Spending of Low-Income Americans

It’s expensive to be poor, By Tami Luhby, April 24, 2015, CNN Money: “Low-income Americans are spending far more than they earn, forcing many to dip into savings, lean on family or go into debt.  Those in the bottom 30% of the income scale make an average of $14,000 a year, including the value of many government benefits like food stamps or disability payments. But they spend more than $25,000, or 182%, of their annual income mostly on basic needs like housing, food and transportation, according to a CNNMoney analysis of Bureau of Labor Statistics data…”

Payday Lending

Feds aim to protect low-income users of ‘payday’ loans, By Josh Boak (AP), March 29, 2015, Detroit News: “Each month, more than 200,000 needy U.S. households take out what’s advertised as a brief loan.  Many have run out of money between paychecks. So they obtain a ‘payday’ loan to tide them over. Problem is, such loans can often bury them in fees and debts. Their bank accounts can be closed, their cars repossessed.  The Consumer Financial Protection Bureau proposed rules Thursday to protect Americans from stumbling into what it calls a ‘debt trap.’ At the heart of the plan is a requirement that payday lenders verify borrowers’ incomes before approving a loan.  The government is seeking to set standards for a multibillion-dollar industry that has historically been regulated only at the state level…”

Court Fines and the Poor – Washington

Poor offenders must be asked if they can afford to pay fines, state Supreme Court says, By Mike Carter, March 12, 2015, Seattle Times: “The state Supreme Court, citing the burden imposed on poor defendants by uncollectable court fees and fines, has reiterated that judges must ask about a defendant’s ability to pay so-called ‘legal financial obligations’ (LFO), and not impose them if they can’t be paid.  The justices found the state’s LFO system ‘carries problematic consequences’ for poor offenders, can impede their ability to re-enter society and can contribute to recidivism.   The high court sent two cases back to Pierce County for resentencing based on findings that sentencing judges, at the prosecutor’s request, imposed costs, fees and fines of more than $3,300 in one instance and $2,200 in another without first determining whether either man could pay…”

Court Fines and the Poor

  • Civil rights attorneys sue Ferguson over ‘debtors prisons’, By Joseph Shapiro, February 8, 2015, National Public Radio: “In a new challenge to police practices in Ferguson, Mo., a group of civil rights lawyers is suing the city over the way people are jailed when they fail to pay fines for traffic tickets and other minor offenses. The lawsuit, filed Sunday night on the eve of the six-month anniversary of the police shooting of Michael Brown, alleges that the city violates the Constitution by jailing people without adequately considering whether they were indigent and, as a result, unable to pay. The suit is filed on behalf of 11 plaintiffs who say they were too poor to pay but were then jailed — sometimes for two weeks or more…”
  • Does Ferguson run ‘debtor’s prison’? Lawsuit targets a source of unrest, By Harry Bruinius, February 9, 2015, Christian Science Monitor: “A lawsuit filed Sunday aims to correct one of the driving factors behind the racial unrest in Ferguson, Mo., last summer: a local court system that, critics say, systematically jailed people too poor to pay fines accumulated from traffic tickets or other minor infractions. A kind of 19th-century ‘debtor’s prison’ has been in place for years in Ferguson and nearby Jennings, Mo., say those who filed the lawsuit. The result, they add, is ‘a Dickensian system that flagrantly violates the basic constitutional and human rights of our community’s most vulnerable people.’ The lawsuit comes at a time when several states and cities – including Ferguson – are beginning to address the grievances laid bare last summer. Ferguson has just not gone far enough or fast enough, the lawsuit claims…”

Credit Repair Companies

The industry that charges low-income Americans to fix credit errors they can fix themselves for free, By Chico Harlan, February 6, 2015, Washington Post: “By the time she made it to the American Bill Pay Web site, with its testimonials and its guarantee to solve credit woes, Kimberly Cox couldn’t afford another problem. She was squeaking by on $720 per month in disability checks. Her credit score was a measly 530. She lived with her son, Logan, who moonlighted on weekends as a bullrider at amateur rodeos in western Arkansas. Neither had health insurance, and one rodeo night, a 2,000-pound bull bucked hard, knocking Logan to the ground. There was a knee surgery, a long hospital stay, a $40,000 medical debt. And then a seeming helping hand. ‘REGISTER NOW,’ the American Bill Pay site said, and it offered an enticing possibility: that Cox, for a fee, could ease her debts and improve her credit score with just a few easy steps. Cox borrowed $900 from her mother-in-law to pay for the service…”

Predatory Lending

  • Rise in loans linked to cars is hurting poor, By Jessica Silver-Greenberg and Michael Corkery, December 25, 2014, New York Times: “The rusting 1994 Oldsmobile sitting in a driveway just outside St. Louis was an unlikely cash machine. That was until the car’s owner, a 30-year-old hospital lab technician, saw a television commercial describing how to get cash from just such a car, in the form of a short-term loan. The lab technician, Caroline O’Connor, who needed about $1,000 to cover her rent and electricity bills, believed she had found a financial lifeline…”
  • Churches step in with alternative to high-interest, small-dollar lending industry, By Rebecca Robbins, January 9, 2015, Washington Post: “Every month for about three years, Nina McCarthy followed the same routine after payday. She’d go into a Check Into Cash near her home in the Richmond area, and pay off an open-end loan for $700 or $800 – and then she’d take out a new one for the same amount, never accumulating interest in the process. Then McCarthy’s overtime hours at work were cut. With rent, a car payment and a 3-year-old granddaughter to feed, McCarthy didn’t have $700 for Check Into Cash. McCarthy made a partial payment, but interest piled up rapidly, at a rate she recalls was 24.9 percent a month, or a nearly 300 percent annualized rate…”

Payday Lending – South Dakota

Payday loans could cease in South Dakota, By David Montgomery, December 14, 2014, Argus Leader: “An unexpected coalition is backing a campaign to ban payday lending in South Dakota, prompting the industry to warn of far-reaching consequences if it succeeds. Payday loans and an array of similar businesses — ‘signature loans,’ ‘title loans’ and others — target small-dollar loans at people with poor credit and savings. Supporters say they help low-income people borrow much-needed money, but an array of critics say the fees are far too high and trap borrowers in a spiral of debt…”

Poverty and Debt

Debt weighs heavily on those trying to rise from poverty, By Megan Woolhouse, November 12, 2014, Boston Globe: “Roberta Brown, a 37-year-old single mother, lives in a homeless shelter, desperately trying to find the job that will help her gain a new home and better life. She recently earned a certificate as medical assistant, hopeful it would lead to a job in the state’s burgeoning health care industry. But that has not been not enough to surmount what Brown believes are the greatest barriers to her employment: the $20,000 in credit card debt she ran up while out of work several years ago and her damaged credit report. Each time she applies at a hospital, she’s asked to sign an agreement allowing the employer to check her credit…”

Child Support Enforcement

  • How our child support system can push the poor deeper into poverty, By Jeff Guo, September 26, 2014, Washington Post: “In the United States, nearly one in four children are due some sort of child support. But only 62 percent of the money owed is actually paid. To get a sense of who these deadbeat parents are, consider this chart comparing different states…”
  • Locking up parents for not paying child support can be a modern-day ‘debtor’s prison’, By Tins Griego, September 26, 2014, Washington Post: “Dwayne Ferebee, 36, father of four, has been sent to jail four times over the past 12 years on civil contempt charges for failure to pay his court-ordered child support. The first two times, he spent a couple months behind bars until his mom came up with the $3,000 the judge told him he had to pay. The third go-around, he stayed in jail six of the maximum 12-month sentence before he could scrape together the money. The fourth, he had to wait until his fiancée received her tax refund. All told, he spent about a year locked up…”

Low-income Borrowers – California

In California, a new law helps low-income borrowers build credit, By Teddy Nykiel, August 22, 2014, Christian Science Monitor: “California broadened the reach of nonprofits that target low-income borrowers who lack the credit standing needed to obtain a traditional loan, enacting a law that lets the organizations lend as much as $2,500 interest free without a license. Clients of groups like the San Francisco-based Mission Asset Fund are often unbanked, underbanked or have low credit scores. Under the new law, payments must be reported to companies that create the rankings, such as Experian and Equifax. By repaying in full and on time, borrowers can create the track record they need to qualify for regular loans…”

Jobless Benefit System – Ohio

Ohio lawmakers view overhauling jobless aid, By Catherine Candisky, August 6, 2014, Columbus Dispatch: “A special Ohio House committee discussed sweeping changes to Ohio’s unemployment-compensation system as legislators opened hearings yesterday on how to repay a $1.4 billion debt to a federal jobless-benefits fund. The debt has become a drag on Ohio businesses, which face annual increases in the federal unemployment tax until the loan is repaid. The fifth such increase — to a total penalty of $105 per employee — is scheduled for employers’ 2015 tax bill…”

Payday Lending

States look to crack down on payday lenders, By Elaine S. Povich, May 2, 2014, Stateline: “The demise this week of a Louisiana bill that would have reined in payday lending demonstrates how hard it is for states to regulate the quick loan industry, which consumer groups criticize as a trap for the working poor. Supporters say payday lenders, which emerged in the 1990s, provide a valuable service to lower income borrowers when they need small amounts of money to tide them over from one paycheck to the next. But critics say payday lenders lock desperate people into repeat loan cycles with annual interest rates that can approach 600 percent. An estimated 12 million borrowers use payday loans each year…”

State Unemployment Insurance Funds

Why state unemployment trust fund debt matters, By Jake Grovum, April 29, 2014, Stateline: “State unemployment insurance trust funds, the engines that finance jobless benefits for millions of Americans, were battered by the Great Recession and went deep into debt to meet the demand from the unemployed. Years after the worst of the crisis, many states are still saddled with huge debt, according to a Stateline analysis of U.S. Treasury data showing trust fund balances from 2007 through the first quarter of 2014…”

College Education and Earnings

Study: Even for students who borrow then drop out, college pays off on average, By Justin Pope (AP), June 10, 2013, Minneapolis-St. Paul Star Tribune: “It sounds like the worst of all worlds — borrowing money for college, then dropping out and facing the debt without a degree. But a new study argues that the investment in even a partial college education is still worth it, amounting to average earnings of $100,000 more over a lifetime than for those who merely finish high school. That’s a better investment return on average than stocks and bonds — though of course much lower than the return on college for those who finish…”

Jobless Benefits – Delaware

Jobless benefits bill: 1-week waiting period, higher taxes, By Jonathan Starkey, June 2, 2013, News Journal: “Delaware racked up more than $70 million in debt sending out unemployment checks during the recession. Now the bill is coming due, and proposed legislation would pay down the debt by raising taxes on businesses and forcing jobless Delawareans to wait a week before collecting state benefits. Gov. Jack Markell is backing the proposed changes, which administration officials say would stave off even higher federal taxes in coming years. The proposal is working its way in the Legislature. Delaware, which is not the only state needing to tackle the problem, began borrowing from the federal government in March 2010 to pay for unemployment benefits, with the bill reaching as high as $78.5 million. The state-administered unemployment trust fund currently owes about $71.5 million…”

Payday Lending

Payday loans cost economy $1 billion in 2011: study, By Mark Koba, May 2, 2013, CNBC: “Payday loans cost the U.S. economy nearly $1 billion and thousands of jobs in 2011, according to a report from the Insight Center for Community Economic Development. The study says that the burden of repaying the loans resulted in $774 million in lost consumer spending and 14,000 job losses. Bankruptcies related to payday loans numbered 56,230, taking an additional $169 million out of the economy…”

Payday Lending – California

Bill would limit number of payday loans to any one borrower, By Alejandro Lazo, April 17, 2013, Los Angeles Times: “A bill before the California Legislature would restrict the number of payday loans to any one borrower — an attempt to break the ‘debt cycle’ that ensnares some of the state’s poorest residents. Senate Bill 515 would bar the high-cost, short-term lenders from making more than six loans a year to any borrower. The bill, set to go before the Senate Banking and Financial Services Committee on Wednesday, also extends the minimum term of a payday loan to 30 days from 15…”

Payday Lending

Major banks aid in payday loans banned by states, By Jessica Silver-Greenberg, February 23, 2013, New York Times: “Major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent. With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates. While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely…”

State Unemployment Funds

States struggle with unemployment funds still in the red, By Jake Grovum, October 8, 2012, Stateline: “More than $26 billion in lingering debt and billions in mounting interest have forced a number of states to scale back unemployment benefits, raise taxes, tap general funds and even turn to the private bond market as they look to shore up unemployment insurance trust funds that plunged into the red during the Great Recession. And now, years removed from the depth of the crisis, there’s concern that some of funds are being refilled so slowly – if at all – that certain states could be in an even worse position when the next downturn comes, compounding a problem that’s plagued them for years…”

Probation Fees and Jail Time

Poor land in jail as companies add huge fees for probation, By Ethan Bronner, July 2, 2012, New York Times: “Three years ago, Gina Ray, who is now 31 and unemployed, was fined $179 for speeding. She failed to show up at court (she says the ticket bore the wrong date), so her license was revoked. When she was next pulled over, she was, of course, driving without a license. By then her fees added up to more than $1,500. Unable to pay, she was handed over to a private probation company and jailed – charged an additional fee for each day behind bars. For that driving offense, Ms. Ray has been locked up three times for a total of 40 days and owes $3,170, much of it to the probation company. Her story, in hardscrabble, rural Alabama, where Krispy Kreme promises that ‘two can dine for $5.99,’ is not about innocence. It is, rather, about the mushrooming of fines and fees levied by money-starved towns across the country and the for-profit businesses that administer the system. The result is that growing numbers of poor people, like Ms. Ray, are ending up jailed and in debt for minor infractions…”