Lady Business: Taxes and payday loans and the high cost of being poor

Hello and welcome to Lady Business, a weekly newsletter about women, the business world, and all the ways they overlap. You can sign up for Lady Business and read previous issues here. This is the sixty-sixth issue, published April 25, 2019.
 

The Poor Tax

It’s the end of tax season, which means it’s the perfect time to reflect on a bunch of big, infuriatingly-institutional scams to punish low-income people for the crime of being poor. Like this insane story about how:
 
--The IRS lets people who make less than $66,000 per year file their taxes online for free. (This should be available to 70% of Americans.) HOWEVER:
 
--The IRS doesn’t offer this free online service itself; instead, it’s outsourced the software to big companies like Intuit (which owns TurboTax) and H&R Block.
 
--Intuit and H&R Block, ProPublica reports, actively hide their free product from anyone who Googles “IRS free file taxes.” Meaning only 3% of eligible taxpayers actually find and use this free product! AND, worst of all:
 
--This could become a permanent injustice. Congress has been on the verge of passing a law that would literally ban the IRS from making its own “free file” program, after Intuit and H&R Block have spent millions of dollars lobbying lawmakers.
 
That’s one story. Or there’s Elizabeth Warren’s proposal to wipe out student debt, a plan that -- however much you want to debate its merits or likelihood of happening -- rests on some very real, sobering numbers: “As states have invested less per-student at community colleges and public four-year colleges, the schools themselves have raised tuition and fees to make up the gap.”
 
Or there’s the New York Times Magazine’s big, wonky cover story on how Donald Trump’s new chief of staff spent the past year dismantling much of what Warren created at the Consumer Financial Protection Bureau, a financial regulator that’s supposed to do exactly what its name claims. Mick Mulvaney’s tenure was particularly helpful to payday lenders, another industry that makes most of its money from poor people:
 

Warren and other consumer advocates argued that payday lenders built their industry on a … sleight of hand. They marketed themselves as lenders of last resort, offering emergency loans for a broken-down car or an unexpected medical bill. But according to Nick Bourke, a former financial-services consultant who now directs consumer-finance research at the Pew Charitable Trusts, what fed the industry’s growth were not emergency expenses but the increasingly unstable incomes of the working poor. As their hourly wages fluctuated at the whims of workplace-optimization software, payday-loan customers — typically white women earning around $30,000, according to Pew’s research — borrowed to pay their rent or electric bills. The average customer paid $55 in fees to borrow $375, due on their next payday. But most found that they couldn’t afford to repay the loan after two weeks. They took out another loan to cover the first, and usually another.
 
…Improbably, the payday-loan industry earned a fortune from the working poor.

 
“It’s so expensive to be poor,” as venture capitalist Arlan Hamilton recently told me. This horrid situation rests on two big problems: People without money generally are too stressed to make good financial decisions -- and, even if they could, they don’t have many other options. The NYTMag piece doesn’t get into it as much, but most banks just won’t provide loans to poor people -- or will also charge them fees to do so. (UPenn Professor and author Lisa Servon has written extensively about how payday lenders and check cashers offer customer services -- late hours for people who don’t work 9-to-6 jobs; friendly tellers who speak Spanish or other languages; seemingly-plain terms -- that banks often do not. And, in some cases, these financial providers can indeed be cheaper to use than banks.)
 
Still, it’s hard to avoid the fact that -- for banks or check cashers or venture-backed startups -- if you’re setting out to start a business that makes money off of people who don’t have much to spare, at some point you’re going to have to decide whether you’re more interested in increasing profits or in serving your customers.
 
“You need money to make money--or to bank money, even in the increasingly high-tech world,” as I wrote in a story Inc. published this week, as part of its annual 30 Under 30 package. My subject was Sheena Allen, founder of CapWay, a very early-stage tech company that is trying to develop an app that essentially replicates a bank account:
 

Thirty-year-old Sheena Allen grew up in one such enclave, outside of Jackson, Mississippi; her hometown of Terry had cows and horses but only one small bank.

"Most people in my area cashed their checks at the grocery store" and used payday lenders and other often-predatory financial providers, Allen recalls. "We've lived the problem, so let's be the solution."

Allen is still figuring out exactly how her company is going to turn a profit. Part of it is a business-to-business model, charging colleges that use her company’s financial education materials; part of it is charging customers fees, which is where a lot of startups and established companies alike get into trouble (see point above re: having to decide whether you want to make more money or serve customers who don’t have much to spare).

Still, the point of business magazines doing packages like a “30 Under 30” roundup is to identify people, however early stage, who aren’t just throwing up their hands at a big, seemingly insurmountable problem -- who are instead throwing themselves into big, audacious fixes that, if successful, could start to fundamentally change the status quo:
 

This can be the trickiest part of providing non-predatory financial products to lower-income people, who often get gouged by fees, but financial industry watchers praise what Allen's accomplished so far.

…Allen, meanwhile, is undaunted by the complexity of her chosen market: "We can be profitable, have a social impact, and have a great company," she says. 

Lady Bits:

--“The company has a white problem across the board. Did you know that there’s not one black creative executive working at CBS Television Network or CBS Television Studios?” Former executive Whitney Davis on her particular, bad experience at CBS (home of Les Moonves, Charlie Rose, 60 Minutes, Bull and Michael Weatherly, “CBS So White,” and and and…) and Maureen Ryan’s on-going Twitter thread about the general rot all of those bad experiences have created at that network. 
 
--Book Stuff: I so enjoyed speaking with Jessica Moorhouse on her Mo’ Money Podcast! In addition to my book, we discuss some of the national advantages for Canadian entrepreneurs over Americans these days (including healthcare and federally-legal marijuana, not to mention that whole national-leadership thing).
 
--Nerd giggle of the week:

 
Thank you for reading, commenting, and subscribing to this newsletter! Please tell your friends to sign up here, let me know what you think about this week's issue, and what else you'd like to see me write about: maria.aspan@gmail.com