COMMONOMICS
Growing Our Common Wealth™
Is Half a Solution Better than None?
by Ira Dember on May 29th, 2015

 Yesterday (5/28/15) TheHill.com reported on financial industry blowback against proposed Consumer Financial Protection Bureau rules cracking down on predatory payday lenders. According to The Hill, a credit reporting agency warns these rules will reduce the number of payday loans by 70 percent. A global consulting firm catering to the financial industry predicts the new rules will reduce "payday loan revenues of small lenders" by 82 percent.

The Hill's selective reporting leaves readers with the impression that this is another example of misguided government overreach burdening businesses. Poor, poor lenders.

Never mind that these predators rip off paycheck-to-paycheck families as well as retired folks struggling to survive on a pittance of Social Security, and have been doing so for years. Interest rates (effective APR) on payday loans average about 400 percent. Some loans end up costing borrowers 1,000 percent a year — ten times the amount they borrowed. Even the Bible speaks out against excesses like these.

Such context is absent from The Hill's reporting.

We welcome attempts by We the People, acting through the CFPB, to rein in predatory payday lending and other unrestrained 'free market' abuses.

However, choking off supply provides only half a solution. Millions of hardworking families still can't make ends meet. They still need short-term small-dollar loans — affordable ones. Last summer, Sen. Elizabeth Warren declared, "When more than a quarter of this country is spending about the same amount on basic financial services as they are spending on food, we have a market failure."

When there's a market failure, We the People need to protect and care for ourselves. US Postal Service Inspector General Dave Williams proposed exactly that in January 2014. He said the USPS could expand its existing financial services to include basics like reloadable cards, check cashing and small-dollar loans, all at affordable rates.

This idea — a public option for basic financial services — makes head-slapping common sense ("Duh!"). America has 30,000 post offices, mostly in lower-income zip codes where bank branches are vanishing and payday lenders spread like toadstools after rain. The US now has more payday lender storefronts than McDonalds and Starbucks combined, revealing how strong demand is for short-term small-dollar loans.

Meanwhile, the USPS is operating at a profit, so post offices and their clerks are paid for. These clerks already handle millions of purely financial transactions a year — selling postal money orders, handling electronic international remittances, cashing tax refund checks, and more — in amounts up to $1,000 cash.

No conventional business in its right mind would pass up expanding an existing suite of services at low incremental cost and therefore with minimal risk. In fact, the company's shareholders would toss out its top execs as negligent, irresponsible incompetents for willfully ignoring such an opportunity.

The Postal Service doesn't have shareholders. It has all of us: citizens of the United States. We the People.

In the face of massive market failure, people are demanding that the USPS stop foot-dragging and start enabling a low-cost public option for basic financial services. In mid-2014 the nonpartisan US Conference of Mayors adopted a resolution to this effect. Further, Congress must get out of the way by permitting the USPS to act.

Inspector General Williams has now published a follow-up report proposing ways in which the Postal Service might actually implement postal banking. It's the only consistent, nationwide answer that anyone has proposed to satisfy demand for affordable small-dollar loans in place of predatory payday lenders.

This means the USPS can deliver the other half of the payday lending solution. While We the People choke off predatory supply by tightening laws and regulations, your local post office can offer desperate hardworking families the small loans they sometimes need to make it from paycheck to paycheck.

Keep in mind, even this important step will not address America's rigged economic system and the desperation it spawns, driving lower-income families to borrow small amounts even at exorbitant rates.

It's the rigged system that really needs fixing.

To recap:
The CFPB's proposed rules provide an urgently needed half-solution to predatory payday lending.
The USPS inspector general's outstanding proposal would provide the other half, satisfying demand at affordable prices.
Eliminating our rigged system — a subject of growing policy debate — will sweep away much of the need for desperate small-dollar borrowing in the first place. 

While our nation debates major policy change aimed at the rigged system — a pivotal part of confronting extreme economic inequality — let's all demand prompt action to get both halves of the solution to predatory payday lenders.

Millions of families need it right now.







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