According to a report issued earlier this year by the PBS Newshour, the costs for the poor are more exorbitant, especially when it comes to taking out loans or banking.
The poor, in many cases, are unable to maintain a minimum banking balance or supply the needed ID to open a bank account, they have to rely on direct payday lenders or check cashing stores in order to cash checks or transact financial business. The interest rates on the loans alone are often in the triple digits.
Mehrsa Baradaran, who is a professor at the University of Georgia, says that it doesn’t have to be [this] way. The author of “How the Other Half Banks,” commented about the current inequality in banking. Baradaran believes that the deregulation that took hold in the 70s triggered the formation of the big banks of today – financial institutions so large that they bypass the banking transactions of low-income people.
Baradaran’s solution is to set up postal banking. Because mainstream banks do not concentrate on the financial needs of the poor, she believes the post office can offer banking services at a reduced rate. The professor points out that commercial banks depend on the federal government, which supplies them with no-interest and low-interest credit, and also bails them out when necessary. Therefore, she asked, “Why shouldn’t struggling citizens be entirtled to the same treatment?”
Apparently, representatives of the payday loan industry believe they are helping low-income consumers rather than hurting them by offering a way to take out a loan with little or no collateral. The high interest rate, according to lenders, can be paid if the loans are paid back, as designed, by the next payday. According to industry professionals, the loans offer an alternative for people who seek emergency cash. They are not meant to be used by borrowers who wish to take out a loan for a longer term and pay it back at a later date.