America's Poverty Tax

[dajoki]

America's Poverty Tax

While America’s jobs and economy remain flat, it’s getting more expensive to be poor, with everyone from payday lenders to subprime credit cards charging extortionate rates. Gary Rivlin crunches the numbers to find just how much it costs.
Sep 8, 2011 12:15 AM EDT
http://www.thedailybeast.com/articles/2011/09/08/america-s-poverty-tax-how-the-working-poor-get-stiffed.html

It’s expensive being poor. And with the misery index high and unemployment persistently high, that’s good news for those in the poverty business. The working poor have become Big Business—with the invention of the payday loan, rent to own, and a long list of diabolically clever ideas that entrepreneurs have devised to get hundreds-of-millions rich off those with thin wallets.

Call it a poverty tax. It’s the hundreds of dollars, if not thousands, in extra fees that people making $20,000 or $25,000 or $30,000 a year pay because they live on the economic fringes. These days it takes more money than ever to be poor.

The corner check casher takes the biggest bite, at least from those 20 million or so Americans who have no bank account—the so-called unbanked. In the main these are people who’ve messed up their relationship with a bank. They’ve bounced so many checks that no bank wants them as a customer. Or they’ve racked up so many fees they have dug too expensive a hole from which to escape.

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But a few years back the Brookings Institution took a stab at an average: the unbanked worker bringing home $22,000 a year spends between $800 to $900 a year in check-cashing fees. That figure tops $1,000 annually if you include the fees the unbanked pay for money orders and the bill-paying services they must purchase (at around $2 per check) to pay everything from the gas bill to the rent.

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The payday lender—those in the business of making seriously expensive loans against a person’s next paycheck, her Social Security check, or, increasingly, an unemployment check—takes another big cut of the meager earnings of the working poor. The single mom struggling to get by on $20,000 a year is forever falling a few bucks short before payday but that’s the brilliance of the payday industry, which dates back to the early 1990s. In 10 minutes, the payday lender will hand her a few hundred dollars in cash, no questions asked and without so much as a credit check. Ten million or so people avail themselves of a payday lender each year.

The average payday customer pays between $600 and $700 a year in fees. Again, geography matters. The customer living in Tennessee or Kentucky, say, pays a fee that works out to 400 percent interest, but lenders in Missouri are allowed to charge a rate of 652 percent interest on the money they loan out. All told, payday customers collectively spend more than $7 billion a year in fees.

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[smokey nj]

1. Kick!

[GreenPartyVoter]

2. kick for poverty awareness

[Overseas]

3. Sad K&R.