Nine years ago, a Harvard law professor came up with a new concept: a government agency dedicated solely to protecting consumers from unscrupulous financial companies, like the Consumer Product Safety Commission protecting us from faulty microwaves. Today Elizabeth Warren’s Consumer Financial Protection Bureau (CFPB) is fully operational and has already earned Americans about $ 10 billion in bank claims since it began monitoring.
One financial product remains in the shadows, however, attacking consumers: payday loans. The same CFPB just announced rules to regulate the industry, proposing that lenders be required to check whether clients have a chance to repay what they borrow and limiting the number of times a borrower can roll over loans while by accumulating interest and fees. But the powers of the CFPB are also limited: it cannot cap interest rates, which frequently rise to 400%, nor restrict access to these short-term loans. Meanwhile, too many Americans who can’t afford the minimum deposit needed for a traditional bank account, or who don’t live near branches or just don’t trust banks, have no other choice. that towards payday lenders and other types of risky, expensive products.
Elizabeth Warren has a new crusade, however, and she could fill that vast void: postal banking.
Almost 10 million households are described as “unbanked”, which means that they do not have traditional banking products such as a current account. Another 25 million are “underbanked,” meaning they have an account but still turn to payday loans or similar products. Together, these two groups represent almost a third of all households in the country. The so-called alternative products on which they rely (payday loans, prepaid debit cards, check cashing services) cost them nearly $ 90 billion per year in interest and fees, an average of around 2,400 $ per family.
The United States Postal Service would be a much friendlier lender. If the USPS offered debit cards, savings accounts, and small loans, it could save the average underbanked family more than $ 2,000 a year. Even if only a tenth of the 12 million people who take out payday loans each year got a small loan from the mail, they would save more than half a billion dollars.
This notion may sound strange, but it doesn’t take a lot of imagination to see how the Post might enter the business. The USPS already has a large footprint, with more than 30,000 locations across the country, including small towns and rural areas; nearly 40 percent are in places without bank branches. The Post also offers money orders and prepaid debit cards through American Express: in fact, it sold 97 million money orders in 2014, to around 13 million people.
We have even had a rudimentary postal banking system in the past. Between 1911 and 1967, the USPS operated a postal savings system that allowed people to make deposits in certain locations. At its peak, more than 4 million people were using it, collectively depositing $ 3.4 billion. In addition, a number of other countries, from France to New Zealand, offer banking services through their post offices.
Customers would not be the only beneficiaries. Congress has pushed the USPS into dire financial straits, and postal banking represents a billion dollar opportunity. Even if only 10 percent of the money spent on alternative financial products instead went to mail-in offers, the USPS could see nearly $ 9 billion in additional revenue each year.
Warren has just helped launch “Take On Wall Street,” a coalition of lawmakers, labor leaders and rights organizations seeking to reform the country’s banks. One of the most important parts of the coalition calls for the creation of a postal banking system. Warren isn’t the only high-profile politician to back the idea either: Democratic presidential candidate Bernie Sanders included it in his own plan to overhaul Wall Street. But if Warren decides to fight for postal banking like she did for the CFPB, the flow of money out of the pockets of millions of Americans and into the coffers of predatory lenders may one day be halted soon.