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It's expensive to be poor in the Twin Cities

It's expensive to be poor in the Twin Cities
MinnPost file photo by Sharon Schmickle
A system of payday loan operations and the like sucks $103 billion annually in high fees and even higher interest from those who, for a variety of reasons, can’t access the more regulated banking system used by middle class Americans.

It’s not really possible for a small herd of comfortably middle class people to walk in the shoes of the working poor.

But last week I tried.

There were 32 of us, broken up into groups of four, walking into bleak inner city check-cashing joints and pawn shops in an effort to understand how the country’s financial system actually works for millions of Americans. 

The exercise, run by the non-profits Prepare + Prosper and the Center for Financial Services Innovation, was at times emotional and other times frustrating. But it was always illuminating, as we attempted to cash checks, get a $500 loan, pawn an item and transfer money. 

Prepare + Prosper is on the verge of unveiling a “product” that would create a bridge for  people to avoid the often abusive payday loan system and access the more traditional, more regulated banking system.

Over the next year, the group, which has been offering financial services to the working poor for years, plans to partner with a bank system or credit union to create a service that will help those clients save money, pay off debts and ultimately build credit. 

Getting the message to those people Prepare + Prosper wants to serve will be crucial, though, thus the “walk in their shoes” exercise. The group of 32 was made up of leaders of various Twin Cities non-profits, which work with people in the target audience, plus a couple of journalists.

We were serious in our effort to act natural in places unnatural to most of us. The current “financial system” that serves the poor — a system of payday loan operations and the like — sucks $103 billion annually in high fees and even higher interest from those who, for a variety of reasons, can’t access the more regulated banking system used by middle class Americans.

But you can imagine the looks our little groups got as we tried to act as if we belonged in places most of us barely notice. My group consisted of two old white guys wearing sport coats and two young women: one white, the other a woman of Tanzanian roots who has a masters degree in business and who speaks English, French, Arabic and Swahili.

Emma Kasiga’s language skills came to our rescue right from the get-go. One of our tasks was to cash a $100 payroll check we had been given. But the check-cashing place we were seeking had no sign. As we scratched our heads, four Somali women stood a few feet away and stared at our strange group. 

Kasiga approached the women and put them at ease by greeting them in Arabic.

“Where do we cash a check?” she asked.

The women pointed to a small shop that had a sign for selling foodstuffs, but no mention of the check-cashing business we sought. We entered the store. Kasiga asked the man behind the counter if we could cash our check. 

“Not here, not here,’’ he told her, looking somewhat nervous as he looked at us.

As we left the store, Kasiga told us the counter man had winked as he’d told her he couldn’t cash the check. The message was clear: He does business with people he knows, not a group of people who look like state agents on the verge of conducting an audit. 

Ultimately, our group was able to cash the payroll check, but were continually rejected in efforts to cash a $20 personal check from a bank that doesn’t do business in Minnesota.  

Our “walk in the shoes” journey took us from grimy places where clerks stood behind smeared bullet-proof glass to a “normal’’ neighborhood bank, with a comfy lobby that offered soft chairs and courteous staff.  

But it was the trip to the bank — we were seeking a $500 loan — where there was an a-ha moment. Yes, the neighborhood bank was clean, bright and comfy. But grittier places such as The Unbank — where my group tried to cash a personal check that morning — offered a wider variety of services needed by their customers, more immediacy and even more transparency.

The interest rates charged by The Unbank and similar operations are posted on the walls. The fees are killer high — the annual interest rates can range from 200 to 400 percent  —  but the rules are fairly clear.  In banks, it’s hard to pin down exactly how much interest will be charged. In a place such as an Unbank, there’s actually less red tape to try to get through than in those neighborhood banks. 

Not that those upstanding banks are strangers to exploitation. Kasiga, the linguist in our group who now works with the African Development Center, once worked with a major national bank. As we talked about the exploitation of check-cashing joints, Kasiga told us of a recent immigrant who wasn’t clear on the concept of the debit card she had from a bank. For two weeks, the woman swiped her card for a 75-cent cup of coffee at a neighborhood McDonald’s. She didn’t understand that her account was empty. It turned out that each of those 75-cent swipes were costly. Her bank charged her $40 for each overdrawn swipe. Not surprisingly, the woman no longer trusts the American banking system.

What was most surprising about the storefront outfits was the time-saving convenience for their customers. Start with the fact that they’re located everywhere. (Tracy Fischman, executive director of Prepare + Prosper, said there are more of these payday check cashing and loan operations in the U.S. than there are McDonalds and Burger Kings combined.) They also offer one-stop shopping — check cashing, money transfers, small loans. 

When you may have a couple of jobs, no credit, a couple of kids and a car that needs immediate repairs, right-this-moment convenience is a huge value.  But, of course, that convenience comes at a huge cost.

The range of emotions of the group on this little trip on the other side of the economic street ranged from anger — “what do you mean, you need the name of my employer?’’ —  to sadness.

Jessica Nordell, who is with Zeus Jones, a Twin Cities branding company, walked with her group into a pawn shop to check on the value of her lovely engagement ring. The man behind the counter at the shop was kind, very businesslike, non-judgmental, Nordell said.

“But I couldn’t help feeling a sense of shame that I was there to pawn my engagement ring,’’ she said (even if she wasn’t actually going to pawn the ring).

The shame turned to sadness as the pawnbroker told her that he’d give her $75 for a ring that is a treasure to her.  “He said the stones didn’t really have value to him,’’ Nordell said. “He’d melt it down for the gold in the band.’’

After a couple of hours of such experiences, we got back into our comfortable, middle-class shoes and had a nice lunch.

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Comments (24)

It's also expensive.....

being wealthy in the Twin Cities. This is not a cheap place to live.

My heart bleeds

Having advantages are such a bother, aren't they.

Tester

I was a beta-tester for a debt collection firm named Cypress Gold back in 2003. They were very helpful for people of high net worth in retaining their income and managing their expenses. It's amazing how many deadbeats out there try to scam the rich out of their money.

Not sure if they're still around, but you might want to look them up.

Keep up the articles on the high cost of poverty

Those of us who live in comfort — transportation in the garage; banking with our laptops; auto-deduct from a fat checking account to pay our bills; eating at a casual restaurant not a major spending decision; et. al. — have no idea how much time and effort goes into living in discomfort —
payday loans the only way of paying the landlord and not getting evicted; grateful for a roach infested apartment; McDonalds french fries the kids main meal of the day, ... . Please keep up the articles about the Prepare + Prosper's and the Center for Financial Services Innovation's explorations of life on the edge.

Predatory Lending

The reality is that there will always be a segment of our population that don't have the financial skills or resources to take advantage of the normal banking systems and are sitting ducks to be exploited by these types of operations.

In the old days we used to have usury laws to protect these people. They were still exploited by loan sharks, but at least there was some attempt to prevent these kinds of abuses.

Now, we have essentially legalized loan sharking. This is the result.

We need to reestablish usury laws. That's the only fundamental way to go after this problem.

A few lessons here

No, the Twin Cities metro is not a cheap place to live, but it's far less expensive than many another metro area in the country. I don't live in a stylish/trendy part of Minneapolis, but I've never lived in a stylish/trendy part of any metro area, and I have 30% more house here, at 30% less expense, than I did in metro Denver.

Scamming the wealthy out of their money is, admittedly, among the least of my concerns. I've always assumed there was at least a kernel of truth to the notion that some people have more money than brains.

Just once, immediately post-divorce, I had to dip a toe into the world of short-term loans. It was frightening, and as soon as I had access to more traditional loan sources, I took advantage of that access. The first loan I paid off was the short-term one.

I agree with Elaine Frankowski about the usefulness and need for these kinds of stories. Just as power corrupts (and numbs the moral compass in the process), so does wealth, and it's far too easy for those of us who do have materially-comfortable lives to forget what life is like for those who lack those financial resources.

That said, Mike Schumann's comment is not without merit. We *have* more or less legalized loan sharking. I'd like to see usury laws reestablished myself, but we could make the problem much less severe in the first place by paying people a living wage for even menial jobs.

Those high interest rates are

Those high interest rates are evidence of the high risk these Unbanks take.

How many of you would cash a check for someone without proper ID?

But heck, I'd be just as happy if y'all outlawed these check cashing services altogether. Call your representatives, get it done.

MN is indeed expensive

Yes it is expensive to live in MN. But this is true for the poor, the middle class and the rich. We have high heating costs, we have winter clothes, we have high income taxes (third highest in the U.S.), we have high energy costs with the 25% mandate for higher cost alternative energy, etc.

We live here for clean air, clean water, good education systems, low crime rate, good companies and good jobs.

Many of the poor have rejected free education and rejected being life-long learners. They traded good MN education for being slaves to government dependency.

Then again...

many of them haven't. But I'm sure your caricature of the poor helps justify the lack empathy you have for people you don't know.
Please continue...I want to hear more of your struggle to buy a warm coat and heat your home under the crushing tyranny of a 25% energy mandate.

Empathy and Co Dependency

Jason,
I have a great deal of empathy for the folks who were unlucky at birth and did not choose to improve their circumstances with our free education system. And those who are addicted to something that keeps them poor. That does not mean that I want to enter into a co-dependent relationship with them.

http://en.wikipedia.org/wiki/Codependency

I agree we should help these folks, however how do we do this without enabling them?

A comparison, please.

"A system of payday loan operations and the like sucks $103 billion annually in high fees and even higher interest from those who, for a variety of reasons, can’t access the more regulated banking system used by middle class Americans."

What does the regulated banking system rake in each year in fees and interest? What are the relative amounts involved? Without this information, the caption is meaningless.

I hate to agree with Mr. Swift,

but the rates charged do reflect increased risk, at least to some extent.

As for outlawing check cashing services, I have to disagree. If you want to put them out of business, create a viable and accessible alternative. One of the reasons they are so prevalent is that the customer base has more limited mobility than the majority of us with conventional bank or credit union accounts.

I was a frequent user of payday loans through my credit union in my late teens and early twenties. The fees and rates were reasonable at the time, in my view, Then, like today, those who could not qualify for an unsecured credit card had few options when the bills came due before payday, as they so frequently did. In fact, late fees on those bills often dwarfed the fees and interest charged by my credit union. If consumers are ignorant of the costs and consequences involved, educate them. Don't eliminate one of their sole sources of loans.

FWIW, my money's on credit unions. The last time I tried to do business with a local bank, 1982, it wouldn't open a checking account because I didn't have a job. I was a student, depositing the proceeds of the sale of my home in another state. They'd take the deposit. I just couldn't write a check on it.

Check cashing and payday loan

Check cashing and payday loan services *are* the viable alternatives.

The leftists' lament is that government isn't subsidizing unviable alternatives.

It's called empathy for those less fortunate.

It used to be prevalent in Christian conservatives before their desperation for votes forced them to abandon the principle, replacing it with demonizing and disparaging the poor.

Good Christian, Fear

This should have Christians up in arms. You can't read far into the Old Testament without hearing a prophet railing against the injustices committed by the powerful against the weak and lowly of society. It's a frequent theme, and is discussed far more than the right and wrong way to conduct religious ceremonies.

Were guys like Isaiah and Amos walking the streets today, they'd be up in arms over the denial of reasonably priced financial services for the poor.

Employers Need to Demand Banks Innovate & Simplify

As a former CFO, I tried to find efficient inexpensive ways to pay our employees who did not have bank accounts. I found the best way would be debit/gift type cards such as the State of MN uses for food stamps and public assistance. The problem was that the banks/credit card companies did not offer refillable cards to which my payroll software could have sent employees' net pay just as the banks allow direct deposits of net pay to other employees' bank accounts. Western Union did, but fees were high. This frustrating situation led to other ideas:

1.) I advised the employees to take their paychecks to the bank where our payroll account was located because they were legally required to cash them.

2.) If trying ot open an account, credit unions are often better at serving the needs of smaller customers than big banks. I also suggested that the employee open a savings account rather than try for a checking account. The bank would not be taking any risk on the paycheck not clearing before handing out cash or honoring the employee's personal checks, or take risk on the employee's ID being fake. The employee could still make a number of ATM withdrawals and payments with the debit card for the savings account depending on the bank's policies on savings account transactions. There would be a couple days wait for the paycheck to clear, so the employee would want to have any credit card due dates, rent, bills, etc. dates adjusted to match when his cash would be available. Once he had a savings account I could also direct deposit his net pay to it if he preferred.

Of course, the employee would need an ID and a Social Security number to open the account, but they need that to get hired in the first place.

3.) The final solution is to pay in currency as was done for hundreds of years. It's completely legal, fairly efficient, and inexpensive, but high risk for robbery, so most companies no longer use it.

Large employers have bargaining power versus their bank. They should use it for their employees' benefit and get their banks to serve their employees' needs.

Interesting

Your advice was doubtless incredibly valuable and probably something that most CFOs wouldn't bother to give employees.

For what it's worth, some large employers have associated credit unions. There's still difficulty for those with poor/no credit and low incomes in getting accounts set up at credit unions, but it's better than most larger banks. And credit unions are usually much more flexible.

Usury and risk

Minnesota has statutes prohibiting usury. But many states don't. These states have created essentially "usury havens" where banks can set up and charge customers usury with impunity. That's thanks to the anachronistic National Bank Act, (1862), which stipulates that banks are able to charge the highest rate of interest in their home state. The U.S. Supreme Court says that's lawful. It would take an act of Congress to change that loophole. So you have states like South Dakota which eliminate usury laws so banks there can issue usurious level credit cards to people in Minnesota and other states. Is there a risk in dealing in credit cards and extending debt at usurious levels which are illegal except the law allows you an exemption? There is, but the risk is that you won't be making as large of a monopoly profit because some uncollectable losses. But it's still a monopoly profit.

Usury in Minnesota is defined as any interest rate above 8% per year. That would make all, or virtually all, credit card and all other debt usurious. But the law is so watered down and riddled with exceptions besides the "National Bank Act" exception, that it is virtually unenforceable. Most of us who incur usurious debt do so because we can afford to pay them back quickly. But we live in a society which is built on usury that is legal and illegal at the same time. So we accept what we cannot change. Poor people who could probably enforce these usury laws privately against "pay day lenders" don't have the resources to protect their rights. That's the definition of "being poor."

Fact check: Minnesota has cheap energy

The US average price per kWh in 2013 was 10.07 cents. In Minnesota, it was 9.41 cents, or 7% lower.

What is the purpose?

Is this article trying to prove that it is difficult to be poor? But I don’t think there are people who think it is fun. Or is it trying to prove that that the poor should be able to live like the middle class? But that doesn’t make sense. So what is the purpose? And if banks do not want to take the risk of lending to the poor, there is no reason for calling those who take the risk and charge for that sharks and other bad names.

Mr. Schoch, do you have some facts to prove that wealth corrupts? And what do you mean by wealth – middle class income? And who should be paying “living wages” and what is it?

Are you kidding me?

You're actually asking for proof that wealth corrupts? Try history...start anywhere you like.

Matthew 7 seems to be missing from some bibles

Do some readers rip out that part or are certain versions pre-printed that way?

"WWJD" does not mean "Who would Jesus demonize?".

WWJD

What would Jesus do? That is an interesting question. I really am not sure?

The Bible speaks of being charitable and giving Caeser what is Caeser's, however it also looks poorly on sloth and sinful ways. The Bible praises people that come to God and strive for excellence, and berates those that are greedy and undisciplined. It stresses the importance of forgiving those that have sinned and are seeking to change.

Personally I think the poor can be just as greedy, slothful and sinful as the wealthy. And many have squandered their physical and mental gifts. So I think Jesus would consider each person on a case by case basis and then determine what to do for each one.

Of course, the Bible is full of quotes that can be construed in different ways...

People who confuse economic outcomes with personal "sin"

They seem to be the same sort of people who skip right over Matthew 7 and think Jesus = the Bible. They also seem to be the same sort of people who use the Bible as their own personal weapon, then fall back on "it can mean anything" as some mealy defense of their own hypocrisy.

"Sloth is defined as spiritual or emotional apathy, neglecting what God has spoken, and being physically and emotionally inactive. It can also be either an outright refusal or merely a carelessness in the performance of one's obligations, especially spiritual, moral or legal obligations. Sloth can also indicate a wasting due to lack of use, concerning a person, place, thing, skill, or intangible ideal that would require maintenance, refinement, or support to continue to exist."

Emotional apathy. Neglecting what God has spoken. Being emotionally inactive. Wasting due to lack of use. Like mental sloth - not using one's mind sharply and honestly in the discernment of what is true and right from what is false and wrong.

It is the basest form of mental sloth to believe economic outcomes are the result of personal failings, or that somehow we as individuals can sit pointing out sawdust with planks in our own eyes. Guess some people need these false beliefs, otherwise their emotional/mental apathy and inactivity might be at risk. You can bet these same people don't have any problem with sloth itself, just the thought that there might be someone slothful out there "stealing" from them - it's the core false belief and rationalization of an entire noxious political ideology.

If ignorance is a badge of honor, any rhetoric that emerges from it is, at best, noise.