Postal Banking & Payday Lending Back in the News

Mar 1, 2016.

“The basic idea of modern postal banking,” Mehrsa Baradaran writes in How the Other Half Banks, “is a public bank offering a wide range of transaction services, including financial transactions, remittance, savings accounts, and small lending. These institutions would remain affordable because of economies of scale and because of the existing postal infrastructure in the U.S. Plus, in the absence of shareholders, they would not be driven to seek profits and could sell services at cost.”

Baradaran is right–particularly about postal economies of scale and the potential of postal banking to improve the quality of life for poor people. And the idea periodically rises to the surface of American news headlines because, as Bernie Sanders’s campaign demonstrates (whatever its outcome), the economic insecurity of half of America is a big deal.

Naomi Klein, the stalwart critic of capitalist excess, gave a speech recently, and published it, as “Don’t Shut Post Offices–Reinvent Them,”in a specifically Canadian context, but with points that are relevant to the American experience as well. Some highlights:

Services provided inside [an ideal Canadian post office] would expand to include food delivery, door-knocking on elders’ homes, and perhaps most exciting, affordable banking.With this proposal, the post office once again becomes a community space, where you can come in to mail a letter or make a deposit; organize farm-to-table food delivery for your home; get advice and a loan for rooftop solar panels; invest in a community energy project; and buy products from local businesses.

This vision sounds very promising from the point of view of those who see post offices as extensions of the commons. Although Klein should have been a little more explicit about the lending function of a postal bank (since not all supporters of postal banking understand the importance of the lending component), but the entire expanded worldview of post offices as community centers sharing material and community good will is extremely compelling.

Even more provocative is Gail Cornwall’s recent Salon piece, “Two words for Hillary if she wants to connect with the financially struggling: ‘Postal banking’.” It’s long been known that Bernie Sanders is an enthusiastic proponent of postal banks. But it’s positively subversive to challenge Hillary Clinton, who is known for her ties to Wall Street and big banks, to endorse the idea.

Cornwall writes:

Hillary hasn’t lived on the financial fringe. She’s never stood in a check-cashing line, waiting to pay a fee to convert her earnings, then ridden the bus to a Verizon store so that she can pay her bill in cash, or purchased money orders to send so the heat doesn’t get shut off, her tap run dry. A $25 fee has never meant the difference between Hillary eating lunch all week and a stomach that churns each day from noon until night.

But she can empathize. By championing this one proposition—the offering of savings and checking accounts, money transfers and even small loans by the U.S. Post Office—Hillary can prove her willingness to face down big business for the benefit of the working class. Logistically and politically far easier than raising the minimum wage, postal banking could be key to both securing the nomination and improving the lives of millions of Americans.

Cornwall also does a good job–one of the better jobs in current online articles–tracing the history of postal banking in the United States. It was hugely successful, and only stopped being a success when the private banks were forced to offer protections and services through laws they had vociferously resisted. And, of course, once they complied with those laws, they lobbied to shut down postal banks.

But neither of the major political parties hands are clean when it comes to favoring predatory over cooperative finance–including predatory payday lenders, who would be forced out of business (or forced to become substantially less predatory) if postal banking became a reality.

Today, Zach Carter at Huffington Post reports that Debbie Wasserman Schultz, Democratic Representative from Florida and current chair of the Democratic National Committee,

. . . is co-sponsoring a new bill that would gut the [Consumer Financial Protection Bureau’s forthcoming payday loan regulations. She’s also attempting to gin up Democratic support for the legislation on Capitol Hill, according to a memo obtained by The Huffington Post.

Carter continues:

Consumer groups are appalled by the bill. The Consumer Federation of America, the NAACP, The National Consumer Law Center, The National Council of La Raza, The Southern Poverty Law Center and hundreds of others wrote a letter to every member of Congress in December urging them to oppose the legislation.

In Wasserman Schultz’s own state, Florida, over seventy percent of payday loans are obtained to pay off previous payday loans. If that’s not predatory lending, I don’t know what is. But the problem, of course, is you can’t merely ban payday lenders without plugging in a replacement–preferably postal banks, but even subsidized, low-interest lending cooperatives or other entities that can provide basic financial services for the poor, including short-term loans or payday advances.

That’s why a recent campaign by U.S. Action, including this petition, is short-sighted. Banning certain lending practices without alternatives already in place is much like the idea of banning private banking without setting up a network of public banks. Such a ban would also be unnecessary in a world where public options existed for financial services, because those financial firms that wanted to survive and thrive would be forced to compete.

As I wrote last October, this needs to be a real movement that outlasts the election:

We can’t let the movement for financial access and egalitarian banking stand or fall with Mr. Sanders, or Elizabeth Warren, or any individual mainstream politician. The campaign must remain independent. This is a movement of many movements: to oppose the new nominees on the Board of Governors and save the Post Office from privatization, to implement public banks, and to marginalize and shut down the predatory payday loan and check-cashing industry. Postal banking isn’t about creating a free-money (or money-free) utopia. It’s about retaining control of public spaces, implementing public services there, and serving working people financially. Not only would it improve tens of millions of lives today – but it would give us confidence for the deeper fights beyond.

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