REVENUE STRATEGY – FINANCE COS

A growing number of sizable corporations are realizing that viewed in the aggregate, the working poor are a choice target. The lack of sophistication of borrowers helps ensure that their offerings remain big sellers.

1. Innovative and zealous firms have lured unsophisticated shoppers by the hundreds of thousands into a thicket of debt from which many never emerge. Many businesses have made financing more readily available to even the riskiest of borrowers. Armed with the latest technology for assessing credit risks ambitious corporations see profits in lending to the working poor.
2. Marketers use products as the bait to hook less-well-off shoppers on expensive loans.
3. Tax-preparation services offer instant refunds, skimming off hefty fees. Jackson Hewitt Tax Service Inc. focused on the less affluent people who wanted their tax refunds quick. It soaked up fees by preparing returns and also by loaning money to taxpayers too impatient or too desperate to wait for the government to send them their checks rather than encourage them to wait a week or two to get refunds for free.
4. Payday lenders, which provide expensive cash advances due on the customer's next payday, have multiplied from 300 in the early 1990s to more than 25,000. Wells Fargo & Co. and U.S. Bancorp now offer their own versions of payday loans, charging $2 for every $20 borrowed (based on a 30-day repayment period, that's an annual interest rate of 120%.)
5. Merrill Lynch & Co. works with CompuCredit to package credit-card receivables as securities, which are bought by hedge funds and other big investors.
6. BlueHippo, which sells well-known brands such as Apple computers and Sony televisions, tries to commit consumers to regular electronic debits, then stalls when they cancel orders or ask about receiving shipment. It refuses refunds but customers may use any funds paid to purchase other items from BlueHippo. Its prices are relatively high allegedly because of the added risk of dealing with customers who have poor credit.
7. CompuCredit has devised models to assess more than 200 categories of customer data, from the duration of past credit-card accounts to the number of bad debts. It is willing to work with those who have trouble paying their bills. It discloses interest rates and imposes fees up front so consumers won't be surprised later.

Households in the US earning $30,000 or less a year pay a higher average annual interest rate than households earning more than $90,000 a year: 56.1% higher on auto loans and 25.5% higher on mortgage loans.

Fair is foul and foul is fair?

Ignorance is bliss?

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