The broader U.S. economy may be struggling, but business is booming for those companies that reap profits from the growing number of Americans with their backs to the financial wall.
In his new book Broke, USA, former New York Times reporter Gary Rivlin dives into the increasingly corporate and mainstream industries ranging from pawnshops to payday lenders that make up the "poverty business."
These kinds of businesses have always lurked in the shadows, of course. But what Rivlin chronicles is a landscape once consisting largely of mom-and-pop shops morphing into a juggernaut of an industry that counts a growing number of publicly traded companies among its ranks.
With profit margins that would make many just about any other sector envious, these kinds of enterprises have quickly embraced brash marketing practices that seek to up-sell customers well beyond providing emergency funds now and again. The flamboyant personalities at the helms of these businesses, meanwhile, don't make any apologies for their line of work.
Big Profits, Questionable Services
Drivers of growth for the industry are easy to spot. Income disparity in the U.S. has long been expanding and swelling the ranks of working poor, even before the Great Recession gave the trend another massive shove. And some high-profile banking industry analysts are predicting that new regulations limiting items like overdraft fees will lead to banks cutting off millions of customers who may then be forced to use more expensive options.
Industry tactics like the aggressive selling and marketing of products with questionable value to desperate, vulnerable customers seem to be on the rise elsewhere as well. Recent reports note that debt settlement agencies are coming under fire for collecting hefty fees from customers even when they fail to reduce their clients' debts.
Companies in the for-profit education sector, meanwhile, have mastered the art of extracting federal education money from students while saddling them with high levels of debt, despite graduation rates that remain abysmal. The sector's high margins have drawn the attention of short sellers, who are betting the party will be up once investors and regulators realize that the industry's real business model is based on exploiting rather than educating its customers.
Rivlin suggests that the poverty business may eventually become a victim of its own runaway success. Regulatory scrutiny may rise along with profits.
For the time being, though, the poverty business sadly stands out as one of the few growth industries to emerge in the country over the last decade.