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Is it too expensive to be poor in America?

Instead of clearing up your financial picture, payday loans often are the first step toward more debt.

By Money Staff Jun 2, 2014 2:05PM

This post comes from Heesun Wee at partner site CNBC.


CNBC on MSN MoneyDesperate for a few hundred dollars to tide them over until payday, many Americans resort to cash or check advances -- also known as payday loans.


But the vast majority of these short-term advances are not paid off within two weeks, and in fact are rolled over or followed by another loan, according to the Consumer Financial Protection Bureau. Plus, few borrowers lower principal amounts between loans. The upshot can be a vicious, downward cycle into deeper debt.


 Money Puzzle © Glowimages, Getty ImagesJust ask Katrina Gilbert.


The 31-year-old single mother of three recently took out a $300 payday loan to make the rent in Tennessee. It took her weeks to pay off the advance that ultimately cost her double the initial loan amount. Gilbert shared her experience -- and those of other working poor Americans -- to a standing ovation at the United Nations in New York last week. The growing problem of America's unbanked and underbanked was part of a summit at the UN on seeking solutions to broad economic and environmental challenges.


 "We're doing the best we can," Gilbert said. "We too deserve a better shot at the future."


Aimed at individuals like Gilbert, JPMorgan Chase last week unveiled a $30 million, five year commitment to establish a "Financial Solutions Lab."


"It's too expensive to be poor in America, and it's getting worse," said Noah Wintroub, managing director of Internet and digital media for JPMorgan Chase. Financial lab advisors will include IDEO.org, which works with nonprofits and other social enterprises.


Of course, reaching out to America's working poor doesn't hurt a banking giant's corporate image. But the bank says the lab is about seeking new financial options. "We offer a variety of programs, products and services to help our customers better manage their finances, and the Financial Solutions Lab is the latest example," said Nicole Kennedy, a spokeswoman for JPMorgan Chase.


And innovative financial solutions would be welcome among payday loan users. Monthly borrowers are disproportionately apt to stay in debt for 11 months or longer, according to the finance bureau's research.


"We're not asking for a handout," said Gilbert, who was featured in the documentary, "Paycheck to Paycheck."


Gilbert added that a living wage wouldn't hurt either. "We should certainly raise the minimum wage," she said.


More from CNBC

130Comments
Jun 2, 2014 3:16PM
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Pay day loan companies are nothing more than 'loan sharks'. 
Jun 2, 2014 3:49PM
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Only in America can you not afford to be poor.......... man oh man are we fuked !
Jun 2, 2014 5:01PM
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If only the Government would think to help US citizens like they help the undocumented aliens and others, it would be a place to be proud to be an American again.  Why does a US citizen get less than the undocumented Alien?  Why do we give countries that want us dead billions of our dollars?  No wonder every non-US citizen wants to come here.  They get everything.  US citizens are at the back of the bus not the front.   
Jun 2, 2014 3:22PM
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In the late 19th century, Mark Twain wrote a short story called, "The Million Pound Bank Note," where a destitute man is given a single million pound bank note and must support himself without spending any of it. The gist of the story is that if you have a million pounds, you can get by without having to spend a penny of it. 

This isn't new, but there's still so much resistance to the idea that the poor are targeted by predatory businesses. 
Jun 2, 2014 4:58PM
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I have a job, I am poor and I pay my taxes. My student loans make a dent in my paycheck every month along with my rent, health insurance which is an insane amount of money, $500, monthly bus pass because I don't have the money to buy a car right now or take my drivers test. 


Something tells me that when I start my job as an Assistant in a dental office in the fall the $18.50 an hour still isn't going to cut it. 
Jun 2, 2014 3:22PM
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Notice how it says "working poor".

If they never even tried they would be far better off, like the people who wander the streets of my town "finding theyselves" and looking for $hit to steal.

Jun 2, 2014 4:27PM
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I am considered wealthy.

I cannot afford title loans, payday loans or cash advances.

What makes the poor people think that they can?

Jun 2, 2014 3:09PM
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Perhaps you should have thought about the predicament you are in BEFORE you became a 'single mother of three.' Actions and choices have consequences, which you obviously didn't consider before you got into this jam you are in now.
Jun 2, 2014 5:24PM
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Look at these clowns going off they know everything about this woman. Welfare etc. The article said she IS A WORKING MOTHER. Yet you Trolls go off into your own little La-La Land. How she became to be a Single Working Parent is not the issue. The point is she is stuck in a position of having to live Paycheck to Paycheck. I commend her for what she is doing. I also feel that there should be some other outlet to her if she needs $200-300 for a short loan and a reasonable Pay back. These corner loan companies are not the answer. Why should she have to repay twice the amount of a loan. Than again maybe she needs to be making more money as she shouldn't have to borrow $300 to make rent. You Bobbleheaded Trolls are really a Pathetic Bunch. 
Jun 2, 2014 3:56PM
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America was, and is, built on the backs of the poor.
Jun 2, 2014 5:19PM
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Automatically assuming that this lady was destitute when she bore her children is not valid. Many times life situations change, in just a very short time, and oft times the principal players have no real control over what life has dealt them.
That being said, one study will not fix, probably won't even help, the economic challenge of being poor.
And no, I don't think a higher minimum wage will help, unless you join it with a price moratorium. If we get a minimum wage hike I think corporate America will simply jack up all their prices even higher, instead of doing something creative, such as cutting down on ultrahigh CEO & Upper Management salaries and benefits instead. I also think many corporations will again try to shift as much of their 'work' as they can out of the U.S. - in retaliation.

Jun 2, 2014 5:33PM
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Hey just remember Walmart will gladly cash your $200 paycheck $4.00 it is only 2 percent. Why is it not free when shopping in their store???????? Just another way to exploit the lower working class!!!!!! Most banks charge $5.00 to as much as $20.00 fee for check cashing something may be wrong with the system. Where is Obama the champion of the low and middle class. Oh yes he actually has to answer to the corporate money who paid to elect him. Inflation is low only if you do not need food, gas , rent and insurance.  Republicans are no better we need a new party maybe something like the American Party for the good of all the people. A party to unite everyone to work together for a better nation. It could happen if enough people want it ??????????????????????
Jun 2, 2014 3:51PM
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Its rough...obama phones, welfare, food stamps, section 8 housing and the list goes on.  How can anyone keep up with the latest fads if they only get paid a few thousand dollars a month to not work?
Jun 2, 2014 4:29PM
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It is too expensive to be poor. I know I can't afford to be poor.
Jun 2, 2014 5:20PM
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Payday loans are stupid. People have the right to be stupid.
Jun 2, 2014 4:46PM
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the key to alot of this is higher education which should be free or lower cost then it is. Would you like to have more uneducated people running the future of america?

Jun 2, 2014 6:36PM
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I had used payday loans as well after a divorce, because I did not qualify for help from my bank, although I had steady income.  My credit was in the dump and I was up to my eyeballs in debt; however, I'm still repairing it, but with the help of 401K withdrawls.  At times, the only help is the worst help, and after getting out of the payday loan trap, it felt exhilarating.  I told my bank that I didn't understand how they couldn't give me a small personal loan, when I was able to utilize payday loans and them back in full with over 300% interest rate.  Also, they received my direct deposit so they were well aware that  I could afford to pay the loan back.  This issue isn't only for the single mother listed in the article, but families all over who are experiencing the same thing.  Not qualifying for help, when you have bad credit due to situational occurances. 
Jun 2, 2014 6:14PM
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PayDay loans aren't even the half of it.  Try our state and local governments.  Parking violations, late fees for everything compounded with interest and more late fees then comes the warrants and it's either pay up or go to jail.  Just what we need more people in jail and who takes care of their kids--you and I the taxpayer.  Kind of borders on or is an outright violation of our Constitution.  I thought that debtors prisons were disallowed in this country.  Not quite true I guess.
Jun 2, 2014 6:03PM
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Not only are payday loan companies preying on the working poor, but so are credit card companies and insurance companies even utility companies.  A friend of mine was told the other day when she tried to cash her paycheck  the bank wouldn't do it because she didn't have an account with them so she tried open a savings account but couldn't because she had no credit history?   What's that about, the savings account wouldn't be profitable enough for the bank I assume, they felt it was too small for their liking when you consider mailing statements etc.  Insurance companies routinely rate their clients for insurance based on credit history as well, no bank account no credit history (here it comes) a rate increase.  It is sickening to me to put some people into these situations and then bleed them dry based on how profitable they are for the institution they are dealing with.  They aren't all lazy destitute drug addicts, etc. etc.  I know when I was just starting out I had many times when I fell back on family primarily if it hadn't been for them I would have been 1 step outside the poor house no matter how hard I had worked.  Not sure how to fix the problem but I truly believe that in many cases poor people are forced to pay more for goods and services than their more well to do counterparts.
Jun 2, 2014 8:51PM
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Considering single parenthood at birth is about a 90% chance of poverty for both the parent and children, all children born from single parents under age 21 without an identified source of money to keep both from poverty and government assistance should be forcibly taken from the mother and put up for adoption.  There are millions and millions of parents who can afford children who cannot have them themselves and who now pay ourtrageous sums of money to adopt.  Why not help everyone, especially the children?
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