Are New Payday Loan Reforms Meaningful? Is Postal Banking a Solution?

The radio program “Marketplace” reports that on “Thursday, the Consumer Financial Protection Bureau (CFPB) is set to release new rules to crack down on payday lenders.” The segment cites a trade association representative, as well as an analyst from the Cato Institute arguing that people in need of short term loans “will likely be out of luck under the new rules.”

MATT STANNARD, matt@commonomicsusa.org,@commonomicsusa Policy director at Commonomics USA and a member of the Public Banking Institute‘s board of directors, Stannard said today: “The new rules won’t help ordinary Americans. They ‘permit’ rather than mandate more flexible options for borrowers, which the lenders will be under no obligation to make widely available.

“The CFPB’s approach seems to be more concerned with getting tough on borrowers rather than lenders. Poor people don’t need more discipline. They need access to credit and inexpensive financial services. The rules will make it harder for people to access the short-term cash they need to get through tough spots at a time when wages are low, partial employment has replaced full employment, and being poor is expensive. Over 60 percent of Americans currently lack the financial security to survive a $500 emergency. And, of course, if the CFPB really did get tough on lenders, they could simply stop making short-term loans available altogether. That tells me that a regulated private sector isn’t the appropriate way to solve this problem.

1024px-Mineola_post_office“In fact, there is a better alternative: financial services made available through the United States Post Office. Postal banks could offer short-term cash advances at extremely low interest. They could offer other low-cost financial services currently unavailable to tens of millions of Americans who live in ‘banking deserts.’ And we already know that these banks work. The USPS had a successful bank system from 1911-1967. Many other countries have either public postal banking systems or public-private hybrids, all dedicated to provided low-cost financial services to working people.

“Non-profit community lending organizations are another good alternative, but those will require capitalization from local governments or philanthropic organizations.”

Stannard’s recent pieces include: “How Payday Lenders Are Beating Back Reform in Alabama,” “In Oakland, Replacing Predatory Lenders with Community Finance,” “Postal Banks Are People’s Banks: 6 Things You Need to know about Postal Banking.”

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