Massachusetts Senator Elizabeth Warren is aware of the high cost of poverty and proposes one interesting strategy to alleviate it: Replace predatory payday lending operations with the United States Postal Service. In a recent Huffington Post op-ed piece, Warren stated, “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 proposal is prompted by a report from the USPS’ Inspector General which explains how the agency’s intricate infrastructure could allow it to offer services such as small loans, check cashing, bill payment and debit cards to the very same communities big banks often overlook. It’s a massive community too. The report found that the 68 million Americans lacking a bank account spent a whopping 89 billion on interest and fees in 2012. In other words, predatory lenders literally suck the slight chance of prosperity away from those in most need. “The average un-banked household spent more than $2,400, or about 10 percent of its income, just to access its own money through things like check cashing and payday lending stores. USPS would generate savings for those families and revenue for itself by stepping in to replace those non-bank financial services companies,“ Think Progress reported.
Senator Warren continued, “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.”
Think Progress describes that payday loans with annual interest rates of 100% or more pilfer residents of poor communities out of billions, with the vulnerable paying $520 to borrow $375, for instance.
The Inspector General’s report reveals that 6 out of 10 post offices are located in areas lacking proper banking institutions. It suggests that utilizing the post office’s complex infrastructure to provide ethical banking services to low income communities is a win-win scenario: More folks will have the opportunity to pocket a larger share of their income and pay lower interest rates while the USPS could avoid bankruptcy by generating about 9 billion dollars. Many argue that the current USPS fiscal predicament is a result of Congressional decisions that force the P.O. to prefund the employee benefits for the next 75 years.
“Families rely on financial services more than ever, but those who need them most — who struggle to make ends meet — too often must contend with sky-high interest rates and tricks and traps buried in the fine print of their loan products,” Warren wrote. Her op-ed highlighted postal services abroad, which have adopted similar ethical policies that simultaneously allow the agencies to increase profits. In addition to advocating for the USPS to replace payday lenders, Warren and like-minded policymakers have already spearheaded efforts to protect consumers from existing predatory lenders, including the new Consumer Financial Protection Bureau, to hold exploitive enterprises accountable for their shady dealings.