Postal Banking: The Antidote to Abusive Lending

(This article first appeared in the May-June 2016 issue of The American Postal Worker magazine.)

One of the big topics in this year’s presidential election is the influence of Wall Street on our economy – from too much power in the hands of the big banks and the need for further financial reform to the lack of access to affordable financial services.

Over the past decade, as traditional banks have closed their branches in communities across the country, new businesses have swooped in to take their place. Offering loans backed by borrowers’ paychecks or the title to their car, they charge interest rates averaging 390 percent and, every year, are trapping millions of seniors, veterans, low- and middle-income families in a never-ending cycle of debt.

Americans for Financial Reform and National People’s Action, together with more than 500 civil rights, consumer, faith, veterans, seniors and community groups, are pushing the Consumer Financial Protection Bureau to issue a rule that is strong enough to eliminate these abusive lending practices.

The Bureau, the brainchild of financial reform advocate Sen. Elizabeth Warren (D-MA), is one of the major reforms resulting from the 2008 financial crisis. It was created to bring basic standards of fairness and transparency to the world of credit cards, checking accounts, mortgages, student loans, payday and car-title loans, auto loans, checking accounts, debt collection, credit reporting, and other financial products and services.

Although the Bureau does not have the authority to set caps on interest rates, it is trying to rein in abusive practices by requiring payday lenders to determine upfront a consumer’s ability to pay. The regulations would also limit the number of times a lender can make additional loans to the same borrower.

The Bureau has been hampered by some in Congress who have tried to gut its budget and slow down its progress. Recently, nine Democrats joined with 15 Republicans to co-sponsor the so-called Consumer Protection and Choice Act, which does exactly the opposite of protecting consumers. The bill aims to delay the federal regulations proposed by the Bureau for two years and allow states to weaken the regulations.

Half of the co-sponsors (six Democrats and six Republicans) are from Florida, where payday lending is big business. The typical customer ends up taking out nine payday loans per year with average interest rates of 304 percent, according to the Pew Charitable Trusts.

The Los Angeles Times writes that most of these lawmakers are “up to their necks in donations from the payday-loan industry.” Among the co-sponsors with donations is Rep. Debbie Wasserman Schultz (D-FL) who is also the chair of the Democratic National Committee. Two other Florida Democrats, Rep. Alcee Hastings and Rep. Patrick Murphy also co-sponsored this anti-consumer bill.

Here’s how some of the Florida lawmakers stack up in campaign contributions from the payday-lending industry:

• Rep. Alcee Hastings (D-FL): $107,0000
• Rep. Patrick Murphy (D-FL): $46,000
• Rep. Dennis A. Ross (R-FL): $28,850
• Rep. Debbie Wasserman Schultz (D-FL): $63,000

The Antidote: Postal Banking

Clearly, we need an alternative to abusive loan practices. This is one of the many reasons that postal banking makes so much sense.

Products and services could range from check cashing to bill payment to savings accounts to small-dollar loans. Postal banking would benefit consumers who do not have access to traditional banks, as well as those who prefer a more public option. Nearly every other developed country in the world offers postal banking. The expansion of services would also strengthen our public Postal Service.

To support strong rules against payday lending, visit www.familiescantwait.org. To support postal banking, visit www.campaignforpostalbanking.org.