The Myths about the Poor and Debt in America

Lisa Livingston-Martin - Staff Attorney, Joplin Office

I have heard many theories as to why the poor have debt, specifically credit card debt, in America. The reasoning often has more to do with the perspective of the person stating their reasoning than the circumstances faced by the poor in America. I have heard well-reasoned and factually sound theories from those experiencing poverty and debt, showing much personal insight into their own situations; such as that the rising cost of living over the last decade has outpaced their low-wage job earnings, including any raises if applicable, causing them to fall further behind in their ability to maintain payments on balances, often incurred years before. In a similar vein, that unexpected medical expenses, and consequential time off work, most often without any opportunity for short or long term disability payments or other benefits to supplement the lost income, resulted in the necessity to prioritize the payment of expenses to those required for food, shelter, transportation to work, medication etc. leaving no funds to pay on credit card balances.

On the other hand, I have heard some in the middle or upper middle class reason that there really aren’t people in America so poor that they can’t pay their debt, including credit cards; that those who default on credit card payments are ‘deadbeats’ who choose to live in poverty, to be pursued by debt collectors and force the debt collectors to pursue them in court out of a sense of apathy or worse. This is an example of the extreme spectrum of theories surrounding credit card debt of the poor in America, which overlooks the fact that many facing credit card debt in America have had their economic situations detrimentally changed due to unforeseen forces and events, including loss of employment, health issues, transition to fixed incomes before they intended. Additionally, the continued high rates of involuntary unemployment and underemployment experienced by younger people has resulted in less upward mobility for those under the age of 35 than in previous generations. The US Chamber of Commerce Foundation details these factors in its The Millennial Generation Research Review report, accessible here.

Unfortunately, there are more insidious reasons that people can find themselves facing credit card debt issues than the societal changes we all are facing these days. One such reason is Identity Theft. Making the situation worse, the culprit is often not a faceless, nameless computer hacker sitting behind a computer monitor on the other side of the globe, or some organized criminal scam, but instead someone very close to the victim. It seems counter-intuitive to think that Identity Theft is an issue for the poor in America, since they generally have little credit or resources to steal. And perhaps this is the worst myth about the poor and debt in America. Crime is often a matter of opportunity, and access. And a sense that no one would want to steal their identity because they have so little is a dangerous assumption.

The Department of Justice, Bureau of Justice Statistics tracks trends and incidents of Identity Theft. Their National Crime Victimization Survey (NCVS) defines identity theft as including three general types of incidents:

• unauthorized use or attempted use of an existing account
• unauthorized use or attempted use of personal information to open a new account
• misuse of personal information for a fraudulent purpose

It is clear from Bureau of Justice Statistics reports that Identity theft is on the rise. For instance, they concluded that "3.6 million U.S. households learned they were identity theft victims during a six-month period in 2004." Fast forward just 8 years, and the findings were that “16.6 million people experienced identity theft in 2012.”

I have assisted people who were struggling with poverty while working low-income jobs as well as retirees on limited fixed incomes of Social Security and pension benefits, who learned they were the victims of Identity Theft when they were sued by a debt collector. These can be heartbreaking situations such as:

The elderly, bed-ridden, blind woman who diligently paid her bills, including a credit card bill she had made minimum payments on for years to pay down her debt which had become a burden as her health deteriorated to the point that she required help from care givers to assist in daily needs and paying bills. She would painstakingly sign the checks for her bills so that a care giver could fill in the rest of the check, which she could no longer see, and mail the payments. Unbeknownst to the woman her trusted care giver would at times make the checks payable to themselves, or incur expenses on her credit card for their benefit and not hers. Working with the attorneys for the credit card company I was able to assist her in providing proof that she had been the victim of identity theft and the information amended in her credit report so that it did not have a future negative impact on her credit, or;

The couple, living simply in their home they worked decades to own free and clear, who are shocked to be sued, not once, but three times, claiming that the wife lives in another state 1000 miles away with unpaid credit cards totaling more than $70,000. More devastating was the realization that, the only person with access and opportunity to the wife’s personal information necessary to open the accounts was their daughter who in fact earned more money than her parents. In order to avoid judgments against her totaling more than she could ever repay, mother had to name her daughter as the identity thief, tearfully signing the required documentation; tears of fear that she would not see her young grandchildren again as a consequence.

There are many myths about debt and the poor in America, some born out of stereotypes, ignorance, or mistaken assumptions. Some myths are ugly, but others, including myths held by the poor themselves, that they are not targets of fraud or identity theft are just plain dangerous.

The High Cost of Being Poor

Doug Tschauder - Managing Attorney, St. Joseph Office

I’m going to make an assumption. 

If you are reading this, you are likely in the middle class or higher. You have come to expect certain benefits of, ahem, your position. When you go to buy a new car, you will get the rebate and the finance deal. If your credit card isn’t giving enough cash back or free hotel nights, they won’t keep you for long. Bank fees? What’s that?

Unfortunately, not everyone gets these breaks. If you are poor in America, not only don’t you get the special deals reserved for the haves, you are hit with the poor tax. 

The cost of most everything is higher when a person is struggling. 

Take bank fees. If you don’t keep a $2,000 balance, you get to pay the bank about 8 bucks each month for the privilege of keeping your money. If you bounce a check, the bank gets another $35. If that causes an overdraft, add another $35, plus $2 each day the balance is negative, which will probably be next payday. A couple of hiccups can cost $100 very easily. 

You could go unbanked. In the best case, a cash card or Wal-Mart will only charge a couple bucks each check, If you need money orders, add another buck per. 

If you have a money emergency, like a car or appliance repair, you may be lucky and have a credit card that only charges 25.99% interest, if you aren’t already at your limit. For those who don’t have funds available on the credit card, look out. Payday loans are available, but they charge that 25.99% every couple weeks, not per year. That assumes it gets paid off. A title loan may be a little cheaper, with the added incentive that they will take your car if you miss a payment. 

Transportation is more expensive. That buy here/pay here place will sell you a car for $99 down, but your $300 per month is buying a ‘04 Taurus with 160,000 miles. And, it needs new tires soon. What about the brake issue? Sorry, as is. Of course, you can take the bus. With a bus pass, it is downright reasonable, as long as you don’t mind having to walk several blocks to the bus stop and another couple to your job—in the rain. 

Food gets more expensive. There is often no grocery store nearby, so you have additional transportation costs to get there. If you do go to the local convenience store, everything is higher, and there is practically no produce. Even in the supercenter, produce is more expensive than canned and pre-packaged food, so cheaper wins out. 

If you rent, you are likely paying more for less. Many landlords don’t like to make repairs, especially if you have been late with your rent in the past. Even if you keep a clean place, if the neighbor has bugs, so do you. If you are lucky, there is a coin laundry in the building, otherwise, that can be a trek.

You don’t even think of many other costs. As an hourly worker, you don’t get paid time off to go to the doctor, so you don’t go as often. The insurance you had to buy has a $5000 co-pay, so good luck with that. 

Then there is a psychic cost – the stresses of the situation, the fear of crime around you, the burden of being a single parent. There are social costs as well.

The poverty level for a family of three is $1,674 per month. If you have a full time, minimum wage job, you make just over $1300 per month. Most minimum wage jobs are under 32 hours so the employer can avoid paying for health care. 

 I could keep going, but the reality is this: the poor pay for being poor, and we all pay as well.