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 assuring 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 establishing 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-cashing stores in the Bronx, New York, reassured 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.
The business of making money off the poor dates back to the first time a person of means held a ring, a brooch, or a pocket watch in hock in exchange for a cash loan plus interest. The Chinese supposedly served as the globe’s first pawnbrokers and in fifteenth-century Italy the Franciscans ran nonprofit pawnshops called
By that point Daugherty had burned through $300,000 in savings. He had lost money pursuing his fortune in the oil trade and frittered away more of it on a Dallas area nightclub. Left with nothing except the small pawnshop he had opened in a suburb of Texas while he was still in his early twenties, Daugherty told himself that men had started with less. He dubbed his new business Cash America and set out to buy up as many pawnshops as he could.
He tried arranging financing through Merrill Lynch, Goldman Sachs, and the other big investment banks but none would even agree to meet with him. Rich acquaintances shunned him as well. The pawn trade meant dealing with people with grime under their nails and mud on their boots, and, depending on the state, it meant charging shockingly high interest rates that ranged between 60 percent and 300 percent annually. “If you said ‘pawnshops’ at one of the local country clubs,” Daugherty said, “they wouldn’t even talk to you.” But he was not a man easily deterred. He grew the business more slowly, one store at a time. He focused on mom-and-pop pawnshops run by aging couples whose children wanted the cash more than the headaches of running the family business.
Daugherty was up to thirty-five stores when he convinced an investment bank to take his company public. In 1987, Cash America began trading shares on the American Stock Exchange. The AMEX lacked the cache of the Big Board or Nasdaq but Daugherty was able to raise $15 million and fund his first buying spree. By the end of 1988, Cash America, based in a suburb of Dallas, operated 100 pawnshops. By 1995, it was up to 350, including 33 in Great Britain and 10 in Sweden. The company changed its name to Cash America International and was invited to join the New York Stock Exchange. By 2009, Cash America was operating 500 pawnshops in the United States and another 100 in Mexico. By that time Daugherty was doing business with many of the same brand-name lenders— Bank of America, Wells Fargo, and JPMorgan Chase, to name just a few—that had ignored him when he was just starting out.
Competition was inevitable and it’s no wonder, given the numbers Cash America was reporting. In the early days, Daugherty’s people were borrowing money at 9 percent and loaning it out at an average annual interest rate of 210 percent. Its profits grew by more than 20 percent a year, ranking Cash America among the country’s hottest growth companies. Several more pawn companies went public in the late 1980s and at the start of the 1990s. To the prosperous, the pawnshop might have seemed an archaic, throwback business that hit its zenith in around 1955 but those with poor credit or no credit knew better. The number of pawnshops in the United States doubled during the 1990s. Though the pawn business can seem penny ante—in 2009 the average pawn loan stood at just $90— Cash America now tops more than $1 billion in revenues and churns out in excess of $100 million in profits a year.
Other businesses that belonged to what might be called the fringe financial sector followed more or less the same trajectory as the pawnbrokers. The rent-to-own furniture and appliance business was born in the late 1960s when the owner of Mr. T’s Rental in Wichita, Kansas, a man named Ernie Talley, told a family that they had rented a washer-dryer for long enough to have paid for it in full. The enterprise he created went public in 1995 and today is called Rent-A-Center, a company that delivers profit margins more than twice that of Best Buy, which sells, rather than rents, its electronics and appliances. Rent-A-Center, based in Plano, Texas, another Dallas suburb, reported that its 3,000 stores booked just under $3 billion in revenues in 2008 and $220 million in pretax profits. If anything, its closest competitor, Aaron’s, based in Atlanta, had an even better 2008 as its stock price soared 38 percent in perhaps the market’s worst year since the 1930s.
Wall Street money started washing through the check-cashing industry in the early 1990s when ACE Cash Express went public. Though ACE’s senior management, in league with the private equity firm JLL Partners, paid $455 million to take the company private in 2006, today at least a half dozen publicly traded companies are in the check-cashing business, including Dollar Financial, a diversified, $500 million, 1,200-store mini-conglomerate based in Berwyn, Pennsylvania, that sells its customers everything from check-cashing and bill-paying services to payday loans, reloadable debit cards, and tax preparation services.
Yet when compared to the cash advance business, all these other enterprises catering to those on the economic fringes can seem pint-sized. Payday lending was a late entry in the Poverty, Inc. phenomenon—the first payday lender didn’t go public until 2004—but it is at once more pervasive than any of its scruffy, low-rent cousins and far more controversial. There were so many payday outlets scattered across thirty-eight states at the industry’s peak a couple of years back—24,000—that their numbers topped even the combined number of the country’s McDonald’s and Burger Kings. An estimated 14 million households in the United States (of 110 million) visited a payday lender in 2008, collectively borrowing more than $40 billion in installments of $200 or $500 or $800. A list of name-brand banks that have helped the industry fund its expansion includes JPMorgan Chase, Bank of America, Wells Fargo, and Wachovia. “Free and equal access to credit for any legitimate business that complies with all laws is a cornerstone of the free enterprise system,” a Wells Fargo spokeswoman told Bloomberg News in 2004, representing one of the rare times a large bank was asked about its subprime activities prior to the credit meltdown of 2008.
Payday lenders charged their customers a collective $7 billion in fees in 2008. The country’s rent-to-own shops collectively took in about $7 billion in revenues that year. By comparison, movie theaters in North America generated $11 billion in ticket sales in 2008.
The pawnbrokers booked roughly $4 billion in revenues that year and the check cashers $3 billion. Toss in businesses like the auto title lenders (short-term loans in which a car serves as collateral) and all those tax preparers offering instant tax refunds (one chain, Jackson Hewitt, with 6,500 offices scattered across the country, is more pervasive than KFC) and that adds up to $25 billion. By comparison, the nation’s funeral business is around a $15 billion a year industry and the country’s liquor stores and other retailers sell around $30 billion in beer, wine, and spirits each year. Include the revenues generated by the money-wiring business (Western Union alone did $5 billion in revenues in 2008 and MoneyGram $1.3 billion) plus all those billions the banks and other companies selling
