Could Postal Banking Be the Next Big Thing?
It's often said that being poor is really expensive, and one of the most painful ways is what millions of Americans have to pay in order to make sure their bills are accounted for. If you're poor, time and money intertwine in ways that people who aren't poor don't have to worry about. When your income and your expenses are right around the same amount, you have to worry about timing constantly. I'm not getting paid for a week, but this utility bill is due in three days, and I have to set aside enough for food and gas—how should I handle that? If I write my rent check on the same day as I get my paycheck, will the former clear before the latter? For many, the only choice to avoid catastrophes like getting evicted or having your power cut off is going to one of the payday lenders and check-cashing operations you can find in every poor neighborhood. And since those payday lenders know their customers have no other options, they make them pay through the nose. As an analysis by the Consumer Financial Protection Bureau showed, "Fees at storefront payday lenders generally range from $10 to $20 per $100, though loans with higher fees are possible...A fee of $15 per $100 is quite common for a storefront payday loan, and would yield an APR of 391% on a typical 14-day loan." The median interest rate for the loans they examined was an incredible 322 percent.
If we wanted to do something about this appalling exploitation of the poor, what are our options? One solution is tighter regulation of payday lenders, limiting their usurious interest rates and requiring them to offer reasonable terms to their customers. Colorado passed requirements like that a few years ago, and they've succeeded in reducing the amount of misery payday lenders can pour upon the state's most vulnerable citizens (there are details here). But there's another option. There's an organization that has thousands of locations around the country, already performs some financial transactions (selling money orders), and is eager for new sources of revenue. It's called the Postal Service. If they began offering some limited banking services, it would seem like a win for everyone—poor Americans would get access to banking without crippling interest rates, and the USPS would make money. Who could possibly object?
Well, some people could, which we'll get to in a moment. But first, let's consider the scale of the problem. According to a report from the Postal Service's Inspector General, Americans without access to full banking services paid $89 billion in fees and interest in 2012 on the substitutes they had no choice but to use. As many as a quarter of Americans are partially or completely outside the banking system, which makes participation in ordinary economic activities either impossible or incredibly costly when they're forced to turn to payday lenders who squeeze their already meager resources. It adds up to an average of $2,412 per household per year, or 10 percent of their income. As Elizabeth Warren wrote last weekend in an endorsement of postal banking, "Think about that: about 10 percent of a family's income just to manage getting checks cashed, bills paid, and, sometimes, a short-term loan to tide them over. That's more than a full month's income just to try to navigate the basics."
Post offices are already located in thousands of neighborhoods where there are no bank branches, and they've done banking before (for decades in the middle of the 20th century, the postal service offered savings accounts). In a world where cash transactions are in decline, the Postal Service could offer a range of services, like a prepaid debit card for people who don't have access to credit, small loans, online payments, and check cashing. The key is that because of the USPS's size, it would be able to charge affordable fees and interest, yet still make a substantial profit.
Some people have referred to this as a "public option" for banking, which is an accurate description, but makes it more likely that Republicans will recoil in horror as they catch the whiff of the dreaded Obamacare about the proposal. But the big banks—the ones with all the power in Washington—should be perfectly fine with it, since they're not interested in these customers anyway. The payday lenders themselves aren't going to like it one bit, of course; they don't want their customers to have choices, since their business model is predicated on exploiting those who have run out of choices. They'll cry that competition will destroy jobs, and to some small degree, it will. If some payday lenders and check-cashers are driven out of business, there are clerks who will have to look for work. But they might apply at the post office, which would have a lot more customers to serve.
As for the companies themselves, they deserve not an ounce of sympathy. They're in the business of exploiting the poor, victimizing them with fees and interest rates that would make a mafia loan shark blush. Competition from the Postal Service would force them to change their products to make them more attractive, or go out of business. The market would speak.
As David Dayen observed, if President Obama is looking for an issue to advance his new focus on inequality and opportunity, "Here's a perfect opening on an issue of equal access, of affordability, of saving an American institution." As an added bonus, if Republicans decide to oppose it, they'd be forced to defend payday lenders, who are about as unsympathetic a group of characters as you could imagine. And maybe Republicans could be shamed into supporting postal banking. After all, it doesn't require spending a dime of public money, nobody would be getting a handout, and it would enhance the equality of opportunity they claim to believe in. What's not to like?
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