October 17, 2005

Preying on the Poor

A happy poor person (HPP) is about to file their taxes. Most of the money is probably from the Earned Income Credit. Sure hope they don’t get audited (getting the EIC gives you a higher chance of being audited . . . thanks to Bill Clinton, though, he was just protecting the EIC from being abolished). More on that later.

HPP gets money back every year and this year is no different. H&R Block advertizes how great they are and they do it specifically to the people getting refunds, the people qualifying for the EIC, people making less than $30,000. Jackson Hewitt does the same thing but I see H&R Block all over the place. So, HPP comes in and “Good news . . . you’re getting a refund!!!” How much? $5000, but, there are some fees. $40 to file your taxes. Oh, did you want that money as soon as possible? Don’t want to wait the 14 days to get you money? Okay, we’ll loan you the money. It’s called a Refund Anticipation Loan. How much? About $100, but in your case probably closer to $200. So, about 4 percent for a 2 week loan!!!! You’d be better off borowing the money from Tony Soprano. Okay, so now you’re down only $240 so you’re still getting back over $4000 and that’s a lot of money. Let me guess, you don’t have a checking account to cash this check. No problem!! Go to a check cashing place and get it cashed for another couple of bucks. And guess what? H&R Block has a deal with the check cashing places and makes money off that too.

See, now that’s thinking. Whenever I think about starting a business I think about how to appeal to the high end . . . custom wood work, custom web sites, custom database this or that all to people that have the money to spend on the best of the best. H&R Block went the other way and targets the poor.

A capitalist would say H&R Block is providing a “much needed service”. I say hookers provide a much needed service too but I still think prostitution should be against the law. And don’t get me started about pimps and drug dealers.

Oh yeah, and President Bush wants to put Socal Security money into the hands of people who don’t understand what they’re loosing when they get these short term loans (ever hear of a “pay day loan” . . . another drug dealer). I wonder what company will come along and provide a much needed service for them.


While H&R block is Evil, I tend to lump Rapid Refund with all other “convenience taxes” that don’t so much prey on the poor as they do the HSP (happy stupid person). However, I wonder what happens if they screw up your return and you dont actually have a refund coming. Do you owe the IRS *and* H&R block, Or does the loan contract provide some sort of insurance that they eat their errors? My guess is that the taxpayer is left holding the bag.

You only touched on the *real* evil, though: check cashing stores and “payday loan” stores. They truly prey on the poor. Here’s why:

1) They rely on people that *can’t* get their checks cashed through other means (bank, grocery store, etc.). I imagine migrant workers are the biggest victim. That’s how they get away with such high rates: it’s not just a convenience tax, it’s a “where else are you gonna go, punk?” tax.

2) Regular, 1+ year loans can only go as high as about 25%. Payday loans can go much higher, like 60%. Some payday loan places can go as high as 100%-400%. Sure, it’s against the law… but again, if you’re a migrant worker, are you gonna call the cops?

3) Banks wont put branches in economically depressed areas (too big of a risk, they say). However, you see tons of payday loan centers…. which are owned by big-name banks! Evil!

Comment by Jim deVos — October 19, 2005 @ 11:44 am