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Feb
2014
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Plan to Put Payday Lending in USPS Hands Lands Vital Endorsement from Sen. Elizabeth Warren

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A plan outlined by the Inspector General of the United States Postal Service to expand their services to include non-bank financial services to underserved communities has gained the endorsement of Massachusetts Senator Elizabeth Warren.  In short, the plan would seek to replace the payday lending system with a fairer version using the infrastructure of the USPS.  This would help the poor, supporters says, as well as the USPS, and the economy. It is expected to face vehement opposition and lobbying by payday lenders and traditional financial institutions.  

Think Progress explains that the interest rates on payday loans, often near 100 percent, suck billions of dollars out of the economy. The average customer pays $520 to borrow $375.  With the industry facing a looming crackdown from the Consumer Financial Protection Bureau (established by Warren), the USPS could step in and provide services at a fair rate due to their presence in the communities where payday lending is most common.  The USPS could make an additional $9 billion a year, supporters of the idea estimate.

In a weekend op-ed for the Huffington Post, Warren wrote:

According to a report put out this week by the Office of the Inspector General (OIG) of the U.S. Postal Service, about 68 million Americans — more than a quarter of all households — have no checking or savings account and are underserved by the banking system. Collectively, these households spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing, which works out to an average of $2,412 per household. That means the average underserved household spends roughly 10 percent of its annual income on interest and fees — about the same amount they spend on food.

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.
The poor pay more, and that’s one of the reasons people get trapped at the bottom of the economic ladder.

But it doesn’t have to be this way. In the same remarkable report this week, the OIG explored the possibility of the USPS offering basic banking services — bill paying, check cashing, small loans — to its customers. With post offices and postal workers already on the ground, USPS could partner with banks to make a critical difference for millions of Americans who don’t have basic banking services because there are almost no banks or bank branches in their neighborhoods.

The idea is as refreshing as it is practical.  Non-bank financial services are a necessity given the nature of the American population.  However, the indiscriminate fleecing of the poor that results from their inability to cash checks and pay bills is unacceptable and crippling to the economy. It is a system in which the poor will always stay poor because they will never be able to save enough money to move up the economic ladder.  

Including the USPS in the solution helps multiple problems with one simple policy shift.  While progress could be slow, the eventual addition of financial services could be a permanent solution to multiple problems facing America.  Because of this Sen. Warren has made achieving this a main goal of her Senate career:

The Postal Service is huge — employing more than a half million people — and its history is long and complicated. Any change will take time. But this is an issue I am going to spend a lot of time working on — and I hope my colleagues join me. We need innovative ways to create pathways for struggling families to build economic security, and this is an idea that falls in that category.

A further explanation and endorsement of the USPS plan comes from David Dayen, who said in a New Republic piece:

As America becomes more of a cashless society, more reliant on some level of financial services (try renting a car without a credit card), the 68 million underbanked are essentially forced into working with predatory businesses, without the kind of low-cost alternative the post office could provide. Banks don’t want these customers; if they did, they would actually make a play for their business. Large banks have closed branches in the very low-income communities with the largest percentages of unbanked Americans. In fact, banks find it more profitable to fund payday lenders that charge junk fees and outrageous interest—currently the subject of a Justice Department investigation—than actually take market share away from them.

Instead of partnering with predatory lenders, banks could partner with the USPS on a public option, not beholden to shareholder demands, which would treat customers more fairly. As the report says, “the Postal Service could greatly complement banks’ offerings,” and in turn help drive out of business some of the most crooked companies in America, while promoting savings and expanding credit for the poor.

The report suggests three types of potential products. First, it proposes a “Postal Card” that could make in-store purchases, access cash at ATMs, pay bills online, or transfer money internationally. Customers with paper checks could cash them at the post office or deposit them through their cell phones, loading them onto their Postal Card. Second, the USPS could offer an interest-bearing savings account, again through the Postal Card, encouraging savings from communities with little in the way of a personal safety net. Finally, the Postal Service could offer small-dollar loans, effectively an alternative to costly payday lending. The fees on all these services would be drastically lower than anything in the marketplace today.

The ire of big banks and lobbyists aside, President Obama could take a chance on implementing a true, progressive change for the working class if he gets behind this idea.  For Obama, Democrats, and the political system on the whole, this may be the light bulb that goes off, delivering change that regains the public’s trust.  Of course, if rejected it could become the nail in the coffin that shows once and for all the government does not work for the people.  As noted by Dayen:

Sure, the banks will squawk: the chief counsel of the American Bankers Association has already pronounced himself “deeply concerned”—but as the IG report shows, they have no interest in serving this community. So surely that won’t stop the President from urging the USPS to take advantage of this lucrative and worthwhile option. Unless he values payday lenders and greedy middlemen more than the financial security of the Postal Service and millions of poor Americans.

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