Daily Archives: October 31, 2014

How America Punishes The Poor? –Oh Let Me Count The Ways…

In a recent piece called “How America Punishes People For Being Poor” Rebecca Vallas examines the rise of subprime auto loans against the backdrop of predatory economic policies that systematically burden low-income people. Various ways the poor pay disparate costs including (but not limited to): the rent-to-own industry, pay day loans, and the criminalization of homelessness. The piece also touches on smaller yet equally crucial gaps like the cost of groceries, check cashing/bill paying fees, and even the time it takes to complete daily errands relative to higher-income people.

For what it’s worth, I wanted to expand on the piece, and add a little context that helps to book-end the issue.

As always, there are structural roots and cultural by-products.

Recent studies confirm what we already knew: deregulation of the financial sector provides incentive for Wall Street to make risky investments at the expense of workers and the real economy. It rewards bankers for upping their risk-taking without having the cash to cover their bets under the premise that failed investments will be bailed out at taxpayers expense.

While bankers become richer in high-risk volatility, workers rely (and thrive) on stable market conditions. When Wall Street acts in greedy self-interest, the likelihood of economic recession increases; credit freezes up and widespread unemployment is inevitable.

But for poor people, the relationship between risk and greed have micro effects that cost them substantially more. Deregulation also meant that companies could prey on those with credit issues and low-incomes who were considered “high-risk”. Goods and services previously reserved for the middle class (homeownership, liquid assets, lines of credit) became available to the poor once companies realized they could charge them exorbitant interest rates, late fees, and deposits in exchange.

The trickle down effects coincide with the disparities mentioned in the piece.

For instance, the roughly 10 million households without access to bank accounts (now subject to third-party check cashing fees) can traced be to policy decisions of the 80s and 90s. After Congress removed bank restrictions on interest-bearing accounts (i,e, NOW/Super NOW accounts) banks supplemented the additional interest they paid to depositors by charging in other ways. Higher minimum balances were required and fees for stopped payments and check printing increased exponentially. Poor people who couldn’t afford it were forced to cash paychecks at grocery stores, pawn shops, and convenience stores (with similarly high fees) and eat the cost of money orders and other financial services (which Vallas estimates to be $1000 a year for a person making $1500/mo)

This trickled into the rise of subprime auto loans and the rent-to-own industry that promised “no credit/bad credit” financing which often resulted in repossession months into the contract. The customers would typically have made several payments, only to lose the merchandise which could then be leased to someone else.

And it was directly responsible for the infamous subprime mortgage crisis that crashed the housing market in 2007. So desperate to increase the amount of mortgages, banks began relaxing lending standards for credit and collateral; lending to poor (black) people at rates much higher than they could afford.

Even though public officials like Maxine Waters (D-California) brought awareness to subprime mortgages (long before the housing bubble burst) the government would fail to act until the crisis shifted to (white) middle-class families. The net effect of an estimated 12.5 million foreclosures was two-fold: it left poor people even more vulnerable to homelessness and dried up blue collar construction jobs more likely to leave them unemployed.

I think understanding the link between predatory capitalism and deregulation gives a framework for which to link the causes of these systematic punishments with the effects.

And then I started to think about even more ways people pay more for low socio-economic status. Things informed by my lived experiences with poverty that the article missed:

Other Little Known Ways America Punishes The Poor

1. Student loan debt. — It’s obvious that student debt punishes people for lacking the means to pay college tuition of out pocket and discourages class mobility when graduates are saddled with debt. But it’s also worth noting that the waystudent loan debt is classified on credit reports is a likely contributor. Instead of listing all loan disbursements as one collective account, each disbursement is sometimes listed as three separate ones, which is interpreted as different types of debt and is likely to drop credit scores. Then come subsequnet ripple effects: lower credit means less likelihood of finding a high-paying job (many jobs now require credit checks) which lowers the likelihood of paying down loans. Credit scores drop even further, making income-building opportunities like homeownership and entrepreneurship harder to achieve. Income plateaus or decreases proportionate to debt and the cycle continues.

2. Cell phone deposits. — (I know people who have paid upwards of $700 for a two year contract agreement that higher income people may pay $99, or attain for free)

3. Renting homes in impoverished (and racially segregated neighborhoods). — Real estate companies will charge monthly rent that outweighs the total value of the home while still requiring tenants to perform maintenance duties without the benefits of equity. And private property owners will often be slumlords who make tenants eat the cost of repairs.

4. Money Wiring Fees.– Without access to bank accounts that offer free money transfer, poor people resort to receiving (and sending) money via Western Union or Money Gram. The fees increase in proportion to the money you send which ultimately limits the amount of money one can attain when borrowing from family/friends when in financial tight-spots.

5. Prepaid card fees. — Low income people with access to bank accounts also resort to pre-paid cards to pay bills or shop online. These cards (Walmart prepaid, Green Dot, Visa gift) all have an average fee of $5 every time you need to reload money, as well as random hidden service charges.

6. Late fees and reconnection charges for bills. — (I once had to pay my cable bill two months in advance to get it re-connected which totaled approximately $250) Many companies also charge fees for people who can’t afford/don’t want auto-pay, sometimes as high as $10/mo)

7. Shopping at higher priced stores. — The article mentions low-income people paying more for groceries because they don’t have proximity to stores that sell bulk or room to store it. I would also add the yearly cost of the membership at bulk stores (Sam’s Club, Cosco) as well as the higher prices of convenience stores typical in low-income areas.

8. Subsidized housing– Poor people who benefit from subsidized housing pay rent in proportion to their income (typically 30%) but this also means that the more they make, the higher the rent will be. If they chose to work more to earn more money, they end up with less disposable income because most of it will go to rent. If they can’t (or chose not to) work more, the rent remains low but so does their total income. Either way, they can never manage to make enough money to end the cyclical rut of income in/expenses out)

9. State benefits are reduced for poor people who live together– If subsidized housing is not an option, poor people with state benefits might live together to reduce the cost of living expenses by splitting it among roommates. However, individual state benefits among people who live together are considered “household income” and may be reduced in many states.

10. Social security disability income– the application process for social security disability is a long and tedious one that requires applicants to prove a medical or mental ailment that prevents employment. But because the process takes an average of one year (and some longer if applicant is denied and appeals) the applicant has to somehow survive without a pay check while waiting for a decision. To pay for living expenses, the applicant may be forced to take a job despite his/her disability. But if they do, it will be assumed that they can hold a job and their application may be denied.

In my cultural contextualization of it all, I’m reminded of how right James Baldwin was when he said, “anyone who has else ever struggled with poverty knows how extremely expensive it is to be poor.” A paradoxical truth that speaks to the way class oppression self maintains; by forcing one to work within the constraints of capitalism to combat its negative effects.

That is, we need money to buy things that grant access to middle-class lifestyles and yet we need middle-class lifestyles to buy these things.

Coincidentally, these things are most likely to become the source of predatory loans and cyclical debt. The gatekeeping of class status markers that seems to say: we’ll let you into this world, but you’ll have to pay for it.

And for someone who has spent their life in states of economic enslavement, even the mirage of class mobility—no matter how temporary–is terribly seductive.

You eventually get tired of peering into the store front window from the outside, fantasizing about all the shiny pretty things you wish you had. You will, at some point, decide to go inside; wander around a little bit, try on something luxurious just to see how it feels against your skin, even though you know you could never afford to take it home.