The high cost of being poor
Struggling with poverty is hard enough on its own, but many of America's poor now face an array of costs that wealthier citizens often don't incur.
Take the rise of for-profit probation companies, which more than 1,000 courts across the U.S. use. The companies engage in an "offender-funded" model of privatized probation, meaning that poor Americans who can't afford to pay a traffic ticket up-front are charged additional fees, sometimes doubling the cost of the original fine, in order to pay off the fine over a longer period of time.
The reason for the spread of these practices? Some states and municipalities that are hesitant to raise taxes are looking to other methods of finding revenue. It's not only local governments that are reaping profits from the poor. The payday loan industry has mushroomed over the past two decades and now has more locations than McDonald's (MCD). Payday loans can lock borrowers into interest rates of more than 300 percent, compared with single-digit rates for wealthier borrowers who can rely on traditional lenders.
In the 21st century, poverty has become a source of profits for governments and corporations.
Achieving the American dream today "is harder than hard for someone who is poor," said Daniel Hatcher, a law professor at University of Baltimore and the author of "The Poverty Industry," which will be published by New York University Press in June. "It's really a non-ending set of barriers, and each barrier is connecting, so it creates a quagmire that make it feels like it's impossible to break out."
Hatcher, who has worked as an attorney for Legal Aid in the Baltimore Child Advocacy Unit, points to how some states are hiring companies to take benefits from the poor, such as Maryland's practice of filing for and confiscating foster children's Social Security survivor's benefits. In most cases, the children, who qualify for the benefit if a parent has died, aren't aware they were even eligible for the payments. Some states are hiring third-party contractors to work on methods of extracting more money from poor families and the elderly, according to Hatcher's book.
"In Nebraska, they even take burial plots" if it's among a foster child's assets, Hatcher said. What would the state do with a burial plot? "Sell 'em. Anything that has value, they take. Not only is it more expensive to be poor in all these different ways, but the poor are increasingly used in a growing number of revenue schemes."
While such cases may not affect every poor family, the impoverished have a myriad of other ways in which they end up paying more for goods and services. Poor households face higher food prices than wealthier consumers partially because their neighborhood stores charge more. One recent research paper found that the poor pay more for toilet paper because they can't afford to buy bigger packages, which would lower the average cost.
They also pay fees for the type of everyday conveniences that most Americans take for granted, such as banking and financial services. About 9.6 million households are "unbanked," which means they lack a banking account. That forces many to turn to services such as check-cashing establishments, which can charge fees as high as 10 percent of a check's value. That can represent a massive bite out of a low-income worker's budget.
Prepaid debit cards are also popular for low-income workers, but they, too, come with fees. And if a such a worker is able to open a bank account, she may get hit with everything from overdraft fees to fees for low account balances. Over the past few years, banks have both instituted a number of new fees and boosted existing ones. Fees for bouncing a check have increased 9 percent since 2010 and now average a record $33.07.
While that applies to everyone, regardless of income, those fees are more likely to hit the poor. About 20 percent of bank customers pay 80 percent of the industry's fees, with low-income workers almost twice as likely to incur overdraft fees as wealthier Americans, according to a 2008 report from the Federal Deposit Insurance Corp.
Poor Americans may face higher interest rates, given that credit-monitoring company Credit Sesame found a correlation between credit scores and income. Lower scores mean higher rates, which will cost a person more over time.
"The cost of credit if you are poor is almost criminal," Hatcher said. "If they are lucky enough to have a job, they have to pay to cash their check, then they have to get a money order to pay off a bill. It's fee after fee after fee."
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