Matt Fellowes from the Brookings Institution argues that it costs a lot to be poor. Fellowes notes that low-income communities pay a high premium for financial services simply because mainstream banks and credit unions effectively ceded this market to high-cost financial institutions. You can read more about the consequences of such neglect here.

Yet another aspect of financial neglect is the fact that financial institutions are not developing competitive products to meet the needs of low-income communities. Take payday lenders for example. Payday lenders provide loans and charge the most that they can charge according to state law. In California, the law allows payday lenders to charge up to 459% APR. So, what’s the incentive for payday lenders to provide competitive products that would drive down such costs? None. They can charge top dollar. Why change that? As long as competition from banks and credit unions is kept at bay - and state law is not changed - business for payday lenders is, well, good.

Slowly, this may be changing. A report by the Woodstock Institute release earlier this year notes that some credit unions are developing products to compete with payday lenders. Indeed, competition may well be what drives down the high-cost of being poor. But until all banks and credit unions jump in and compete, life for neglected borrowers will continue to be more expensive.