Camille Landry is a writer, activist, and social justice advocate who lives in Oklahoma City. This post is part of our “Neglected Oklahoma” series, which tells the stories of Oklahomans in situations where the basic necessities of life are hard to come by. These are real people and their stories are true (names have been changed to protect privacy).
“Ordinary things cost more when you’re poor,” Sophia Foreman told me. She has three kids, three jobs and not enough money to pay her bills. Sophia works part time at a big box store in a Tulsa suburb and has a second part-time job at a call center. On Sundays she works in a church nursery – altogether 50 hours most weeks at $9 and change per hour.
Things got rough for Sophia this winter. Heating bills were high and she lost time from work due to bad weather. Facing a cutoff of her gas service, Sophia went to a payday loan company. “I knew it was going to cost a lot but what choice did I have? We couldn’t live without heat.” She borrowed enough to pay the gas bill and buy warm boots for her family.
Payday loan companies specialize in short-term, high-interest loans to people who have inadequate credit and few other financial resources. The borrower writes a post-dated check to the loan company, which holds and then deposits it on the borrower’s next payday – typically within two weeks.
Oklahoma payday loan companies charge a fee of $15 for every $100 borrowed up to $300, and $10 per hundred after that per $500 loaned. The borrower also pays for a background check and a loan initiation fee. Collection fees are added if the repayment check bounces. The annual percentage rate is 460.9 percent - the maximum interest allowed by Oklahoma law. The additional fees and penalties can push the actual cost of borrowing past 500 percent.
Often borrowers cannot pay back the entire loan on the due date. The loan company then allows the borrower to pay the interest on the loan and refinance the principal. The rollover stacks up the interest and many borrowers end up repaying thousands of dollars on a loan of a few hundred dollars. The Center for Responsible Lending explains:
Strategically located in low-income neighborhoods, payday loan stores reap millions in profits from a product designed to force borrowers into repeat loans. With each loan renewal or flip, borrowers become unable to both repay the lender and have enough money left until the next payday arrives. The trap of recycled debt is also how billions are taken each year from poor people.
Sophia’s financial woes increased. The post-dated check overdrew her checking account. The bank paid it but charged her $35 for each of the 5 checks that bounced. When she could not repay the fees quickly, the bank closed her account.
Now Sophia gets two of her paychecks automatically deposited to a prepaid debit card. “The fees are higher than the bank’s fees but at least I can buy stuff online or use an ATM. The grocery store charges 10 percent to cash my check from the church.” Since she no longer has a checking account, Sophia buys money orders to pay rent and other expenses. Recently she needed emergency cash for car repairs. She pawned the TV and her grandmother’s ring to get new brakes – which incurred even higher interest rates than the payday loan.
Oklahoma Watch reports that Oklahoma has one of the highest percentages of unbanked (no bank account) and underbanked (using alternative financial services) households in the nation at 34 percent. The national rate of unbanked and underbanked households is 25.6 percent. More than one-third of Oklahoma’s African American households and nearly four in ten Hispanic ones are unbanked, according to the FDIC.
The FDIC found correlations between ownership of a bank account and asset holdings that indicate that having a bank account plays a role in asset accumulation and confers an advantage in securing bank loans. Senior citizens comprise 17 percent of the underbanked/unbanked. Limited access to financial services inhibits economic advancement in inequitable ways, as Senator Joseph Lieberman explained:
To be unbanked is to be under an economic disadvantage. It means … relying on fringe banking services such as check-cashing outlets with high fees. But what is worse is the savings deficit that it creates for many working-class, minority and young citizens, who have a much harder time acquiring and building assets.
“That loan was one of the biggest mistakes I’ve ever made,” Sophia says. “It made my credit even worse. I lost my bank account. I’m paying over 400 percent in interest plus fees. Trying to keep up with these loan payments means going deeper in the hole every payday. Also I pay higher fees for a prepaid debit card, money orders, wire transfers and other financial services. It’s an extra tax on poor people.”
“It is especially expensive to be poor. … The marketplace is hostile to those in poverty, who often pay higher prices for consumer goods, including financial products and services. These factors put disproportionate burdens on people’s lives.” Richard Cordray, on the OK Policy Blog