CFPB Cracks Down On PayDay Lenders; Time To Restart Postal Bank

Yesterday’s announcement by the CFPB to at least try to put some controls around payday lenders is a good step forward but it is really just a start. Offering usurious interest rates that can approach 400% and fees that sometimes exceed the amount being borrowed are intended to maintain the borrower’s indebtedness.  As the industry privately admits and recent studies have confirmed, the majority of borrowers end up having to take out new loans in order to pay off the old loans plus interest and fees.  A CFPB study found that more than half of borrowers ended up in a string of 10 or more refinancing loans. The industry’s business model is entirely based on luring people into their “debt trap”.

Studies by Deloitte Financial Advisory Services and Charles River Associates show that the new CFPB rules could reduce payday lending volumes by nearly 75% which is why the industry is fighting these rules vigorously.  And you do have to wonder where those people who currently use payday lenders will go if these rules come to pass. One of the best alternatives out there is the restoration of the postal banking system in the United States.  Every other developed country in the world has a postal banking system and, believe it or not, postal banking was alive and well here in the US until its quiet death in 1966.  When banks began redlining and abandoning poorer communities in the 1970s, the void was filled by the payday loan lenders and check cashing services.  The banks are gone from those areas for good, but the Post Offices still remain. Resurrecting the Postal Bank would provide cheap and affordable banking services to millions of underserved citizens. Of course, Republicans in Congress have made sure the Post Office does not work efficiently as it is one of the most public faces of government and its poor operation “proves that government does not work”. Needless to say, a law passed by the Republican Congress in 2006 required that Post Office health care benefits be fully funded for 75 years in the future – something no other corporate or government entity has ever been forced to do or has ever done. Because of that law, the majority of money that the Post Office makes actually goes to funding health care needs for its employees, some of who it will not have even hired yet, for the next 3/4 of a century. Is this not insane! For the last decade, the Post Office has had to set aside $5.6 billion dollars a year to prefund the retiree health care plan. And then the Republicans wonder why the Post Office does not run at a profit!

It’s time to end the insanity of requiring the Post Office to prefund the health plan – that alone will restore it to profitability. And the next step is to restore the Postal Bank and provide the millions of Americans who are getting ripped off by payday lenders a cheap and responsible banking alternative.