Magic and Taxing Times

There was a time when, for me, finances were funny. Not ha-ha funny, but boo-hoo funny. I planned my visits to friends’ homes around the time I thought they might be eating, and so offer me a bite. (Yes. I was That Person.) I acted like I was inspecting the offerings at the salad bar, when really I was swiping single-serving packages of saltine crackers. I choreographed an elaborate bill-payment dance that included such moves as post-dating checks and “accidentally” mailing the wrong checks to the utility companies. I prayed in front of the ATM screen, hoping as the machine did its calculations on my little card that it would discover that I had the minimum $10 balance in my account to be able to withdraw money for the weekend. I waited by the mailbox for my little tax refund check every spring as if I were dogpaddling in the middle of the ocean awaiting a life preserver.

"Puff Daddy George, 2/2." EricGjerde, http://www.flickr.com/photos/origomi/171973180/

I, however, was not really poor. I could have simply abandoned my dream to live in the big city on my own and return home to live with my mother and my economic status would have magically improved over night. I was “hipster poor”–a temporary financial situation that gave me a certain perspective, a certain appreciation, but never with much chance that I would actually be in serious danger.

Even then, though, I often fell prey to the financial situations that people in better financial positions rarely worry about: not having a permanent address in order to open a checking account and so having to rely on expensive money orders to pay my bills, for example. (This was before internet bill-pay, mind you.) When I did have a checking account, I frequently had to deal with the new-math of $15 overdraft charges on $12 checks. Getting a new job meant leaving the box for “dental coverage” on my employment form unchecked because that extra money taken out of my check each month would too seriously deplete my already low pay. No health care insurance meant not treating medical conditions until it became so serious that I found myself waiting, doubled over, on a cold plastic chair in a crowded urban emergency room waiting room, being chatted and felt up by a drunk man holding a dirty shirt to his profusely bleeding forehead.

This tale of my former woe gives you some context to my intense dislike of payday loan places and other predatory financial institutions. Often, people who are not financially strapped will say things like, “Why do those people use those services? Who in their right mind would  take out a loan at 100% interest Who would sign papers for a car/house/furniture they know they cannot afford?”

Sure there is enough personal responsibility to go around. But the fact is, it is very difficult to survive in any economy when you are already on the economic margins. Those who need certain financial goods and services the most–simple stuff like neighborhood banks, low-interest seed loans, low- or no-fee installment payment programs for everything from college credit hours to couches–are precisely the people who cannot get them. That leaves options that are less than ideal. A lot less than ideal. In fact, they may be only one step and broken kneecap up from the neighborhood loan shark.

It doesn’t help matters much when you have celebrities, community leaders, and other big names actually promoting these predatory programs. This time of year–tax time, and in this current economy, is apparently prime time for these shameless scams. Former NBA star Magic Johnson is one of the high-profile people shilling this nonsense:

Since November 2008, Johnson has appeared on billboards and in TV ad campaigns as the pitchman for Jackson Hewitt, the tax preparing company. His slogan, “It’s Money Like Magic,” is meant to lure customers to the company’s Money Loan Now product, a refund anticipation loan, or RAL. RALs are short-term loans secured by federal income tax refunds, which typically carry high interest rates — as much as 150 percent.

…“A lot of people are losing their jobs so they were going after the money,” said Pat Contantine, director of the VITA [volunteer income tax assistance] center at the San Antonio Community Development Center in Oakland. “What they are doing is hard on the community. And then here comes Magic Johnson. I am so mad at him.” Constantine says that some paid tax preparers change clients’ W4 reported earnings to be higher in order to receive a higher RAL. That means they end up owing more money than they actually get refunded by the IRS. She and her volunteer preparers try to educate people about the realities of RALs. (My emphasis; Source)

The Obama Administration addresses such practices as part of its “Urban Policy.” Among the agenda points is the following goal:

Some mainstream, responsible lending institutions are beginning to enter the short-term lending market to provide many Americans with fair alternatives to predatory lending institutions. President Obama and Vice President Biden will work with his Secretary of the Treasury and the Federal Deposit Insurance Corporation to encourage banks, credit unions and Community Development Financial Institutions to provide affordable short-term and small dollar loans — and to drive the sharks out of business.

We’ll see what happens. So much of the campaign was spent focused on the promise of bettering economic times for “the middle class.” (There is an awful lot of code in that phrase I will not get into right now.) And perhaps it is true that there is enough (if only barely) of a safety net to provide an assistance infrastructure for those at the bottom of the economic ladder. But those people living on the border between making it and not making it often are left out by economic policy forces. And once left out, other forces are more than ready to swoop in to fill the need.

“Money like Magic” is just that–a trick, a sleight of hand, an act. Time for this kind of showtime to end.