The High Cost of Being Poor

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The mentally challenged middle-aged man and his elderly mother had made it to the front of the banking line at a Fort Worth, Texas, Wal-Mart on a Monday afternoon. Perhaps you didn't know you can bank at Wal-Mart, but there it is--First Convenience Bank, in with the eyeglass repair shop and the photo studio. The man and his mom were talking to a young teller about bank fees.

The man had just opened the bank account a few days before and had his paycheck--$455 take-home for two weeks' work--direct-deposited there. The problem, it turned out, was that the check hadn't been deposited until after 2 p.m. on Friday, which meant it wasn't credited to the account until Monday night at midnight, and wouldn't be available until Tuesday morning at 9 a.m. Not realizing the delay, the man--obviously excited about the banking experience--had used his bank card seventeen times between Friday evening and Monday--unknowingly ringing up a $29 overdraft charge each time. So when he went to the bank in person that afternoon to take out more money, he found that not only was his whole paycheck gone, but he now owed the bank more than a hundred dollars beyond that. He couldn't figure out what had happened.

"I didn't spend that much," he kept explaining, taking out his wallet and showing the teller receipts for gum, candy, a couple of dollars in gasoline and a handful of other very minor expenses that didn't total $100.

"Look," the teller explained. "I told you when you opened that if you used the check protection it would cost $29 per use. It doesn't matter how small it was. You used it seventeen times, and that comes to $493. Your check was for $455, so you have no money left, and you owe the bank the difference as well as for your purchases."

The man's mother was near tears by this time. Fortunately, several irate customers waiting in line had overheard the conversation and demanded to speak to the branch manager, who agreed that perhaps the bank was out of line in this case and promised to remedy the situation.

Shortly thereafter, First Convenience Bank raised its overdraft rates to $33 per use. Why not--there's no state or federal law that controls what banks can charge in overdraft fees. Such fees are common--and highly profitable--at the small banks that cater to the poor and middle class by offering checking accounts with automatic "overdraft protection" that's supposed to help keep checks from bouncing.

Unfortunately, many poor people, living paycheck to paycheck, use the overdraft "protection" more like a short-term, and very high-interest, line of credit. "Some people use it like a regular loan," said a teller at the same Wal-Mart branch bank where the story told above happened. "A lot of customers dip into it once or twice a month to cover a check or buy food." How many of the customers? "Almost all of them," said the teller, who asked that his name not be used. "And we have thousands of accounts."

No one thinks paying $29 for the privilege of writing checks you can't quite cover is a sound financial practice. But what are you going to do when your kids are hungry and you don't get paid until Friday? It's the kind of choice that poor people across the country are being forced to make more and more often. Welfare reforms instituted in 1996 are hitting home with a vengeance, housing programs are being cut back, and financial institutions--from banks to credit card companies--are finding new ways to add fees and jack up rates. Worse, an overhaul of bankruptcy laws that just was enacted into law makes even that extreme measure more difficult to use and considerably more expensive for most people who still fall within the new parameters.

Local charities are trying to respond to need that is growing far faster than their resources--as more middle-class jobs are being replaced by part-time work or service jobs or the kind of contract, project-by-project labor that carries few or no benefits. It all adds up to a slope that gets steeper and more slippery with each passing month.

Angela Guardiola, is a strong forty-six-year-old Latina with dark eyes and a set jaw. She has a good job. Born in Lubbock, Texas, her home has been Fort Worth for most of her life. Her house in south Fort Worth is modest but just fine; better than that, it's paid for. Her two children are grown and on their own. A short and bad second marriage, from which she's been separated for nearly three years, is about to end in a non-acrimonious divorce. Life is good.

It hasn't always been that way. "I've struggled most of my life to get where I am now," she says with a Spanish accent that carries no trace of self-pity. Then she launches into a story that would have broken weaker men and women.

"In my first marriage, I was hoping for the American Dream. You know, where you have to work but everyone is healthy and happy. But life isn't like that." Her husband was a sales contractor but didn't do very well, so Angela supported the family.

"I didn't mind, though," she …