Emma Coleman Jordan
More than thirty years ago, "The Poor Pay More" documented the fact that poor people pay more for food, auto insurance, and housing, all of inferior quality. A just-released national study, copy here , by the Brookings Institution documents the fact that things have not changed.
The Brookings study is important because it calculates the cumulative impact on low income consumers of excessive prices for basic necessities and the concentration of the most aggressively priced, inferior quality services in poor neighborhoods. Those who make $30,000/year or less pay more than the middle class for the same products and services. This is called a "ghetto tax" because the price difference is concentrated in neighborhoods where poor people live. These conditions create a drain on already marginal incomes.
The study shows that the conditions of robust competition assumed by many law and economics scholars do not prevail in neighborhoods where people making less than $30,000/year live. Yale Law Professor Ian Ayres argues in a forthcoming paper (podcast here),presented during the 2006 Georgetown-Harvard Conference on Economic and Social Inequality, that monopoly profits derived from similar conditions of racially disparate impact in labor markets are illegal.
Major findings of price and quality differences for necessities for people who make less than $30,000/year include the introduction of new high priced services and products targeted at the poor, including the following:
- Banking services
- check cashing
- Pay day lending up to 15% of amount of check
- Car title lenders -APR up to 400%
- Income Tax Refund Anticipation loans (California lawsuit challenging H.R. Block here)
- Mortgages
- Auto Loans
- Furniture
- Appliances
Other recent studies show overdraft charges on checking accounts, report here, and credit card risk-based pricing policies also have a disparate impact on the poor, report here.
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