In June, 2007 the Brookings Institution Metropolitan Policy released it's report called The High Price of Being Poor in Kentucky.
From Ashland to Paducah and every community in between, Kentucky's lower-income working families often pay a premium for goods and services, making it difficult for them to build wealth, save for their children's futures, and invest in their upward mobility.
Short-Term Loans: According to a survey, about 35% of regular customers of high-cost check-cashing establishments in Kentucky earn less than $20,000 annually, and about 62% earn less than $40,000. Unlike most other states, Kentucky places no limits on the fees that establishments can charge for check cashing. A random survey of such establishments in Kentucky found that fees to cash a check range from 1-10% of the face value of a check.
Nearly 70% percent of regular customers of high-cost payday loan and pawnshops in Kentucky are lower-income residents. In Kentucky, maximum fees for these loans are $15 every two weeks on a $100 loan, or a rate 38 times higher than that charged by the average credit card company for the same loan amount. Among bordering states, such fees range from 0-17% of a loan’s value or higher. The number of high-cost payday lenders in Kentucky has more than doubled since 1999, from 353 to 779 establishments, opening at a rate of one every four days in 2006. Kentucky pawnshop fees, another source of high-cost loans in lower-income markets, are limited to 22 percent per month. Fees for pawnshops in other Southern states range from no limit (in Arkansas, Maryland, and West Virginia) to 20% or more (in nearly every other state in the region).
Tax Services: According to a survey of Kentucky households, about 1 in 3 lower income households pays a for-profit tax preparation service to do their taxes. These same lower-income households are two to six times more likely as all others to use refund anticipation loans, carrying fees that generally range between $10 and $80.
Car Prices: More than 72% of lower-income households in Kentucky own a car. Nationwide, consumers from lower-income neighborhoods pay up to $500 more, on average, to buy the same car that a consumer from a higher-income neighborhood buys.
Car Loans: Nationwide, lower-income consumers pay at least 2 percentage points more for an auto loan than the average among all other consumers. No Kentucky data are currently available to measure auto loans prices in the state.
Car Insurance: In a sample of prices from 3 insurance companies, drivers from lower-income Kentucky counties and neighborhoods pay, on average, $384 more per year for auto insurance than drivers in high-income neighborhoods, holding other factors constant. The highest fees are charged in lower-income neighborhoods in Louisville and in many of Kentucky’s rural eastern counties. Prices may be even higher because of other factors—considered by some companies in the calculation of insurance prices—that are correlated with household income, like credit report information, educational attainment, and occupation.
In 2005, 41% of the mortgages to lower-income households in Kentucky were defined by the Federal Reserve as high-cost mortgages, compared with just 16% of mortgages sold to the highest-income households in the state.
Home Insurance: In a sample of prices from 3 insurance companies, homeowners in Kentucky's lower-income neighborhoods pay, on average, at least $363 more annually for home insurance than homeowners in high-income neighborhoods, holding other factors constant. Prices may be even higher because of other factors— considered by some companies in the calculation of insurance prices—that are correlated with household income, like credit report information, educational attainment, and occupation.
Furniture, Appliances, and Electronics: 59% of rent-to-own customers earn less than $25,000 a year. Reported prices for buying from rent-to-own businesses can double the price of a product.
Groceries: While smaller, and often more expensive, grocery stores are generally found in Louisville and Lexington's lower-income neighborhoods, the statewide picture in Kentucky is quite different. In fact, large grocery stores, which typically offer lower prices, are present in 35% of lower-income neighborhoods, while among the highest-income neighborhoods, only 19 percent have large stores.
Click here to read the entire Brookings Institution Metropolitan Policy report