Sirrea Monroe never expected her electricity to get shut off — she was only $70 behind, and she planned to pay it off after her next paycheck. What happened next shocked her: “I called to get it turned back on, paid the $70 with what was supposed to be my rent money, and then the lady says, ‘Great, thank you for your payment! Now I need $250 for the ‘new customer’ deposit.’” Monroe, a convenience-store manager who has a child with special health needs, was in disbelief. “I’m like, ‘Look, I couldn’t afford $70. Where am I going to get $250?’ Now I’ll be more in the hole than I was before.”
Monroe had been a customer of the electric company for more than a decade, and the power had been off for less than an hour. It did not matter: She had to pay it. It took more than six months to pay off.
It has never been easy to be poor in America, but decisions made in company boardrooms about seemingly modest financial matters — about fees, fines, interest rates, minimum balances — make life far harder than it has to be for low-income families. This week, Bank of America announced its free, no-minimum-balance checking account, popular with many low-income customers, will require a $1,500 minimum daily balance or $250 in direct monthly deposit (totaling $3,000 per year). If customers fall below that threshold, they will be forced to pay a monthly fee.
The optics are breathtaking, considering Bank of America made more than $21 billion in profits last year and will receive a multibillion-dollar present from Congress every year from now on, courtesy of the newly slashed corporate tax rate. To celebrate their profits and congressional largesse by putting the squeeze on their poorest customers puts even more icing on their already well-iced cake.
Perhaps to the executives who make these kinds of decisions, the fines and fees seem negligible, especially if you, like Bank of America chief executive Brian Moynihan, received $20.2 million in personal compensation last year. More than 40 percent of Americans say they struggle even to make ends meet each month and would be unable to cover an unexpected $400 expense without real hardship. No amount is small if you cannot afford it.
For low-income families, these kinds of costs are everywhere.
Let’s say you clean houses or offices or hotel rooms for a living, or wait tables, or work in a child-care center or nursing home. Your income fluctuates depending on the hours your employer gives you week to week (or tips you get day-to-day), and your wages barely cover your expenses each month. Since your bank balance is not exactly flush (according to one analysis, the median checking account balance for Americans making less than $25,000 a year is $500), it only takes one glitch in your income or bills to throw everything off. Anything from a delayed paycheck, reduced hours, an unexpectedly prompt deposit of your rent check, or a school snow day where you have to stay home with your kid and do not get paid can push your account into the red.
Once you are overdrawn, you are hit with overdraft fees, typically $35 apiece. You will be charged a separate fee for each individual transaction, and if you are like most people, you will not even learn you are overdrawn for two to three days. Incredibly, more than a third of U.S. banks will reorder your transactions and post them not in chronological order, but from largest to smallest by dollar amount, which shoves you faster than necessary into the red and boosts the number of overdraft fees you owe. In only a few days, you could owe hundreds of dollars, creating a debt that, on your waitressing or child-care wages, will take months or years to pay back.
If you throw up your hands and close your bank account (or you live in one of the many small rural towns or low-income urban communities where banks have shuttered branches with an eye to their bottom line), you will have to cash your check at a check-cashing establishment, where you will pay a fee for the service (usually a percentage of the check’s value). Once you’ve got the cash in hand, you will need to turn it into money orders to pay your bills — and you will pay yet another fee for each one.
Need to buy a car? You may only be able to get financing from a “buy here, pay here” car dealership that charges exorbitant interest rates (think 25 percent and up). If you save to buy from the dealership in cash, you may not be able to. “They wanted $1,900 for that car … and wouldn’t take cash for any of their vehicles,” said one low-income customer in Howard Karger’s book “Shortchanged: Life and Debt in the Fringe Economy.” “They wanted us to put $1,000 down and pay $89 a week for two years” — which amounted to more than $10,000 for a $1,900 car.
If you do buy a car, you had better drive carefully, because if you get a ticket and cannot pay, you could wind up in prison. Nineteen-year-old Kevin Thompson of DeKalb County, Ga., made an illegal left turn and spent five days in county jail because he could not quickly pay $838 in fees and fines related to the traffic stop. The ACLU intervened, and the case was eventually settled, but the practice is widespread, as states and municipalities fund their budgets through the collection of fines and fees.
What about a place to live? If you are barely covering your expenses, a $500 security deposit is a significant sum. If you do not have it, the alternative is a low-end hotel where you can pay by the week, which lacks the upfront cost but costs much more over time — for the room itself but also increased food costs and life complexity. (I once met a woman who was fleeing a domestic violence situation and staying in a low-end hotel. She went to a food bank and received some boxes of dry pasta — which she could not cook because she did not have a stove.
Food costs themselves are higher for low-income families, creating another sort of surcharge. When you are making ends meet on a low income, you cannot go to Costco to buy in bulk because you cannot afford the membership fee — and if you could, it is hard to carry home a 40-pack of toilet paper and a huge box of Cheerios on your lap on the bus. Milk and bread at the corner store or small rural grocery will cost more, but it may be the only choice you’ve got.
The scheduling of many low-wage occupations can create significant costs, too. In retail, warehouse work and other occupations, you might show up ready for work only to be told your services are not needed that day — even though you already paid the day-care center to watch your child for eight hours. If your employer limits your work hours to keep you at “part-time status,” your earnings will be limited even if you were eager to work more. You lose pay every time you or your child get sick, because there is no “working from home” in almost any line of low-wage work.
Even the agencies tasked with helping financially strapped families can make things harder than they need to be. It is not unusual for cash-strapped families to have to line up before dawn in the cold in front of a government office just to secure an appointment to apply for limited heating assistance at a later date. (Imagine if your dentist worked this way). Many people who need, and are eligible for, government assistance with various necessities simply do not receive it, either because it requires complicated paperwork they do not have the discretionary time to manage, requires travel to an office they cannot get to, or involves an appointment during the hours they work.
American low-income families face many challenges, and some of them require big, complicated solutions. Some are pretty easy to resolve: a modest legal protection; a little policy tweak; or a chief executive deciding the people who clean his office, tidy his hotel room and serve his lunch do not need to be penalized for the amount of money in their bank accounts.