Hey, Chelsea, tell us what tomorrow is.

It is the amazing workshop that I have been talking about for weeks on here, and it is finally happening. I am doing a workshop all about how to budget with an unpredictable income.

That means if you're freelancing, if you're a gig worker, if you're a tipped worker, if you have side hustles, if you're looking to freelance in the coming years, this is all about making sure you can access that exact same great budgeting advice, build wealth, do all of the stuff that we talk about on here without necessarily having that steady, exact same paycheck every two weeks. I've been getting asked about doing this workshop for years. It's finally happening.

If you can't join live tomorrow evening at 6:30 PM Eastern time, that's no problem. You can watch it back whenever you want. And just for signing up, you also get the free 25-page budget workbook that I put together in myself as well as a live Q&A with me if you attend live.

And just by signing up, you're automatically entered to win our giveaway where for attendees-- and you don't have to be attending live to win-- are getting a $250 gift card from TFD to jumpstart whatever their budget goals are. This is going to be an amazing workshop whether you join live or watch back later. I cannot wait to see you there.

Just click the link in the description or the show notes and sign up. It's totally free. [MUSIC PLAYING] Welcome to Too Good to Be True, an investigative podcast about exposing the scams, schemes, and financial cults trying to separate you from your money. I'm Editor and Journalist Ryan Houlihan.

And I am Julia Lorenz-Olson, the co-host of PBS's Two Cents, and an accredited financial counselor. So what are we talking about today, Julia? So today, we are talking about the systems and financial products that basically keep the poor, poor.

So there's a famous James Baldwin quote that says, "Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor." And there's really-- the financial system in the US is kind of seemingly hell bent on keeping low-income people precisely where they're at, which of course is an irony when you think about the promise of the American dream. I mean, think of how many people swarm to this place from all over the world-- Or came against their will. --yeah, absolutely-- for that promise, right? That here you can start at the bottom and you can make it to the top.

It's like this myth that we sell. It's what we have to believe in order to get up in the morning. [LAUGHS] Pretty much. And there's a whole interconnected sort of network of systems and services and specifically financial products that really work together in this kind of disgusting, exploitative ecosystem that keeps-- that tends to keep people trapped.

I mean, from a top level it's always confused me that we want to give rewards to people for being rich and punish people for being poor, but those rewards and punishments are the things that keep you rich or poor. Absolutely. So how is anyone ever going to get out of that catch-22?

Yeah. So I think we should first talk a little bit about scale and kind of what we mean when we are talking about poverty and how prevalent it is. So I think it's interesting that we have an episode focused on housewives specifically, right?

Which is the epitome of luxury porn, right? They're holding a diamond up at the camera at every commercial. [LAUGHTER] OK, OK. But we have a very clear picture of what it looks like to be rich, right?

And this isn't an American phenomenon, I don't think specifically. But somehow I think the intensity of the economic segregation and the lack of meaningful, human-to-human contact across economic spectrums can lead to a sense of this disconnection from a large swath. So let's talk about a few poverty stats in the US specifically.

So according to the Census Bureau, about 11.4% of people are considered to be in poverty, which is relatively low when you look at the historical context. So it was double that in 1959. I was going to ask, what scale of historical context?

Because yeah, you bring the Middle Ages in and we're doing great. We're doing amazing, guys. [LAUGHS] So that's a relatively short amount of time. About 60 years.

That's less than the average lifespan. And to cut the poverty level-- so poverty level in half, I think that's pretty interesting. And so the income level that we're talking about is around $12,000 grand a year for a single person.

So 11%, I don't know. When I hear that I'm like-- I mean, that's about one in 10, right? Which doesn't seem that large in the grand scheme of things.

But I think the thing that struck me was about 26% of the population, almost 30% makes under $30,000 grand a year. Yeah. And that means that $30,000 grand doesn't mean as much every single year as we've seen inflation skyrocket.

Yeah, absolutely. I mean, think about how much less that is getting you right now than even just a year ago. I mean, just at the grocery store, I'm getting a lot less bang for my buck.

Oh my gosh, that's right. And I live in Texas where you have to drive, and the gas prices, you know right now, are just-- Outrageous. --incredible. I mean, in six months our-- we have a budget and we look at it, and there's nothing I can do about it.

I need to go from this place to this place. But it's doubled, you know? And we've built such a society around cars, but that's another episode.

That's another episode. But in about 16% of families with a child six years or younger were considered food insecure in 2020. That's terrifying.

It's horrendous, I mean, thinking about-- We're the wealthiest country in the world, and also we're at the height of our technological and scientific abilities, and that is not a stat that I'm impressed by. No. You shouldn't be.

And I think it is also very important to point out that there is an enormous racial discrepancy when we are talking about these numbers. So these systems are massively weighted along racial lines. And B, so I don't think it is a stretch to call these systems and the products that we're going to talk about today racist.

I mean, they are. I mean, racism is when-- when this country and the systems that we're talking about were formed, I mean, people are incredibly racist today. I think it was even more explicit.

And so if you're building on a system with racism baked into it, it's really hard to separate and say, well, we'll just move things around the edges and then the problem is solved, because that's clearly not going to work. I think it's important to note that while we make some limited progress around the edges of these issues, usually I think those stats will obfuscate the reality that the truth is wealth inequality has skyrocketed, and the amount of money that the rich have in proportion to the amount of money that the poor have, not only is it outrageous. It has been accelerating.

And it's not like these economic gains or these productivity gains or these technological gains are being realized for anyone. Absolutely. No, absolutely.

And I mean, COVID just basically poured lighter fluid on all of that. Yeah. Something that I got a much better picture around when I was specifically researching for this episode is that there is a big issue that basically has allowed a window into this world that predatory lenders can come through, and that is the banking system, or rather the lack of access to it that a lot of these people we're talking about deal with.

So as of 2020, about 5% of US adults were unbanked, and about 13% were underbanked, which means either you have obviously no banking relationship whatsoever-- we're talking no checking account. No savings account. And people who are underbanked have a very limited-- have very limited access to it, right?

They're living in places where there are no easy or even free ways to put money into their accounts. And I just didn't realize. Like, I just take it so for granted.

Yeah, in a country with such a heavy emphasis on free market capitalism and spending and consumption, it's kind of shocking that banking isn't considered a human right. That's so true. I mean, if you're a medium to high-income person, you get paid directly into your bank account.

And if you want to pay a bill, there's no charge to do so. It's like, it's your money. Take in some numbers.

Your paycheck pops in, probably through direct deposit. And even if you do get a physical check, which I do sometimes, you probably live somewhere near an ATM that you can get to, which by the way, you also probably have easy transportation to get to that ATM, right? And you can afford books of checks and stuff.

Yeah. You can access your own money for free. [LAUGHS] Which, like, hello. What an incredible privilege, right?

So this is just simply not the reality for those people who are living closer to the poverty line. So we do, though, have to talk about some of the predatory practices of the banks themselves. So banks will deposit funds five days a week, but withdraw funds any day of the week, which makes it very difficult for people with lower bank account averages to plan ahead and not be stuck with an overdraft.

I never thought about that, about the hours you would have to be working in order to even survive and have that money are the hours that they're only going to take-- that's crazy. Yeah. And I learned about something that I had never heard about before.

Do you know what debt resequencing is? I have no idea what that is. So this is a perfectly legal practice that banks do.

And so according to Pew Research, more than about two out of five banks do this kind of crap. And they will reorganize the transactions in a day in order to maximize the overdraft fees that they charge somebody. Ah!

Which is incredibly profitable for them. Overdraft fees, I mean, that costs $35 bucks a pop. And to me, I mean, if I find $30-- I make a pretty decent amount of money.

If I find $30 I am definitely picking it up, right? And think about what that is as a proportion to somebody else's income who makes far less. I mean, that's a ton of money.

Yeah. I've dealt with overdraft fees at times in my life. It's tough because at that time in my life, $35 if I didn't have any money was not an easy amount of money to quickly get.

It's not like $5 or $2. It's enough money that it was like meals. Well, I think that's so interesting that you brought up the rules and regulations and policies.

So a lot of reasons why banks get away with this sort of predatory crap is that it is almost impossible for most people to understand all of their terms and disclosures. So most banks' disclosures that they give you, they're like 111 pages, which no one ain't going to read. Like, even me.

I probably shouldn't say this. But when I get a contract, if it's more than three pages, I'm like, whatever. Sign.

I mean, some of these rules are things too that you don't know that are going to come up in your financial life. And then it does come up, and you don't know until after the fact what the policy even was. Exactly.

And the bank fees themselves are very opaque. A lot of them aren't flat fees. And there's percentages, and you know-- and people-- I mean, I have a hard time doing percentages in my head.

And so wherever there are larger concentrations of underbanked communities, there's a higher prevalence of predatory alternative financial solutions because of this issue, that banks are not accessible to those who need them. You know? Who need them the most.

And especially need them to be a low-cost thing the most. So what are people doing to deal with this? I mean, how do you live day-to-day if you don't have access to banking?

Yeah, so you can reach out to the bank themselves, and you can in many cases have fees waived especially if you say, well, I didn't understand XYZ. But that sounds easy. Well, just pick up your phone and call them.

But one, most of them, you've got to speak English, right? For the most part, that's going to be the most accessible language to you. And two, you need the time.

Like, even me, the idea of calling up my bank, I'm like, no thank you. [LAUGHS] And waiving a fee is entirely at their discretion, so you can do all the things right. If they just don't like you, then they don't like you. Precisely.

Precisely. So what do people do if they're unbanked? How would you practically get about your day-to-day life?

So check cashing services are a major player in this game. They are trying to fill the gap [LAUGHS] at a very massive profit to deal with this issue. So it's a relatively convenient way for somebody to cash a check if they don't have access to a bank account.

And for some people, it is literally the only way that they can access their paycheck. And these are not free, obviously. Yeah, I was going to ask.

What are they charging? I mean, you can charge anything to people who are desperate. Pretty much.

So most check cashing services have a minimum fee of about $3 bucks, but they also typically charge between 2% to 10% of your check. So think about this. Somebody receives a paycheck of $1,000 bucks.

They could be losing $100 bucks every time they go to cash a check. I mean, I am lucky enough at this stage of my life to be in a better economic circumstance, and 2% is an amount that I do budget for because I need it. I need to use it.

Precisely. And get this. This isn't just paychecks from an employer or some gig that you did.

This also goes our checks from the government. Really? Your Child Tax Credit.

Even the COVID stimulus check. So these private companies get a cut of those-- the amount of money being given to you by the government specifically because you need all of it? Yep.

Yep. And the fees-- the fees that you're paying to do this work, not tax deductible. Oh my god!

Oh, yeah. Let's just pour some salt on this. What is Washington up to?

You have to ask. [LAUGHS] So the question is, well, if they're so bad, why do people use them? And there was a quote by Lisa Servon, who's the author of The Unbanking of America that I wanted to bring up. So she says, "At Right Check it costs 1.95%, almost 2% of the face value of a check to cash in. $1.50 to send a bill. $0.89 to send a money order, which is frankly less than it costs at the post office." And so all these fees definitely add up.

But what people told me is that they could predict the costs. The costs were obvious to them. And if they made one mistake at their bank that resulted in an overdraft, it would easily be more than that.

So it's just more predictable. It's like the devil you know [LAUGHS] rather than this sort of unknown cascading domino effect of the fees and the percentages that get slapped on you when you overdraft. Here's our boss, Chelsea Fagan, a co-founder and the CEO of The Financial Diet to talk about how she herself depended on check cashing services for years. [AUDIO PLAYBACK] [MUSIC PLAYING] So I obviously talk a lot on TFD about my experience when I was younger and really, really irresponsible with money, and that manifested in a lot of things.

Obviously, I had a destroyed credit score. I was in a lot of debt that was in collections. I was not able to pay tickets and bills.

But another thing that was happening that is very common for people in any kind of financial duress is not really being able to use regular banks because I had all kinds of overdraft fees. So basically, I didn't want to put my paychecks or money that I got into the bank because I was so far in the hole, and I wanted the cash that I had. And also, especially when things had gone to collections, I was afraid of the money there being potentially garnished, all that kind of stuff.

So basically, I started using a company called Ace Check Cashing Services, which is one of the more common ones. And I would go there any time I got a check from my various jobs, and they take a very large percentage of the check in exchange for you signing them over to Ace, and give you the cash on the spot, which was for me at the time worth the extraordinary amount that they were taking out of my checks. [SIGH] It's funny because I think looking back I probably-- if I had made the calculation, it was probably costing a lot more than just getting back to zero at the bank accounts that I had even with potential banking fees or what have you. But I think-- and something that can't be stressed enough when it comes to being in a cycle of poverty or being in a cycle of financial duress is that you can't think long term.

You can't think cumulatively. You just need the cash now. And so similarly why a lot of people who are struggling financially are not necessarily going to be able to, for example, buy in bulk, which would be cheaper per unit for things that they use frequently, or invest in higher quality products which would probably last longer and be lower cost per use, it's all about the upfront cash in hand.

And I just wasn't able to get to a place where I could afford to think more in terms of what was the better financial decision long term. I will say that it's very, very shame-oriented having to participate in all these shadow financial services companies. It's something where obviously I didn't want my friends or family to know I was doing it.

I certainly wouldn't have wanted my employers to know I was doing it. It felt like a real character flaw that I was the kind of person who was using these services. And I know a lot of people that I socialized with at the time probably would have judged me quite harshly for it.

I don't think that we give a lot of understanding to people who are making what are quote, unquote "bad decisions" or stupid decisions. And I think when you're in these cycles, these companies, yes, they definitely hook you with that quote, unquote "cheap, easy cash." It seems like the good option when you're in a really bad situation, and they definitely make it really easy and fluid. But I think because of the cycles people get into and because of how difficult it can be to get ahead of yourself financially or to even speak to other people about what you're going through, they don't really need to do a ton of heavy lifting to get people hooked on their products. [MUSIC PLAYING] [END PLAYBACK] So these places are trying to serve a community that's going under-served by the banks.

So do they try to meet these communities where they are and service them-- Oh, absolutely. [LAUGHS] You know, try to service them. That sounds so benevolent. Yeah.

I'm trying to give them the benefit of the doubt before I find out what the reality is. Exactly. So specifically, let's talk.

So in California, the unbanked population is pretty huge. And about 60% of low-income neighborhoods don't have a bank or credit union. And the state itself has twice as many check cashers and payday lenders as the entire rest of the country.

That is shocking. Yeah. So I mean, they see the gap and they rush in, you know?

Yeah. And I mean, it's crazy because this is a daily lived reality that I'm unfamiliar with, and it is so predatory I cannot believe that this is legal. Yeah.

And even people who are able to cash their checks, that's not necessarily, OK, we're all good now. I have this cash. Because think about it.

You can't pay a utility bill with cash anymore for the most part. And if you don't have a bank account, you have to purchase a money order. And most credit cards, even if you want to build credit, which we'll get to a little bit later, you have to have a bank account in order to apply.

You can't Venmo. No. [LAUGHTER] No, absolutely not. So it is a plague on the system, and they are making money hand over fist.

That is so shocking and unfortunate, but it makes me also wonder, are these-- how would you-- for example, say your paycheck is x amount of money and you have a medical bill you need to pay, and it's an emergency medical bill. And so you're being sent maybe a letter that says, this is where you need to pay. You would need to basically-- you're paying fees on top of fees on top of fees.

And something that's already a predatory industry like the medical debt industry, it just feels like there's no winning. There's no turning that ship around. Yeah.

That's why we call this a system, right? It's a system. It's not just this one bad actor.

It's like these-- it is an ecosystem. These voids open up. Things pop in.

And it changes the landscape of what is accessible. And if you're making profit, what are you going to do? You're going to do everything you can as an industry to continue making that profit.

So policies, local state laws. The amount of lobbying by specifically payday lenders, which we'll get to in just a second, is pretty awful. If you haven't seen it, John Oliver has done a really incredible job of-- I mean, the footage that he caught of some of these congressional members on the state level lobbying to keep these businesses exactly where they are, despite the fact they are obviously predatory.

Here's more from Chelsea Fagan about the politics driving this crisis and where it's all headed. [AUDIO PLAYBACK] [MUSIC PLAYING] So it's definitely not a binary. These lobbies are effective with people across the political spectrum. They have a lot of sway, like you said.

In general, the further right you're getting on the political spectrum, the more support you're going to see for looser regulations on financial services. The more allowance you're going to see for a lot of these predatory programs, whether it's extremely high interest rates or these cash on demand, payday lending, check cashing, all of that stuff. But it's definitely a problem that exists across the board.

I don't-- the problem is that although I think we've gotten slightly better on some financial regulation since the 2008 crash-- shout-out to Elizabeth Warren for some of that stuff specifically-- I also think with the gig economy as increasingly prevalent as it is, being on the margins of the financial system is only going to become more and more necessary for more and more people because you're not getting that regular two times a month paycheck. You're not able to automate a lot of your finances. So I do really worry that whether or not our tolerance for these things are diminishing, the need for them might be increasing. [MUSIC PLAYING] [END PLAYBACK] I did not realize poverty was just this profitable for people.

Shocking. So for me, when I was going through my worst financial seasons of my life, it felt like every time I ran out of money, it didn't-- [LAUGHS] things would proceed at a certain pace until you hit zero where it should stop ideally, because you have no money. You have no money, so there we go.

That's where it should stop. And it would be at everyone's advantage if it stopped because it's not like putting me under water can help me go work harder. So it's a situation where I felt like the bad thing, the first shoe dropping was just the beginning of a spiral every time.

And you know, I've been lucky enough to achieve-- at the moment escape velocity from that circumstance, but I have family members who I know use check cashing services, and I did not realize that they were being so taken advantage of. And I've seen those people that I anecdotally know use these services are the people in my life who have been trapped in a cycle of poverty and have never really had an ebb or flow financially. It's just been from disaster to disaster, and it's easy to see the cause of that, you know?

Knowing this information helps contextualize and understand for me that there's people in my family who are working at such a disadvantage in ways that I entirely took for granted even when I was broke, because when I was at my most broke and my most poor I at least had access to a bank account, and it made things like getting a job and getting my day-to-day lifestyle stuff done so much easier. And if there's people in my life working without that advantage, it's like playing life on expert mode with no resources. And life is not a video game, you know?

No it is not. You shouldn't have to be that good at it. [LAUGHTER] So these can't be the only people taking advantage of the circumstance. Oh, no.

The ecosystem has other players. There are other vultures circling the corpses here. Great!

Like, amazing, right? So credit. Let's talk about credit.

It is almost a catch-22. So somebody who I have worked with before on Two Cents, she's been an awesome script writer for us this season and she helped us write a whole episode about building credit when you have none. And she says that it's really kind of a catch-22.

So I do want to shout her out and her internet presence. So it's Financial Common Cents. C-E-N-T-S, right?

Cute. Very cute. Love it.

But she put it this way. She said, the only way to build credit is to use credit, and the only way to use credit is to get credit. And the easiest way to get credit is to already have a credit history.

See, I don't even know how you would-- so I-- this is so confusing. When I was growing up until I was in my 30s, I never had any credit cards because I was so scared of them. And I knew that I had poor impulse control, bad financial knowledge, and to me I was making the smart financial choice, was [? let's ?] put myself in a position to be taken advantage of.

Totally. Absolutely. I think that's so interesting because I grew up quite stable, and both of my parents I would consider are very good with money.

They're great savers, very stable, XYZ. And pretty much the only piece of financial advice that I remember, don't get into credit card debt. The only way I was able to even get a credit card when I, like-- Yeah, how did you do it?

I had to pay a significant fee, hundreds of dollars. Bingo. And then they would only let me spend up to that amount on the credit card, but I still had to pay it back.

So basically, I was paying double for that amount of money in order to even have a way of building basic credit, and then expanding and going into some other credit cards and building up some kind of financial history. Yeah. I don't know how you would do it without that advantage.

We actually spoke with Shante Nicole, the CEO and Founder of Financial Common Cents-- C-E-N-T-S-- as well as a credit coach about how a secured credit card could be the tool to help you rebuild or repair your credit. [AUDIO PLAYBACK] [MUSIC PLAYING] Yeah, so everybody thinks they can't, but if you really think about everyone who has a credit card, everyone had a first credit card at some point. So there are cards out there for people who are either starting from scratch or they're trying to rebuild and repair. And so yes, there are cards that have less favorable, you know, perks or benefits or no perks at all, but there's always cards for you.

You can get a secured card, which means you have to put down collateral. And so the lenders don't quite trust you yet, but they don't want to deny you either. We want to give you a chance.

And so put down $200 normally is the minimum. Your limit is $200, but it operates the same way as a credit card. Or you can get a credit card that maybe you don't have to put money down, but it has an annual fee of $99 just because it's a less favorable card.

The interest is probably high. But interest really shouldn't matter either when you're building credit. And so the idea is to either start with a card for people with fair to poor credit or a secured card, which you secure with your own money.

Many secure cards do graduate to unsecured cards and you're able to get that deposit back. Some don't. Some say the only way to get your money back is if you close it.

I wouldn't suggest closing a card until you're able to obtain better cards. Then you can get rid of that crappy card that you had to start with. But people who say no one's giving me credit, I can't get credit from anywhere, there are companies who will extend credit to you.

People just don't know where to turn because they're trying to apply for cards that are not for people in their situation. So don't apply for that Capital One cash back card if you're trying to rebuild your credit. Don't apply for the Amex double cash back and you know you're not going to get that, or the airline miles card.

So if you're just starting, secured cards are great. I even tell people I would get a secured card over an unsecured, less favorable card. [MUSIC PLAYING] [END PLAYBACK] Yeah, so that's a very common tool that-- like, back when I was in the mortgage industry and I was dealing with people who wanted to buy a house and had no credit, that was one of the first things we suggested. I don't know how you would even break into it if you don't have a lump sum in order to do that.

Exactly. Exactly. Well, so one of the big issues that pops up for people is how tough it is to build credit from scratch.

And imagine how much harder it is for those at the poverty line, right? I mean, access to even that can sort of feel like the moon because I bet you probably did that on a computer, right? Yeah.

You had to apply. You needed to have internet access. All of these things that are not necessarily always available to this community.

So here enter the payday loans. Oh, no. Oh, yes.

So payday loans are short-term loans that are tied to a paycheck. So they'll say, hey, how much-- are things feeling squeezed right now? [LAUGHS] You know-- like, if you have a job and you know you're going to get paid, we will give you a loan and you pay us back at the next payday. Hence, payday loans, right?

So it's a form of really short-term credit. Exactly. Exactly right.

And they have very high interest terms. So usually it's listed as a flat fee. So $30 bucks per $100 that you borrow.

Ooh! That is a lot-- that is a large percentage! Yep.

Yep. Yep, exactly. And they are unsecured, meaning that there's no system in place for them to get their money easily, which makes it more likely that you don't pay them back on time, which is exactly what they want because that's when you get hit with the massive fees.

So they're incentivized to make it as easy as possible to get you money, but make it as difficult as possible for you to pay them back. Great. There you are.

What could go wrong? And they are really one of the only lending options that don't typically require the borrower to provide bank account information. So here again, there's that nice ugly window that banks open up when they don't go into these under-served communities and serve them properly.

So borrowers also don't need to have a credit history to be able to take out a payday loan, which is why the lenders get away with charging all of these crazy, exorbitant fees. And it is a growing business, as you might imagine. So-- It's a business that's causing its own growth with this exploitation.

So between 2001, about $10 billion, the industry. $30 billion of industry in 2010. Wow! In 2010. 10 years, right?

That's shocking. Exactly. It's crazy.

The biggest issue is that the vast majority of the people who are using them can't pay them back on time. One of the statistics I saw said maybe as high as 86%. See, these are some tough-- this is tough numbers to swallow because when you try to think about it in the context of your own life, in my experience I've been able-- the reason I could go without a credit card by choice even, which sounds like a privilege now-- You know, that's a great thing to point out because I think we also did that when we were back on the crazy Dave Ramsey train.

We were like, nope. No. Never going to have credit.

We went seven years choosing not to use credit card. And yeah-- It's a big privilege that I could call up my parents if I needed to borrow $500 really short-term, fast. They could just lend it.

Even if you don't have that in your life, it's not like there's a service-- I haven't-- I've never really thought about that. That's horrible. And think about the generational poverty we're talking about, right?

Because-- Especially in these oppressed communities, minority situations where you're dealing with a system of oppression that goes back and gets worse every year you go back. Your family is most likely in this same situation that you are. Your friends are most likely in the same situation you are.

So what might-- when an upper middle class person goes through maybe a financially hard time, it's a much higher likelihood that you have people who are accessible that can bail you out at a moment's notice. And that's just not-- And you're not necessarily going to pull them into your spiral. If you're at the poverty line and everyone you know is at the poverty line, anyone helping you might get pulled into this situation that you are in by trying to help you.

Exactly. And so you don't want to exacerbate the people that you love and their problems. So it's just a really nasty cycle.

Exactly. And you know, about 70%-ish of payday loan borrowers are using this money to pay for legitimate needed essential expenses like food, utilities, transportation, rent. Yeah, this isn't a deal you would take if you had other choices.

No, absolutely not. Absolutely not. So it is regulated on some level.

So each state actually has different laws regarding this. Some states actually prohibit it outright and some are starting to sort of cap payday loans to about $500 bucks maximum. But that is not the majority of where states are at on this.

This is a grow-- a still very much growing business. And they're as incentivized as possible to push those boundaries. Yeah, absolutely.

And here, this just totally blew my mind. So some of these companies have gone so far as to align themselves with Native American tribes so they can skirt their state's law. And because demographically Native American communities are at a financial disadvantage, it's a deal that they're unable to really say no to.

There you are. This is so evil. I know. [LAUGHS] Evil incorporated.

Absolutely. So even though-- so payday loans and the check cashing services are like the Tweedledee and Tweedledum of this world. They are large.

They are relatively easily accessible, right? If you-- I mean, I know there are parts of town that I'll drive through in Austin. It's like, payday lender.

Payday lender. They're just so easy. You go into the grocery store.

Cash your check. Bingo. And because there's such low overhead in low-income communities to set up shop because it's not like these are bustling economic areas where they could be maybe priced out of setting up shop, you can just franchise these wherever there are low-income communities.

Yeah. But there are obviously other things going on. Pawn shop loans.

Oh, yeah. Right? So these are collateral loans where you borrow money from a pawn shop in exchange for an item as collateral like electronic equipment or a piece of jewelry.

And the terms, they're not great. And it's not a loan, so it's not even going to help you build credit, and the fees are high. But again, when you're in that desperate of a situation and you have something-- So for example, I have a watch that I got for graduation when I graduated college.

I didn't actually graduate college. I left with three credits. But the watch had already been purchased by my wealthiest family member, and who was I to say no?

OK, I need to know this and be like, hey, I bought this for you. You didn't do it, but here it is anyway. Yeah, it had a date on it of the day I didn't graduate. [LAUGHS] But it's a beautiful watch, and I kept it because I thought at the time I had literally nothing.

And it was like, if you want to give this to me, my thinking was if I have to pawn this one day, I would pawn it. And it never came to that. But essentially, this is how I would have fallen into this scheme immediately and I would have lost a hilarious family gift in an attempt to survive another day.

It makes me think of the reality show Pawn Stars. Oh, yeah. [LAUGHS] But now thinking about it it's just like, ugh. It just kind of gives me the heebie jeebies.

Why would someone go to a pawn shop unless they were in a desperate circumstance? Because there are other ways to sell things for a better profit with a better deal. Yeah, absolutely.

But think about even that. I'm thinking, OK. If I have something valuable that I want to sell, what do I think about?

Craigslist, Facebook Marketplace. Again, you need internet access for-- Internet and banking are just so essential services for people, especially people who are in these kind of circumstances. Absolutely.

And I think I didn't really realize something else. When you go to the pawn shop, they give you something called a pawn ticket, which is like a physical receipt and a contract for the transaction. And if you lose that, you're shit out of luck.

That's that. You don't get it back. Wow.

That's awful. [LAUGHS] Yeah, awful. I mean, it's so clearly predatory because it's something you could keep a copy of. A pawn shop clearly has access to a computer.

How [? about scanning ?] maybe? You know? [LAUGHS] So something that I think came to my understanding of the real issues with internet access became I think way more apparent during COVID when I remember these stories of these families who would have these children. They would take their children to the McDonald's parking lot so that they could get Wi-Fi access for their kids, right?

This is a real issue. I think of the fin-tech community as a whole and all these innovations and all of these things. I mean, Robinhood.

I mean, even just access to The Financial Diet and this podcast to get basic financial literacy is completely gatekeeped by access to the internet. Absolutely. Absolutely.

And that's gatekeeped by the access to banking. So how do you-- I mean, again, it's like a snake eating its own tail, catch-22 cycle that they want to trap people in. And I don't really know-- it seems like no matter what you have, people will willingly take it.

Yeah, absolutely. And I'm starting to realize that access to the internet I think should be a right on some level because it is becoming-- the alternatives are becoming less and less. I mean, the amount of travel if you're a parent just to do basic banking-- Exactly.

Exactly right. So one other nasty player in this game when it comes to financial products is also a title loan. So this is a little bit funky in that you have to have a car.

So these are-- So this is a car loan? So this is another form of collateral loan. So when you go to a pawn shop and you say, hey, this watch is maybe worth $1,000 and they give it to you, you can go to a title loan place and get a loan against the value of the car.

So you can usually borrow about 25% to 50% of the car value. And once you're approved, you have to give the lender the title to-- What is a title? I've owned a car when I was in college for a couple years, but I don't drive now and I have never owned a car as an adult without my parent's assistance.

And I don't know what a title is or anything about this world. A title is proof of ownership for the car. OK.

Like a document. Exactly. Yeah.

It is a physical document. It has a seal. You can't reproduce it.

It is a very important piece of information when you have a car. And when you sell a car even to a private party, you have to take it out and you have to physically write on it and record the change of ownership. And then they take that title.

And usually when you have to register the car with your county to make sure you're a legal driver, you know, where you need to go, you have to have that document with you. So this is a big deal. When you have to hand that over to somebody-- That's terrifying. --that's giving somebody a lot of power.

And think about how important transportation is. I was going to say, if transportation is the only advantage you have going for you, you're leveraging that, that's so dangerous. And sometimes they will also make a copy of your keys.

Oh my god! So they can get the car. Yeah. [GASP] Exactly.

This is basically just, in my opinion, a repossession scheme. Here's more from Shante Nicole about how all of these operations work with and for each other in a vicious cycle that keeps people poor. [AUDIO PLAYBACK] [MUSIC PLAYING] - It can be twofold. It can be a place where you go and just cash your check if you don't have access to traditional banking or they offer payday loans as well.

And that's, of course, we know. We heard of those before. We heard the good, the bad, and the ugly.

There can be some good out of it, but the reason why most people need them is because things haven't started out good. [LAUGHS] So the reason why people end up going to check cashing places is because there is no credit check. There is no income requirement. And so they're able to tack on those hefty APR percentages and those fees because there's less of a risk to them to let someone borrow money who they don't know how responsible they are.

If you think about going to buy a car-- and I see this with many of my clients. When I looked at their credit reports-- and of course, it doesn't tell you what the APR is on the report. But I do some math and I see how much they paid so far and how much of that has actually gone towards the principal, which is the balance of the car, and how much has gone towards interest, which is just money in their pockets.

And I tell people, having bad credit is expensive. They can either deny you because they've checked on you and said you're not responsible enough. We've seen you default with other people.

Or they will accept you and tack on a hefty APR where you're going to end up paying double for the car because your credit is bad. And most people do not care about what those interest rates are. They don't understand the fee structure.

They just say, I need a car. I'll deal with whatever comes later as long as I can afford the monthly payment. That's what also happens when people go to check cashing places.

They don't care about the 780% APR. They don't care about the extra fees that come along with making monthly payments. They say, I need the money and I need it now.

So it may be ignorance. It may be they don't care. They need the money.

They need the car. And they don't care to even understand what the extra fees are. They'll pay them when they come.

And so that's the part that it's a little sad because those people could not go into a traditional bank and apply for a loan, a more favorable loan because maybe their credit isn't up to par. So it's just a cycle, you know? And it's painful to many. [MUSIC PLAYING] [END PLAYBACK] Wow.

That is bad. It seems like America really is not kind to the poor. No.

No. And I think we cannot also overlook the fact of not only are these systems of oppression, you know, costing people in terms of dollars. Think about the mental toll that it takes to have to navigate this world and all of the predators that are out there.

I mean, it is predatory. It hits that part of your brain. You have to educate yourself with only the materials being provided to you by someone trying to trick you.

Yeah, exactly. And think about if you want to dig further, do your research. Where do you freaking go for research?

The internet, right? Here we go. So it's like the means to maybe start to escape or at least alleviate some of these problems are not even available.

Yeah. I mean, I remember what you said kind of at the beginning of [LAUGHS] when I was growing up, I was a theater major. And so from the time I was six years old to 22, I was like, I'm going to be a movie star.

Like, period. This is my life plan and I-- [INAUDIBLE] I was very dedicated. And one of the things I remember reading about when I was small-- I must have been 11 or 12-- is that the movie stars get these dresses for free.

Yeah. They're like a walking advertisement. And so the people who least need resources are heaped.

They're being paid to be rich. Yes! Essentially right.

And the poor are penalized for being so. I mean, and it's crazy because I feel like I have a lot of literacy around how rich people's money works by watching TV or reading books and being so fascinated with the rich and powerful movers and shakers. But I don't have any of these narratives.

It's not like you see this being played out and you have some sort of understanding or context for it. And in a way, I can kind of understand it. I mean, as somebody who is also not above Bling Empire and watching how the other half lives, I mean, that's an escape, right?

Most of us don't live like that. And so being able to watch that feels like a new world, right? Whereas let's watch The Wire. [LAUGHS] It's just not that escape, that distraction that we crave.

We want to forget that this stuff exists. Yeah, especially if it's your own life. Why would you want to dwell on it or advertise that this is what you're going through?

Absolutely. And irony upon irony, the people who are in these situations are so often demonized by those at the top as being freeloaders, right? As taking advantage of-- Pull yourself up by your bootstraps, which is a phrase based on a concept that is impossible.

Exactly. It is an impossible thing. And you know, I've just-- [SIGH] I've just heard it so many times.

And the people who are in this situation are often working far harder, right? What's that thing that's supposed to get you from that bottom rung to the top? Work.

Yeah. These are the people that are working six, seven days a week, extra long hours. Multiple jobs.

Physical jobs. And let's go back to COVID. These were the essential workers that were our heroes, and our system is punishing them for that status.

It's terrifying. Exactly. And so trying to break free of this can also incur high costs because losing benefits, sometimes it is actually more expensive to work than not.

You get penalized for starting to make income and you lose access to really important government programs. I mean, if you have access to disability, the government doesn't let you have more than $2,000 in cash to your name, period, or you'll lose your benefits. Yeah, I've personally mentored somebody before who was in this kind of situation.

They had multiple children. And I was just sitting with her, trying to run these numbers to figure out, what is going to make sense? How can we do this?

It literally did not make sense for her to get a job. It didn't just with how-- and I was like, I can't believe I'm saying this, but the numbers, you're right. They pan out exactly as you think they will.

So I feel like the understanding I'm gaining from this horrifying system of terrible companies and scams, essentially, legal scams, is that if you're poor, it's incredibly difficult, if not impossible, to generate enough wealth to push yourself out of that. But if you're rich, it's almost without thinking you would continue to build wealth and get wealthier and wealthier without really-- I mean, there are people lining up to do that for you at these banks. It's almost effortless.

Effortless. It's almost effortless to remain rich. Which probably-- not that I'm giving any empathy to the wealthy-- [LAUGHS] --who have bad opinions, but I will say it probably-- if it's so effortless for you makes you have such disdain and contempt for people who can't seem to get it together without understanding-- like, I didn't understand the exact circumstances.

I knew it was hard. I didn't realize it was this hard. Yeah.

And I think one last thing I want to leave people with is a lot of these things are legislated at the state level. Oh. So please, when you're going to the polls, pay attention to those names that are not at the top of the ticket, because they have far more power over this situation than anyone in the White House, believe it or not, at this point with how we've set this up.

So just pay attention. If this is something you care about, look out for it. If you do have access to internet, vote.gov. [LAUGHTER] Well, thank you so much.

Yeah, thank you. This was a terrifying episode. [LAUGHS] But aren't they all? Well, that's the show for this week.

You can find Too Good to Be True wherever podcasts are available. And while you're there, we'd love for you to rate the show and leave us a review. I've been Ryan Houlihan, and you can find me on all social media @RyanHoulihan.

I've been Julia Lorenz-Olson. You can find me on YouTube at my PBS show Two Cents, and every once in a while I'll look at Instagram. My handle is @YayItsJulia. [MUSIC PLAYING]