How Post Offices Can Beat Payday Lenders
Millions of Americans do not have access to low interest loans. The USPS is uniquely positioned to help.
The fight to curb payday lending has reached one of America’s oldest institutions: the Postal Service. Democratic representatives Bill Pascrell of New Jersey and Ayanna Pressley of Massachusetts recently introduced an amendment to the Financial Services and General Government Appropriations Act allowing post offices to provide small loans, savings accounts and other financial services. The amendment sets aside $ 1 million to cover overhead costs. It was adopted by the House of Representatives on June 25.
Pascrell is a longtime supporter of the Postal Service. In an April 2019 article for this magazine, he argued that the USPS is a critical institution that has become bogged down by privatization efforts. Rather than taking money from the agency, Pascrell said Congress should expand its functions. Post offices, he noted, could offer access to loans and ATMs to unbanked Americans, many of whom depend on payday lenders who charge exorbitant interest rates.
Access to banks is a serious problem in the United States. In 2017, 6.5% of American households were “unbanked” (no banking access) and 18.7% were “underbanked” (dependent on financial institutions that were not banks). Almost half the country could not raise $ 2,000 within thirty days in an emergency (or at least they would have a hard time doing so). Many of these people would have to take out payday loans to cope with such a shock.
“They look to predatory, unregulated payday lenders to check cashiers,” Pascrell told me. These lenders, he said, “keep families in poverty.”
Typical payday lenders charge interest rates of 390% per annum, a figure so high that one in five beneficiaries default. A recent move by the Trump administration to slash payday lending regulations risks exacerbating this problem.
Pascrell’s solution is not entirely new. Several large countries, including China, India, Italy and France, currently offer loans and savings accounts at post offices. American post offices provided loan and deposit services from 1911 to 1966, when millions of low-income people depended on them. In 1947, the Post managed $ 3.4 billion, the equivalent of $ 35 billion today, making it one of the largest financial institutions in the United States.
But Lyndon Johnson cut the project off in the 1960s as part of a larger effort to downsize government agencies. Subsequently, predatory lenders stepped in to fill the void, offering small loans that commercial banks often avoid. To generate profits, this new generation of lenders set extremely high interest rates that left the poorest Americans trapped in debt.
The postal service still offers a banking service: money orders. An Inspector General report estimates he’s providing around $ 21 billion of those orders – which work like prepaid checks – to those who have no other place to store their money. The report also noted that “postal codes with a higher population, more poverty and lower education levels sold more money orders.”
Pascrell and Pressley’s legislation – which also had the backing of Nevada Republican Mark Amodei – would dramatically expand that banking system, forcing post offices to install new ATMs, open deposit accounts, and make low-cost loans. interest rate to customers. His chances of passing the Senate are slim. But if the bill were implemented, it would provide low-income Americans with inexpensive access to the U.S. financial system. A USPS Inspector General study found that postal banking could provide loans at 90% off what payday lenders charge.
Given its wide reach, Pascrell argued that the Postal Service was uniquely prepared to help solve the problem of payday lenders in the United States. “It will be a little help from us,” he said. “But they’re basically ready to do it.”