In 1890 the journalist Jacob Riis published “How the Other Half Lives,” a powerful indictment of the horrific tenements of New York that gave rise to a significant housing reform movement. Mehrsa Baradaran, a University of Georgia law professor, reaches for a similar impact in her description of the oppressive financial environment that low-income families inhabit.
The answer to the implicit question contained in her title, “How the Other Half Banks,” is simple: The “other half” hardly banks at all. Many families below the midline of income distribution in the United States rely heavily on check-cashing services, payday lenders and title vendors charging fees and interest higher than any chartered bank could legally impose. Financial deregulation enabled banks to slough off low-income customers even as it created new opportunities for storefront profit-taking.
People living from paycheck to paycheck, with little surplus to buffer emergencies, occasionally need to borrow money, whatever the interest rate. That rate is typically as high as state laws allow, and short-term loans are designed to encourage rollovers that result in ballooning interest.
– The New York Times