This is clearly not a good option, but for some it is the only option. Many Americans in this lower income tier cannot get loans approved and cannot always gather enough cash to pay for things on sites such as eBay. America's bottom 40 percent is a "group increasingly likely to string together paychecks by holding multiple part-time jobs with variable hours." Not long ago, jobs were more secure and income was higher so more people had access to affordable credit. According to Michael Barr, a Michigan law professor, "the market pulled back from all low-income borrowers instead of trying to figure out how to serve them."
When costumers go to stores like Buddy's, they are taking a risk that they can pay the weekly or monthly payments. Some persist but many end up returning their purchases. In Cullman, Alabama, approximately 75 percent of items from the store "are returned or repossessed within weeks of the transaction."Buddy's and other such store face criticism for being "predatory" but they claim they offer a service to their customer base. If a customer cannot make their payments, they aren't penalized. Since they are renters "they don't face debts or credit damage if they make a return."Yet Buddy's expanded rapidly because of the economic crisis. To me it seems they are taking advantage of the less fortunate, which I guess some businesses have always done. I wonder what a better solution would be, so that people were not taken advantage of by the only retailers they can buy from.
Source: http://www.washingtonpost.com/news/storyline/wp/2014/10/16/she-bought-a-sofa-on-installment-payments-now-its-straining-her-life/
While the sentiment is good, sofas seem like a bad example (I mean, you can buy one at Goodwill for rather cheap). It definitely seems predatory though, as the expansion proves (not many businesses can expand so rapidly in a bad economy). However, my question is whether or not the benefit it has to the economy as a whole (employment, etc) outweigh the effect the business is having on the poor.
ReplyDeleteI think that the statement about the lower 40% of America as "group increasingly likely to string together paychecks by holding multiple part-time jobs with variable hours." is very revealing. In order to experience a stable level of living you need a career not multiple hourly wage rate jobs.
ReplyDeleteIt certainly does sound like this business is taking advantage of the amount of disposable money the poor have. They know that they're living paycheck to paycheck, and more than likely cannot pay all at once for a good. Even though I do like the idea of paying in installments, and for some households it is necessary, it is not fair at all to charge them over a 100% interest rate.
ReplyDeleteI had never heard of this type of business for small purchases until the other day when I saw a commercial for a website called Fingerhut. The premise seems to be the same, except that this business operates through an online platform and sells goods that are even more disposable than a sofa. Specifically, the commercial showed a woman sitting in her home, shopping on the site for a Cuisinart mixer. She raved that she was able to purchase this item and pay only roughly thirty dollar payments until it was paid in full. When you added up the payments, the mixer, which one can purchase for $250.00, cost over $500.00. The whole concept is predatory, and takes advantage of people. I believe that the loophole which allows businesses like this to operate in this manner should be closed. Don't high interest credit cards cause enough grief?
ReplyDeleteAlthough it's nice of "Buddy's" to give people this option and not let it effect their credit negatively if they make returns, I think this is a business taking advantage of the poor for their financial benefit. I understand that business is business and "Buddy's furniture" is not the first business to have unfair deals but this just creates a deeper hole for the poor. The idea of what "Buddy's" is doing is nice. They are giving people a chance to pay over time for goods. However, the interest rate at which these people are being charged is only beneficial for "Buddy's".
ReplyDelete