When I moved to Georgia a few years ago, I went to the city water board to turn on the water. When I arrived around noon, there was a long line in front of the cash register. At first I waited in line; then a woman came up to me to ask what I needed – she apparently knew I was at the wrong window. After I told her, she took me to a back office where I set up my water account and arranged for my water bill to be paid automatically. As I left, I asked what the long line was for. But given what I do for a living, I should have known. The line was for customers without a bank account who have to spend their lunch break paying their water bill in cash. And your heating bill and your phone … you have the idea.
Then I heard from a local pastor that many of his parishioners were short of money just before the holidays because their heating bills were skyrocketing. The church is trying to help, but it cannot help everyone, and the people who cannot help have to take out payday loans so they can keep the heating in their homes. These borrowers likely spend the first few months of the year (usually more) paying off the ridiculous interest rates on these loans (between 300 and 2,000 percent APR). I knew all about the statistics and the extent of the problem, but I still find it hard to believe how difficult life can be for some people.
According to Federal Reserve statistics, about half of the US population would have to borrow if they were $ 400 short of unexpected expenses. And for basic financial services, over 30 million have either no or no bank account – meaning they rely on alternative financial services. Those who don’t have a bank account pay a significant portion of their paychecks – around 10 percent – to use and move their money. That’s more than the average low-income family spends Food. And that doesn’t take into account the time and stress of taking time off from work to go to the water board to pay your bill.
How did we get here? Between the 1970s and 1990s there was a transformation of the banking sector, which was due to both market changes and political decisions, in particular a strong wave of deregulation. This led to a wave of mergers and a homogenization and conglomeration of banks, which put the community banks under pressure. During this time the credit union and savings banks and other cooperative, public and for-profit financial institutions were forced to band together and give up their jobs in order to find more lucrative markets and survive deregulation. They drove out of low-income neighborhoods en masse, charging fees for smaller, less profitable accounts. Many low-income Americans lost their bank accounts during this time.
The wave of mergers and deregulation ultimately created a banking sector that is the largest and most powerful that has ever existed – and that has no interest in farming the poor. In fact, these banks even have used her political muscles to fight the New York legislature. Efforts to make bank accounts a little easier for the poor.
As soon as the community banks and savings and loan institutions left these communities, payday lenders, check depositors, and titleholders filled the void. These marginal lenders thrive in areas with fewest banks – and the rise of these lenders was a direct result of the decline of community banking.
How do we fix this problem? Community banking has been the answer for 200 years, and it continues to this day. Almost every time I read a report about payday loan problems it leads to a vague suggestion that credit unions and community banks provide these services. In fact, every legislative attempt to fix this problem over the past three decades has sought to get small banks to provide services to the poor. But small banks are in bad shape and have to compete with big banks for big profits if they are to survive. Yes, the community banks still play a huge role here, and we should all loudly lament the loss of the community banks, but in many ways the ghost has left the bottle. The decisive factor was the large and national banking business.
So it is time to think about a comprehensive and national solution to the problem of non-banks.
Almost every other developed country in the world has found the answer in its post office. What very few people remember is that the United States did too. In fact, our post banking system, first proposed in 1871, began in 1910 and served millions of Americans by 1966 when it expired because this was the heyday of community banking and post banks were no longer needed.
Then and to this day, the public and the press did not take notice of the central importance of the post banking system in one of the most important phases of banking reform in our country. Given the ongoing banking panic leading up to the Great Depression, several presidents and lawmakers suggested post banking as a way to keep America’s banking safe. Indeed, during the widespread bank collapse of the Great Depression, deposits sought refuge in the postal savings banks. War postage stamps and government bonds helped finance two world wars and reduce the national deficit after the Great Depression.
Postbanking was the most successful experiment in financial inclusion in the United States – a problem we are facing again. Post banking brought millions of new immigrants and rural residents into the United States banking system.
Once again we are faced with the realization that our banking sector is unstable, but above all it is also unfair. Today, government support to banks – whether through bailouts or interest-free loans – is at an all-time high, and the public benefit of banking for the average American is at an all-time low. The non-bank problem is more than just a market problem – it is a social and political problem. There is an imbalance in banking services today: a mainstream, regulated, and government-subsidized banking sector that serves the wealthy and middle class, and a Wild West hodgepody of unregulated lenders who provide services to lower-income people.
Postbanking can level the playing field by offering savings and checking accounts, money transfers, and small loans to help the poor escape the expensive cash economy. To do this, it uses the existing infrastructure to process payment orders and expands it according to needs based on successful models from abroad.
The post office is equipped for this because the post office was organized by the same people who wrote the constitution and created our government. James Madison, Alexander Hamilton, and George Washington, with the help of Postmaster General Benjamin Franklin, made three crucial decisions in the Postal Act of 1792: the postal service should be self-sustaining, but not for-profit; it would serve any community regardless of the cost; and it would be the agent of democracy by subsidizing the dissemination of information from the capital to the rest of the country. The postal administrators emphasized this mission when they began banking in 1910 by realizing that postal banking “was not and was not intended to be an add-on to the postal department’s money making. His goal is infinitely higher and more important. ”
The Post, though due to rising debt some political and some market barriers, still retains this central mission (my emphasis): “The postal service has as its fundamental function the obligation to provide postal services in order to connect the nation through the people’s personal, educational, literary and business correspondence. It provides customers with fast, reliable and efficient services in all areas and provides postal services to all communities. ”
Frequently, Americans forget how reliable and efficient the post is and how central it is to the establishment and operation of national trade routes. My book examines how the nation’s post banking can open up credit routes. Recently, presidential candidate Bernie Sanders promised to fight for the Postbank business. It is a fight that we should all join.