno pizza parlor, they met with the salesman who had been calling them. He greeted the couple with a toothy Dentyne smile-and right away Marcia was mistrustful. "She flat tells him," Myers said of his crocodile wife, "'Anytime I talk to somebody and all I see is teeth and eyeb.a.l.l.s, I don't trust 'em.'"

"I can tell a phony grin from a mile away," Marcia said. "And this man was too smiley for me." The phone rang and things went from bad to worse. It was a friend of the broker calling, apparently to work out the details of a trip to a nearby amus.e.m.e.nt park the next day. "This is a big deal to us," Myers said, "but we're sitting there for like twenty minutes-"

Marcia: "At least twenty minutes." twenty minutes."

"-at least twenty minutes while he's talking about this trip and all the rides he's looking forward to."

The man was all business once he was off the phone. It was Myers's impression that he was in a rush to get home. Myers would kick himself in the coming months for acting so accommodating despite the stakes, but Sat.u.r.day was a workday and there was Marcia to worry about. She didn't feel anything close to 100 percent. Marcia had spoken up one final time. "I don't want to do this whole thing," she said, but then she abdicated to her husband. You're the one who understands this stuff, she said. You're the one who handles the money. "I don't understand interest and that whole mess," she remembers saying. "So if you think this is the right idea, then go for it." Myers felt confident he was making the right decision. He thought he knew the questions he needed to ask. This particular broker might feel wrong to him but the deal felt right.

Anyone who has been to a real estate closing knows that disorienting feeling that comes while staring at a thick stack of impenetrably complex doc.u.ments, each reading as if written by the Committee for the Full Employment of Lawyers. Myers fixated on a single detail: the new interest rate. "I asked him point-blank, 'So what I'm signing here, this means I'm paying 7.2 percent,'" he said. "And he looked me straight in the eye and said, 'Just trust me. You make your payment every other week, that brings your interest rate down to 7.2.' I didn't think too much about it. I just thought, 7.2, good, that's right."

The rest of their meeting was a blur. They signed and initialed until their hands cramped up. The Myerses had thought it was just the three of them in Household's offices that night when a man appeared out of the gloaming when the time came to have the papers notarized. They were there less than an hour, including the time the broker was on the phone with a friend.

"You make your payment every two weeks..." Those words gnawed at Myers's subconscious all weekend but it wasn't until Monday that he pulled out the papers and asked one of his daughters, who knew something about mortgages, to take a look. "She says to me, 'Dad, you got took.'" Those words gnawed at Myers's subconscious all weekend but it wasn't until Monday that he pulled out the papers and asked one of his daughters, who knew something about mortgages, to take a look. "She says to me, 'Dad, you got took.'"

Under Ohio law a borrower has three days to change his or her mind about a home loan. Myers didn't contact Household until the next morning, four days after they had signed the papers, and the man he met with on Friday night refused his request to rescind the deal. "Partially it's my fault for not saying I want to come back when we're not all in this big rush," Myers said. It was when he received the bill for his first mortgage payment that he began to appreciate the magnitude of his mistake. He knew his monthly payment would be higher than the $526 he had been paying but he was figuring on a b.u.mp of maybe $50. Instead it had nearly tripled to $1,400 per month.

The main culprit was the interest rate. The annual percentage rate, or APR, on the loan Household sold the Myerses was 13.9 percent, not 7.2 percent. In time, it would be revealed that Household agents around the country were routinely claiming that customers would be paying lower interest rates than they were actually being charged. Each used the same sleight of hand: Because its customers were required to make biweekly payments, they were making the equivalent of thirteen monthly payments during the year rather than twelve. Financial planners recommend making thirteen payments each year because by doing so borrowers pay off a standard thirty-year fixed-rate mortgage in just over twenty-one years. The mortgage holder is paying the same interest rate on the money, of course, whether he or she is paying the standard twelve months a year or thirteen, but over the life of the loan they'll pay significantly less interest because those extra payments are whittling away at the princ.i.p.al on the front end. Yet even this rhetorical trick practiced by Household agents doesn't get a borrower from an interest rate of 13.9 percent to 7.2 percent.

People with tarnished credit, naturally, can expect to pay a higher interest rate than those with good credit. They present a greater risk of default and lenders need to charge a higher rate to cover any additional losses. But Tommy and Marcia Myers had excellent credit. The generally accepted definition of a "subprime" borrower is a person with a credit score of below 620 on a scale between 300 and 850, though some inst.i.tutions use a cutoff of 640 or higher. But the Myerses weren't even close to the margins. Myers contends that the couple had a FICO score (FICO is named for the Fair Isaac Corporation, which created the credit rating system) in the mid-700s. If so, that meant that had Myers gone to a traditional bank rather than Household, he would have secured the loan he had been seeking.

A credible lender might charge its subprime customer an interest rate one or two percentage points more than what its customers with good credit receive. But in his interview with the Journal Journal's Jeff Bailey, Household's William Aldinger dismissed this idea of competing on price. They would compete instead using aggressive marketing and sales techniques. The Myerses thought they were borrowing $80,000 at an interest rate of 7.2 percent. That would have meant a monthly house payment of $543. Instead they were charged an APR roughly seven percentage points higher than the rate a prime borrower could have secured in the fall of 2001. That translated to a monthly payment of $942.

But the interest rate proved only one factor in the near tripling of the monthly payment. The Myerses ended up borrowing $95,000, not $80,000, because of a pair of extra charges Tommy learned about only after the fact. Everyone carps about closing costs, the fees that lenders invariably tack onto a mortgage: escrow fees, loan origination fees, attorney's charges, and the like. Commonly those add a percentage point or two to the cost of a loan. Fannie Mae, the quasi-government mortgage finance company that sets the standards for the industry, won't approve a loan if the fees and points exceed 5 percent of the total cost of the loan. In the case of the Myerses, though, Household hit the couple with slightly over 8 percent in points and fees. That b.u.mped the amount the couple needed to borrow by $7,700.

Myers admits he didn't even notice that number on that Friday night they were in Household's offices signing papers. "My mind was on two things," he said. One was that 7.2 percent interest rate; the other was his wife's health. "She was fixing to have her operation and I wanted to get these obligations out of the way so I could pay attention to her," he said.

The other nasty surprise was an insurance policy he had unknowingly purchased. Myers acknowledges that the broker had brought up the issue of insurance during the closing, but he figured it was part of the deal, like a warranty automatically included as part of the purchase. He certainly didn't mention its cost, Myers said.

"He tells us, 'I had a couple of people, had the loans for two or three months when they got injured; we paid the loans off and everything.' He's telling me how this is this great thing, part of the loan we're getting. Well, I got to reading the fine print: $7,600 for insurance." Without quite realizing it, Myers had fallen into another costly and controversial financial trap, the so-called "single-premium credit insurance policy." For years single-premium policies were a staple of subprime loans. Those selling the policies argued that they protected borrowers in case of death or an accident, but banks and other lenders rarely even bothered to pitch the same product to those in the market for a conventional loan. That's because a middle-cla.s.s borrower is more likely to buy a standard life insurance or disability policy to protect against disaster.

People typically make monthly or annual payments when buying an insurance policy. Single-premium policies, however, are paid off in one lump sum at the start of the contract. If that contract is financed, as it invariably is, that means interest accrues on the entire cost of the policy. That's what happened to the Myerses. The policy, as written, expired after five years, but Tommy and Marcia would be paying off its costs over the entire life of the mortgage. At 13.9 percent interest, that meant the actual cost of the policy would work out to around $32,000, not $7,557.

Myers received the final shock a few weeks after signing the deal when the couple received a second bill from Household. At roughly $325 per month, this one was much smaller than the first bill but it enraged Myers more than any other aspect of the loan. While working their way through a stack of papers at the closing, they had unknowingly signed the paperwork for two two loans: the original home refinance and also a home equity loan. This was becoming a common tactic inside Household: Agents would lend money through a home equity loan at the same time they were writing a refinance, even though that often meant (as in the case of the Myerses) that customers were left owing more than the actual value of their homes. Household charged the Myerses an interest rate of 19.9 percent on this second loan. loans: the original home refinance and also a home equity loan. This was becoming a common tactic inside Household: Agents would lend money through a home equity loan at the same time they were writing a refinance, even though that often meant (as in the case of the Myerses) that customers were left owing more than the actual value of their homes. Household charged the Myerses an interest rate of 19.9 percent on this second loan.

"We knew nothing about a second bill coming in," Myers said. "A home equity loan? First we hear a thing about it is when this bill here comes in the mail." (Myers would claim that later when he had a chance to examine all the loan doc.u.ments, he noticed initials that looked nothing like his or Marcia's.) He rushed to the Household office the first time he had a free moment to confront his broker. "You must think I'm awfully f.u.c.king dumb," he began. He laid out his case in one big emotional gush but he casts the man as smug rather than defensive. "You can't sue me, there's nothing you can do, you signed the papers," he remembers being told.

"I said to him, 'You snookered me on that 7.2 percent interest. But you ain't snookering me on this line of credit at 19.9 percent.'" Myers was resigned to paying the monthly amount on the new mortgage; he felt he had no one to blame but himself for agreeing to a lousy deal. But he wouldn't pay a dime on the home equity loan. "He tells me, 'You have to pay.' And so I says, 'We'll see about that.'"

Myers phoned his state senator, where an aide informed him that a lender can charge basically whatever he wants so long as the terms are spelled out in the contract. He heard pretty much the same from an aide inside the governor's office, who told him that even if everything he said was true, it wasn't against the law. Myers phoned the White House. He tried reaching the secretary of the U.S. Department of Housing and Urban Development (HUD) and the U.S. attorney general. He ranted at random Beltway bureaucrats who seemed indifferent to what had happened to him. But mainly he pestered the people at Household.

Myers could have paid his bill by mail, but then he would have denied himself the pleasure of stopping by the Household office before work every other week. "I enjoyed seeing 'im," Myers said of his broker. "I enjoyed sticking it to him for the s.c.r.e.w.i.n.g they took me for." He'd park right out front and wait for them to open and invariably be the first person in the door. "I'd basically raise h.e.l.l every time I'd go in there," he said. "I'd razz him for being a crook; I'd talk about what a job they did on me. I didn't care who was in there. I'd just give him what for.

"I'll be honest with you," Myers said. "I'm very, very stubborn. I try and be fair about things. But don't tick me off. Just don't tick me off."

Among those Myers called to complain about Household was a local advocacy group called the Miami Valley Fair Housing Center (Dayton is located on the Great Miami River). Myers is white and the Fair Housing Center was a group known for fighting the racial discrimination that denied homes to qualified black buyers in the Miami Valley, but he figured someone there would know something about abusive lending practices.

Actually, the mission of the Fair Housing Center was already starting to change by the time of Myers's call. Just as strong currents of change were beginning to flow through a newly deregulated financial world, the strategies of housing activists were s.h.i.+fting with them. It was no longer a matter of lenders refusing to make loans in certain neighborhoods; rather, it was now something like its opposite: Lenders were now targeting those same neighborhoods and aggressively peddling mortgages and home equity loans on terms that left borrowers worse off than if they had been denied a loan in the first place. This new scourge had first shown itself in the city's black precincts but quickly spread to its white working-cla.s.s neighborhoods and to the crumbling first-ring suburbs. Myers didn't realize it at the time but his hometown had become a hotbed in the fight against predatory lending, and Fair Housing's executive director, Jim McCarthy, was one of the people pus.h.i.+ng hardest for a confrontation with these lenders. The county had recently given McCarthy and his allies $600,000 to fund a public awareness campaign to warn people about these abusive loans and to create a group they were calling the Predatory Lending Solutions Project to help people untangle themselves from situations like the one that had ensnared Tommy and Marcia Myers.

Fair Housing opened more than 650 case files in 2001 and nearly 900 more the next year. McCarthy invited me to go through the center's files, where I found the names of more than seventy-five people who had contacted their organization about a Household loan. Not every person who showed up in their offices was a victim, McCarthy said, but many shared tales not all that different from the one that Tommy Myers told. He remembered Myers-remembers liking him and feeling great sympathy for what had happened to him-but called up his file to refresh his memory. He filled me in on details that Myers had left out, such as the stiff prepayment penalty Household had written into his loan terms-another staple of abusive mortgages. Just as it had cost Myers dearly for the privilege of taking out a Household loan, it would cost him plenty to get out of the loan inside of five years. Myers also didn't mention that Household had paid a subsidiary of itself to do the appraisal on his home and then stuck it on his tab. Technically that's not illegal but it's certainly not the accepted practice, either. Phone logs for the organization showed that Myers had initially contacted the Fair Housing Center to ask whether it was true that there were no predatory lending laws in Ohio. He was told that there weren't.

McCarthy could sympathize. Since the late 1990s, he and his allies had been trying to alert people in the state capital, Columbus, about the destructive practices of seemingly legitimate subprime lenders like Household Finance. "We were met by this very arrogant 'Who are you, you're just a bunch of community organizers, we know and you don't' att.i.tude," McCarthy said. For the time being at least, there would be no help from the state or, for that matter, the federal government.

In the meantime, Fair Housing beat the hustings in search of local lawyers willing to take on the cases of those believing themselves to be victims of predatory loans. Among the few who answered the call was Matthew Brownfield, an attorney who lived in Cincinnati, one hour to the south. Brownfield filed a cla.s.s-action suit against Household in November 2001, listing the Myerses among a small group of named plaintiffs. The basis of the lawsuit was the charge that the company had violated federal mortgage disclosure laws and therefore the loans should be rescinded. The suit claimed more than one thousand potential plaintiffs. Gary Klein, who as a staffer for the National Consumer Law Center in Boston had helped write the materials that lawyers across the country use when litigating these types of cases, helped Brownfield. That gave Myers a tickle: A big-time lawyer from Boston was helping him go after Household.

Brownfield encouraged the Myerses to remain in the house. Household-perhaps because the Myerses had sought legal protection-had yet to take action against them over their failure to pay on the home equity loan. Don't worry about the main loan, either, he advised the couple. Pay a set amount each month into an escrow account I'll help you set up. That way you can demonstrate good faith to a judge.

Myers, however, was thinking about the aggravation this whole mess was causing Marcia, who was still recovering from open-heart surgery. So at the end of 2001, six years after they had bought their first home but not five months after they walked into that Household Finance office in Huber Heights, the Myerses walked away from their house and mortgage and moved into a trailer park in a suburb south of Dayton. The place wasn't too bad, they said. s.p.a.ce was tight but they had access to a community swimming pool. There were trees, the grounds were well maintained, the neighbors were nice. All in all, it didn't seem too terrible a place to recover while waiting for the courts to rule on their claim.

The Myerses wouldn't need to wait terribly long; the company's aggressive new lending policies were sparking lawsuits all across the country. Household Finance was facing legal action for its alleged deceptive practices in Illinois, California, Oregon, New York, and Minnesota. The community organization ACORN had filed a national cla.s.s-action suit against the company, charging it with widespread consumer fraud, and AARP joined a similar cla.s.s-action suit filed against the company in New York.

The company was also attracting the attention of regulators around the United States, starting with Christine Gregoire, then the attorney general of Was.h.i.+ngton state. One case that spurred Gregoire into action was that of a seventy-year-old Bellingham man who had been talked into buying a credit insurance policy limited to those sixty-five or younger. There was also the family of five in Auburn, paying $900 more a month than they had been paying before they turned to a Household salesman for a refinance. A group of attorneys general began meeting with company officials in the summer of 2002 and a joint settlement was announced that fall. Household agreed to $484 million in fines-the largest consumer fraud settlement in U.S. history-and a.s.sented to a series of reforms, including a 5 percent cap on up-front fees and utilizing "secret shoppers" whom the company would hire to police its own sales people. William Aldinger even claimed he was sorry after a fas.h.i.+on. In a written statement, he apologized to the company's customers for "not always living up to their expectations" but did not admit to any specific wrongdoing.

The $484 million settlement sounded enormous-until one did the arithmetic. The money was to be divided among the roughly 300,000 people in forty-four states who had refinanced with Household between 1999 and the fall of 2002. Even forgetting about legal fees and the money set aside for compliance, that worked out to an average of $1,600 per person. Household, by contrast, had logged sixteen straight record quarters in a row. In 2001 alone, the year the Myerses signed their deal, Household reported $1.8 billion in profits. The company had made big promises but its executives told a.n.a.lysts that they didn't expect its consent agreement to cost them more than ten cents a share over the coming year. Household's share price spiked by one-third in the forty-eight hours after news of the settlement spread. Investors seemed relieved that the penalty hadn't been larger or the reforms more sweeping.

The national settlement presented the Myerses with a difficult decision. The state attorney general had announced that Ohio residents who did business with Household could receive up to $5,200 per family. But agreeing to a settlement meant the Myerses would have to drop out of their lawsuit. They opted out of the negotiated deal so they could continue to press their specific case in court.

In the end, it hardly made a difference what they chose. The confidentiality agreement Myers and Marcia signed with Household means they can't reveal the size of their cash settlement, but suffice it to say that in retrospect the monetary difference between the two deals was minimal. They received a better payout than the state would have given them but not so much more that it had been worth all their anguish. The bottom line is that it was a mere pittance compared to what Household had cost them. "It wasn't worth all the fuss, I'll tell you that much," Myers said. "I told my lawyers, 'The only ones making any money on this are you people.'"

One month after settling with the attorneys general, William Aldinger stood before the cameras for one more blockbuster announcement: Household was being acquired by HSBC, the London-based financial giant, for $16.4 billion. Later, long after the financial crisis of 2008 had done so much damage, Floyd Norris, the New York Times New York Times columnist, would dub this acquisition, consummated in 2003, "the deal that fueled subprime." This sector, the CEO of New Century Financial, a large subprime lender, said at the time of the acquisition, gets "beat up on a regular basis. So it's refres.h.i.+ng when a highly-qualified suitor sees value." Under the deal, Aldinger was paid an immediate bonus of $20.3 million and given a new contract that guaranteed him at least $5.5 million a year over the next three years. columnist, would dub this acquisition, consummated in 2003, "the deal that fueled subprime." This sector, the CEO of New Century Financial, a large subprime lender, said at the time of the acquisition, gets "beat up on a regular basis. So it's refres.h.i.+ng when a highly-qualified suitor sees value." Under the deal, Aldinger was paid an immediate bonus of $20.3 million and given a new contract that guaranteed him at least $5.5 million a year over the next three years.

Myers was not nearly so fortunate. Even factoring in his wife's medical costs and the loss of her income for almost a year, Myers figures that he would have saved enough to retire in 2002 or 2003 at the latest if he had not been lured into a deal with Household. Instead, shortly before resolving their legal case, the Myerses filed for bankruptcy. "You know, you hear all these people saying they're ashamed to have filed bankruptcy," Myers said. "That's not me. They screwed me, and the way I figure it, one screw job is good for another screw job."

Myers was still working when I visited him at the end of 2008, a week shy of his seventy-fourth birthday. He was too old to be delivering boxes to restaurants so his boss put him to work in the warehouse, packing boxes of tomatoes and the like. His workweek starts on Sat.u.r.day night at midnight. He works until 8 or 9 A.M A.M. on Sunday morning and then returns to the plant Sunday night to work the same hours. He picks up a third s.h.i.+ft during the week. "Ain't too bad," he said with an amiable smile.

Harder to swallow has been their slide down the housing hierarchy. The trailer park in the south suburbs, the one with trees and a swimming pool, raised its rates to $400 a month, which proved too steep a price for a part-time produce boxer and a cafeteria worker. That meant the Myerses had to move-again. They looked for a place that cost $200 a month or less, which is how they ended up at Pine View.

Marcia misses her old flower beds. The small patch of dirt available to her now is nothing like the garden she had in those few years they owned a home. But she tells herself she had lived in trailers before and they would do just fine in one now.

It helped that they had recently visited the old place. The couple was shocked by what they saw. They had read about foreclosures in the paper but it was nothing like seeing it up close. The old place was still white with the teal trim but it was as if the house had been physically moved out of the stable working-cla.s.s neighborhood that they knew and dropped into a deteriorating ghetto. There were vacant houses everywhere, with plywood over windows and garbage strewn about. Several payday lenders had opened storefronts in the area, as had a check casher and a rent-to-own place. "We didn't feel so bad after that visit," Myers said.

Yet he can't help but feel lousy sometimes, he said. It's not the lost house, or the fact that he's still working hard into his mid-seventies. It's the feeling that he let Marcia down and also himself.

"After I first found out about the shafting I took, I felt dumb," he said. "I felt really, really dumb for a good long while there." He confessed as much to one of his attorneys. "He says back to me, 'Hey, there are people with a lot more mental capabilities than you that got took. We got police chiefs in these lawsuits, we got schoolteachers.' He listed off a bunch of people with better educations than me.

"It made me feel better. At least it was everyone who was took."

One.

Check Cashers of the World Unite.

LAS VEGAS, 2008.

The stomping piano chords and tambourine slaps blaring over the loudspeaker are at once familiar. They are the opening notes to the early Motown hit "Money (That's What I Want)." The nation's check cashers and payday lenders have a dangerously low sense of irony, I mused. We are a respectable business, their leaders have been saying since the founding of the National Check Cashers a.s.sociation in the late 1980s. Sure, we cater to a hard-pressed, down-market clientele but we are not the money-grubbers the popular culture makes us out to be. We provide a useful service critical to the working of the U.S. economy. Our products are heavily regulated and fairly priced. Yet here they were kicking off their twentieth annual gathering in October 2008 with a musical production based on a song whose lyrics repeat, more than thirty times, that what the singer wants, more than love and more than happiness, is lots of money.

The convention was being held in Las Vegas. The women dancing across the stage were young and buxom and dressed in skimpy sequined outfits. The men were buff and tan and similarly underdressed. We could have been sitting in any show room on the Strip except that the lyrics had been rewritten for the occasion. Instead of an unconscious self-parody the skit was actually aimed at a handy target in those dark and unsettling days in the fall of 2008: the country's bankers. If not for the behavior of the banks, their industry would not be nearly so robust. The banks abandoned lower-income neighborhoods starting thirty years ago, creating the vacuum that the country's check cashers filled. The steep fees the banks charge on a bounced check or overdue credit card bill fuel a lot of the demand for payday advances and other quick cash loans. The big Wall Street banks had stepped in and provided money critical to the expansion plans of many in the room, but never mind: These entrepreneurs selling their financial services to the country's hard-pressed subprime citizenry are nothing if not opportunistic. The nation's narrative, they argued, was theirs. The banks, who were booed l.u.s.tily throughout the two-day conclave, would serve as the poverty industry's new bogeyman.

"I get my money (when I want), I get my money (when I want)," the troupe sang as they danced and pantomimed various financial transactions. Those playing the part of bankers (picture a tie over an otherwise naked male torso) were emphatically shaking their heads "no" ("At the bank I feel like I'm on trial; I'd rather get fast service and a smile"), but when those in the role of customers knock on the door of their local "financial center," they are greeted by friendly people who are only too glad to cash their checks or to loan them cash until their next paycheck. Apparently salvation is sweet. Suddenly a dozen or so very good-looking young people were dancing through a blizzard of fake twenty-dollar bills while singing, "I got my money (and it works for me)." The extravaganza brought down the house.

There's no single gathering place that routinely brings together more of the many strands of the poverty business than this one, held this year in a cavernous hall in the bowels of the Mandalay Bay convention center. Those who pioneered the payday advance industry in the mid-1990s started showing up at meetings of the National Check Cashers a.s.sociation because they didn't know where else to go and, over time, other parts of this subculture of low-income finance-the p.a.w.nbrokers, Western Union and MoneyGram, the country's largest collection agencies-followed. Eventually the check cashers hired an outside consulting firm to give them a new name, and since 2000 their organization has been called the Financial Service Centers of America, a rebranding at once more respectable and opaque. When expressed as an acronym, FiSCA, the name sounds quasi-official, like f.a.n.n.y Mae, Freddie Mac, or some other agency playing a mysterious but vital role in the U.S. economy.

Business remained good in the poverty industry, despite hard economic times and also because of them. People struggling to get by, after all, are often good news for those catering to the working poor and others at the bottom of the economic pyramid. Everywhere I looked there were people flying their corporate colors. Competing battalions were dressed in look-alike pants and pullover s.h.i.+rts bearing company logos, each representing another big chain booking hundreds of millions of dollars in revenues each year, if not billions.

Yet despite flush times, the weekend felt like one extended, oversized group therapy session for an industry suffering from esteem deficit disorder. The CEO of one of the industry's biggest chains, ACE Cash Express, even brought a video created for the occasion aimed at bucking everyone's spirits. A montage of warm black-and-white photographs flashed on a screen hovering above the stage as an ethereal cover of the song "Over the Rainbow" played and a narrator intoned, "They need to pay their rent. They need to feed their family. They need someone who understands them." Joseph Coleman, the group's chairman, had offered similar self-affirmations in his welcoming remarks. Virtually every person in the room made his or her living catering to customers with tarnished credit. So Coleman opened by a.s.suring them that they were not to blame for the financial hurricane that was leaving the global economy in tatters. Feel proud of what you do, he told an audience of more than one thousand people. "While consumer advocates were organizing against us for charging fifteen dollars on a two-week loan," Coleman said, and while well-meaning community activists and pinhead bureaucrats were wringing their hands over those choosing to pay a fee to a check casher rather than establis.h.i.+ng a checking account, "the big boys were selling toxic six-figure mortgages that threatened to bring down the worldwide financial system."

"No one matches the service we give our customers," Coleman, who runs a small chain of check-cas.h.i.+ng stores in the Bronx, New York, rea.s.sured his cohorts. "No bank matches our hours. Our products fit our customers' lifestyle." Look at any member of the easy-credit landscape, whether the used car dealer offering financing to those who could not otherwise secure a loan or those who saw the fat profits that could be made pitching faster IRS refunds to the working poor. We're ubiquitous in the very neighborhoods where businesses tend to be scarce, Coleman said. We're willing to serve these people who otherwise would do without. And yet-here a picture of Rodney Dangerfield appeared on the giant overhead screen-"we don't get no respect." With that the room erupted in appreciative applause.