A bill introduced in the U.S. Senate takes aim at payday lenders by establishing retail banks in every U.S. Post Office to serve low income consumers.
The measure, sponsored by Sen. Kirsten Gillibrand (D-N.Y.), would set up a bank in all U.S. Postal Service locations. The banks' mission would be to give underserved populations – the so-called “unbanked” – access to basic banking services.
Gillibrand says the lack of access to traditional banking services creates an economic burden for low-income Americans, forcing them to spend large percentages of their income to cash their paychecks or pay back high-interest payday loans.
“Millions of Americans are being forced into payday lending schemes that only exacerbate their money problems, and Congress has the ability to wipe out these predatory practices right now by creating a Postal Bank that would be accessible to everyone, everywhere,” Gillibrand said
The New York Democrat says millions of consumers with no banking relationship face huge fees when they need to cash a check or pay for an unexpected car repair.
Basic financial services
“The Postal Bank would solve this problem by putting a retail bank branch in all of the U.S. Postal Service’s 30,000 locations, providing low-cost, basic financial services to all Americans, and effectively ending predatory lending nationwide,” she said. “Politicians in Washington have taken millions of dollars from payday lenders to help protect this industry’s predatory behavior on hardworking families, and it has to stop.”
The legislation is in line with recent suggestions from consumer advocates. Rather than regulating payday lenders out of existence, which is hard to do in a political environment, they suggest letting market forces do it by creating alternatives.
Under the Obama administration the Consumer Financial Protection Bureau (CFPB) drafted strict rules for payday lenders, requiring them to ensure a borrower can repay any loan. However, the Trump administration quickly backed away from that regulation.
It's been done before
Mehrsa Baradaran, Associate Professor of Law at the University of Georgia School of Law, says postal banking has been successfully employed by many countries in the past, including the United States. In the U.S., the United States Postal Savings System was established in 1911 but discontinued in 1966.
“Today, there are many communities across the country that are banking deserts,” Baradaran said. “The only financial service providers are fringe lenders and check cashers whose business model relies on the poor paying more for banking services than anyone else. This is a threat to our democracy.”
Baradaran said putting banks in post offices would provide safe, accessible, and much-needed financial services to the most financially-struggling communities in the U.S.