Monday, November 26, 2007

The Down Escalator - What is it?

This blog is dedicated to developing a discussion about the "Down Escalator," a term I have coined for the struggles the poor face in escaping poverty, which exist largely as a result of the penalties imposed on those who lack money.

The goal of this blog is to get the message out to more people, obtain thoughts from readers about the morality of the down escalator and to propose ideas on how to possibly solve some of these problems.


To start off
Not everyone has had to pay a late fee before. But just about everyone has received a bill from some service provider before, with a due date and a warning that if the bill is not paid by a certain date, a late fee will be tacked on.

So why would someone not pay the bill on time and be charged a late fee? If you are not one of these unlucky people, here are some of the reasons why people pay late fees:

  • Disorganization: The subscriber has the money to pay the day the bill arrives, but has poor organization skills, and forgets to pay the bill on time.
  • Away: The subscriber had either a planned or unplanned trip (or perhaps an emergency, such as hospitalization), and was away throughout the time between when the bill arrived and the due date, and made no prior alternative arrangements to pay it.
  • Lack of Money: The subscriber does not have the money to pay the bill by the due date. The subscriber may or may not expect to receive this money by then, but in either case, has to pay more money because s/he has less money. Now what sense does that make?

Example #3 here is my primary reason for opposing late fees. It is a way that companies are making extra money off of people who are hurt most by providing extra money. And yes, they are profiting off of them.

The companies may justify that the late fees they are charging are their way of passing the cost of their collection efforts onto the customer who requires them to undertake such an effort. But think of this: If, say, the company must send out another copy of the bill in a second attempt to collect the money, the cost would be a 41¢ stamp, along with minute paper costs. The same companies do not penalize "deadbeats" who pay their full bills on time, preventing the company from charging interest.

Some companies, like utilities, keep the late fees low, at, say 1.5%. But others are really getting away with murder. Many apartments will charge 5% if your rent is even one day past the grace period. That is $40 if your rent is $800 a month. Now how can it possibly cost them $40 to send you out a letter stating that you have not paid your rent? Frankly, I think they love it. And this does not include the cost of the court filing that gets tacked onto the obligations of a tenant they must sue for eviction.

The worst offenders of all are the credit card issuers, and efforts to take them on do exist. Some of them charge $50 late fees, no matter what your balance. They give you a much shorter time frame than they ever did, just to get you in a trap. In other words, with some of these, either you send your payment on the day the bill arrives in the mail, or else. This is not to mention all the interest you are racking up.

After all these jabs I am taking, I do want to give thumbs up to one company - America Online (AOL). They will really nag you if you don't pay your bill, but one thing they will never do is charge you a penny extra if you don't pay. It doesn't matter if your payment is returned, or what it is. The bottom line is that what they bill you at first is what you pay in the end. It is as simple as that. Yes, they will cut off your service if you don't pay after a few months, but you will never incur any additional debt just because you can't pay them.

The most offensive industry when it comes to the Down Escalator is the banking industry. Banks are open to people with a wide range of income and asset levels. But they make a lot of their profits from none other than their customers who have less money.

Anyone who opens a bank account with just about any bank will be given a list of terms and conditions. Many of them will be printed in extremely fine print, and the lists and descriptions will be so long, that not many, even those who are well educated, will be able to read them all or take the time to comprehend what they mean. The terms will list a lot of fees that are charged for various reasons. Fact of the matter is, a lot of those fees are charged to those who have lower balances as a "penalty" or whatever you want to call it, basically for having less money.

The person who opens the account is forced to sign an agreement upon doing so, which legally constitutes a contract. In the common law, a legally valid contract must have each side offering something. But there are no laws balancing out what each side must offer. Therefore, the bank allowed to give something very minimal. They can say it is simply the privilege of having an account with them and the right to keep your money there. In exchange, they can impose unlimited rules on you. It is even stated in a traditional banking contract that they can change the terms whenever they wish! But they do not reciprocate and offer you the same.

So once you have signed your way into this binding contract, they can enslave you for your money, whatever it is you deposit (or in some cases you fail to deposit), while they offer you a minute return. It could be a one-time bonus for merely opening the account, or occasional interest. But whatever it is, if they are making a big deal out of advertising, it is a small price for them to pay for what they will sneak from you thereafter.

"Free" checking - the biggest lie

I have seen quite a large number of "lures" from major banking chains over the years. These include FREE CHECKING (one of the biggest jokes I will explain later), free gifts just for opening an account (some common household item that would cost a few bucks at Wal-Mart), or even some cash (ranging anywhere from $25 like I have seen a lot to PNC's 2007 offer of $101). While the banks have customers of all levels of wealth, many of these gimmicks are one-time giveaways, which more often than not would attract those who are more desperate to have a $100 bailout from their struggles or something like that, and will run at anything of that nature they possibly can.

But how free really is free checking? Think about this: in a common checking account, there are some things that they do charge for. One of them is the actual cost of the checks. They can range anywhere from $10 to $20 for about 200 or so, depending on the style, as some people like to have interesting designs on theirs. Some external companies offer them for less. But regardless of what bank you use, you will likely have to pay something for them, something that is marked up pretty high compared with the cost of paper and ink. And yes, there are some banks that will offer the checks for free. That is, if you have an account with a much higher balance (just another way in which people with less money pay more toward the bank).

But what is something that banks typically do not charge for? The answer is per check.

When a bank statement arrives, it'll detail all the checks that are written, all the deposits that are made, all the fees that are charged, too. But one thing it'll not say is x amount of checks written multiplied by y per check equals . . .

In other words, you are not charged a fixed amount on your statement for each check you write. In modern banking, this is not customary. It doesn't matter if you open your account with Bank of America, Wachovia, or your local neighborhood bank. You won't have anything like that. But this is often the basis they use to advertise free checking. And you can have just the same by opening your account at a bank that advertises free checking and one that doesn't.


Now, your account is open. That is great. You are depositing your paychecks, writing checks to pay for your expenses, and hoping to save something if you can. But you are living paycheck to paycheck, like so many of us with varying incomes, even six figure incomes are. What you do not know is the bank is living off your paycheck.

You can see that first if you try to open a savings account. Most savings accounts have a minimum balance. It could be as little as $100 or as much as several thousands. You opt for the lowest minimum the bank offers, despite the fact the interest is low.

to be continued