Financial Problems In Hurricanes' Wake Similar To Those Of 9-11
September 28, 2004
GAINESVILLE, Fla. — In the wake of four deadly hurricanes, people in the hardest-hit areas face financial trauma that mirrors the economic devastation suffered nationally after the Sept. 11 terrorist attacks, according to a University of Florida law professor.
Based on scientific theories on water pollution, UF assistant law professor Christopher Peterson developed a theory he dubbed “the saturation effect,” which describes how unexpected expenses and decreases in income can overwhelm an entire region with financial hardship in the aftermath of a devastating event.
The saturation effect, discussed in his book “Taming the Sharks: Towards a Cure for the High-Cost Credit Market,” draws on consumer experiences following the 2001 terrorist attacks. But this phenomenon is occurring again in the areas that were slammed by this season’s hurricanes, he said.
In his book, published in May, Peterson likened his saturation effect to a river with a usual level of pollution. At normal levels, this pollution has only a limited adverse effect on the aquatic plants and animals that live there. But during a drought, even though the total volume of pollution remains the same, the concentration of pollution becomes greater, devastating the river’s ecosystem.
“Just as rivers may face droughts, so too can families, communities and even whole cities,” Peterson said. “The same effects can be expected in a society after a disaster. When people fall into financial hardship, they depend on family and friends to help them purchase their groceries or meet other needs.”
There is a limit, however, to the amount of aid families and friends can provide before they fall into financial trouble themselves, he stressed.
“Right now is a dangerous time in the marketplace, and as this saturation effect occurs, consumers need to be aware of decisions they make in funding their needs,” he said. “I predict it is very likely this (effect) will occur, so consumers need to be prepared.”
Numerous reports of price gouging for necessary goods and services, such as home repair and tree removal, surfaced after hurricanes Charley, Frances and Ivan. Consumers should expect this to continue, he said. In his book, Peterson stresses the importance of people using good judgment when making needed purchases and of being wary when borrowing money to cover expenses.
“When extended families and even entire communities are saturated with financial trauma, many people have no choice left but to turn to creditors,” Peterson said. “If they find a reasonable loan, that’s fine, but consumers need to make sure they don’t dig the hole they are in deeper by turning to financial predators.”
Those financial predators are payday lenders, predatory mortgage lenders and even pawnshops, which all thrive in times of financial hardship. People with low incomes or poor credit histories are especially vulnerable, Peterson said.
“Payday lenders are almost always a bad deal, and if you have to turn to a pawnshop lender, don’t pawn something that is a resource for you, such as tools or a car,” he said.
Payday lenders often charge exorbitant interest rates for borrowed money, while marketing their services to consumers on the pretense that their rates are similar to those of a credit card, he said.
“Consumers need to find the lowest annual percentage rate possible when borrowing money,” Peterson said. “Average payday lender interest rates are around 400 percent. A payday lender should be the absolute last resort.”
Consumers also should resist the temptation to take out new mortgages on their homes. Many mortgage lenders charge hidden points and fees that make the loan “deceptively expensive,” Peterson explained.
He also emphasized that Florida law prohibits merchants from selling necessary goods and services, such as water and electric generators, at inflated prices in the wake of natural disasters. Citing the state’s Unfair and Deceptive Practices Statute, Peterson explained that consumers who are the victims of price gouging for services or goods in the wake of a disaster may sue the merchant in a small-claims court.
“This is a public service put in place by lawmakers for consumer protection,” Peterson said. “Consumers can also make a complaint with the attorney general.”
Peterson’s book also urges legislators to institute consumer protections that would be more effective during times of financial hardship.
“Times of disaster are when consumers need the most protection – it is a dangerous time when people can easily be taken advantage of,” Peterson said. “If the saturation effect continues to unfold, people need to be careful of how they meet their needs.”