Bank fees, high interest rates hit low-income Long Islanders hardest 

Long Islanders already grappling with the rising costs for rent, food, child care and utilities additionally often face economic headwinds from bank fees, burdensome loan terms and high interest rates, advocates said.

Such fees and rates hit lower-income residents especially hard, they said, during a time when thousands of Long Island families are facing a cost of living crisis in one of the most expensive regions in the country.

Sharon Grant, 57, of Brentwood, said that for people like her who are struggling every day to make ends meet, additional fees for anything just make an already bad situation much worse.

The Brooklyn transplant and mother of three has lived on Long Island for the past 20 years but said there is no way she will be able to remain here for another two decades because of the cost of living. She said it's a struggle just to hang on to a bank account.

Grant is retired after jobs that included a short stint as a special-education teacher in Queens. Because she has lupus, she is now unable to work, so she relies on disability benefits as her only form of income. She said she has little money, if any, left over every month after she has paid her $2,100 rent and other bills that include student loan payments for two of her children.

"I have a checking account, but it's negative — a balance of minus $165," Grant said Wednesday, while shopping with her son at Island Thrift in Huntington.

"There is a minimum balance requirement," and there are "many times" she has been overdrawn, she added. "I'm not going to be able to stay much longer on Long Island because it's too expensive."

'Nickel and dimed'

Aside from questionable bank fees, often called "junk fees," and minimum balance requirements, some Long Islanders are forced to take out high-interest loans, sometimes larded with costly fees or add-ons, said Nadine Chabrier, senior litigation and policy counsel at the Center for Responsible Lending, a nonprofit advocacy group.

"People are nickel and dimed," she said. "It's really staggering when you look at the full picture. It disproportionately falls on people with lower income and people of color."

In some cases, the net effect drives low-income people away from institutions used routinely by Americans to manage their financial lives, said Mariano Torras, a professor of economics at Adelphi University.

"There are all kinds of charges that are almost meant to limit [banks'] clientele to people with money," he said.

The Center for Responsible Lending said in a statement issued at a July 2021 hearing of the House Financial Services Committee that "there is no question that overdraft practices push people out of the banking system altogether."

Nearly 40% of former bank customers cite high or unpredictable fees or not having enough money as the primary reason they no longer have an account, a 2021 Federal Deposit Insurance Corp. survey found.

Lower-income households, including Black and Hispanic households, were more likely to be "unbanked" — where no one had a checking or savings account at a bank or credit union, according to the FDIC report. For example, among households nationwide with income between $30,000 and $50,000, 8% of Black households and 8.4% of Hispanic households were unbanked, compared with 1.7% of white households, the FDIC found.

Overall, 5.9% of New York households are unbanked, according to the survey. Without a bank account, residents often are forced to pay fees for money orders or check-cashing services.

Should they remain as bank customers, low-income customers are far more likely to pay sundry fees. About 16% of consumers earning under $50,000 a year were likely to pay a bank overdraft fee, compared with 7% of consumers earning more than $100,000, an analysis of 2022 consumer surveys by the Federal Reserve Banks of Atlanta, Boston and San Francisco found.   

The issue of junk fees has caught the attention of regulators, including New York State's Department of Financial Services, Chabrier said. The agency has called on banks it regulates to avoid landing a double whammy on consumers who are assessed an overdraft protection fee (triggered to avoid overdrafts) in addition to an overdraft fee when funds from a linked account are insufficient to cover the initial overdraft. 

Overdraft fees, which can average $35 per incident, can kick in when an account doesn't have sufficient funds but the transaction is processed, either by dipping into a linked account or credit card or by the financial institution deciding to cover the shortage.

Checking accounts are deemed to have nonsufficient funds when the money in the account doesn't cover all transactions and the bank or credit union declines to cover the difference. Nonsufficient fund fees typically average more than $30.

Two banking giants, JPMorgan Chase Bank and Bank of America, have responded to regulatory pressure, dropping fees on nonsufficient funds after they reported $1.2 billion and $1.1 billion, respectively, in revenue from overdraft and nonsufficient fund fees in 2021.

Overdraft fees, lost accounts

"The collateral damage of overdraft fees can be that someone loses their account and becomes unbanked," Chabrier said. "It's definitely something that happens to low-income people."

These fees can have a ripple effect, according to Melville financial attorney and credit and debt expert Leslie Tayne. 

"A single overlooked bank fee may seem insignificant, but their cumulative effect can be devastating to your financial stability," Tayne said. 

And not having a bank account can be a major problem when just trying to live day-to-day, said Michael Smith, CEO of Hicksville-based Catholic Charities of Long Island. The nonprofit is the largest social services provider in the region for those in need, ranging from addiction programs to Meals on Wheels, which provides nutritious food and supportive services to at-risk seniors.

"If you don't have a bank account or an ATM card, it makes life for the average person a lot harder, but it can be difficult to scrape together $500 to $1,000 to maintain a minimum balance," Smith said.

Another financial gambit that can ensnare those with lower incomes are buy-now-pay-later deals often offered by retailers who partner with financial tech companies. Buy-now-pay-later, also known as point-of-sale loans, can be attractive to those who don't have a credit card and want to spread payments for an item.

The plans typically let the buyer put down 25% of the price and take home their purchase, requiring them to make three additional no-interest payments of the same amount every two weeks. But, Chabrier said, the plans often include hidden fees or late charges.

Auto loan woes

On Long Island, where a car is more of a necessity than indulgence, obtaining an auto loan also can pose extra costs for lower-income buyers with poor credit ratings.

"They live in an area constructed for cars," Torras, the Adelphi professor, said. "You can't live without a car."

The average loan rate to finance a used car was 5.99% in May for those with excellent credit, according to Bankrate data. But for many low-income residents, an excellent credit score is out of reach. For those with a subprime credit score below 500, the interest rate nationwide soared above 20%.

Joanna Zern is in need of a car more than most. She anticipates needing one to use as her home come September, but she said she dare not go to a bank or any other financial institution or company for a loan.

At 82 years old and after owning a home in Dix Hills for about 60 years before it was foreclosed, the mother of three was about to start living in her 23-year-old Dodge Caravan when she lost her apartment in Brentwood in June. Then at the last minute, one of her daughters took her in, but just until September. She said she pays her daughter $500 rent every month, which does not include food or meals.

"They have their own things going on," Zern said of her three daughters not being able to have their mother live with them permanently. Zern, who was a registered nurse at one point and later had a pet sitting business, fell on hard times after her husband died in 2007. She said he didn't have a pension or anything to leave behind, and she burned through her own pension until that was gone. "I've lost everything and couldn't keep up" on rent and other bills, she said.

All Zern has to call her own now is that Dodge Caravan, which continues to need repairs. She owes her mechanic $3,000 for repairs.

"I have no credit rating and I'm down in my checking account — there's only about $100 in there. The bank waived the overdraft fees, which were about $200 all together," Zern said. "I get Social Security, but that's no real income — at the end of the month, I'm down to nothing."

When her September deadline comes to move out of her daughter's house in Ronkonkoma, Zern said living in her car may no longer be an option unless she lives in the vehicle parked in one place and doesn't drive it around.

"It keeps needing things and my mechanic was trying to find me a used car somewhere," Zern explained. "But I already owe him $3,000 and he has a business, so he needs his money. If he found me some sort of car to buy, I'd need a loan," she added. "In my situation, no one is going to give me a loan."

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