Could the Post Office Make Payday Lenders Obsolete?

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This post comes from Christine DiGangi at partner site Credit.com

In a new report, the Office of the Inspector General of the U.S. Postal Service explored the idea of having post offices provide financial services to those under-served by the nation’s banking structure. Namely, the poor.

The report notes that about 68 million American adults — more than a quarter of U.S. households — make up that under-served population.

These Americans are more likely to turn to payday loans and cash-checking services for their money needs. Those products carry high costs, and in 2012, this group spent about $89 billion in interest and fees associated with those financial offerings, meaning cash-strapped Americans pay more than others to do everyday financial tasks like getting loans or cashing checks.

The idea has at least one vocal supporter in Congress. In a Huffington Post op-ed, Sen. Elizabeth Warren, D-Mass., praised the idea, saying it would not only alleviate financial pressure on those without banking services, it would help the Postal Service overcome the financial troubles it has battled as letter volume has declined in recent years.

“The Postal Service is well-positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector,” the report said, and it outlines those ideas, describing potential payment services, savings products and credit services.

The existing postal infrastructure, combined with the limited financial services already offered at USPS locations (i.e., money orders and international money transfers), gives the concept some traction.

“With post offices and postal workers already on the ground, USPS could partner with banks to make a critical difference for millions of Americans who don’t have basic banking services because there are almost no banks or bank branches in their neighborhoods,” Warren wrote in her op-ed.

She highlighted the way such partnerships could help those living paycheck to paycheck, again touching on the double whammy of limited services and high interest rates available to non-banking Americans.

Payday loans can carry interest rates of about 300 percent, and most people can’t afford to pay them off within the original terms of the loan. Check-cashing fees may not seem like that much — a check for up to $1,000 costs $3 to cash at Walmart stores, for instance — but they add up, taking away from the limited money the consumers may have in the first place.

Warren seems fired up about the idea and said she plans to diligently explore the matter. If more affordable, accessible non-banking financial services emerge for under-served populations, it could make a huge difference for struggling families’ budgets and, consequently, their quality of life.

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Comments & discussion

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  • Melodie

    And who’s going to pick up the tab when they aren’t paid back? Taxpayers? Who is going to enforce debt collections? Why encourage people to borrow money when they can’t afford to? If you get a payday loan and don’t pay it back that company is out the money and that person doesn’t/can’t do it again, this encourages borrowing you can’t afford,

    • kcgoat

      do you understand how this works?

      • Melodie

        No one does yet it just an idea they’re thinking about, however the post office is a US Government entity so it’s a valid question.

      • nitemare2

        I do understand. People need to get their finances in order, say no once in awhile, as some one who has paid (stupid tax) interest to payday loans in the amount of over $6000 (just the interest) over the last 5 years I speak from experience. You borrow $400 and they charge you $120 per month interest which you pay until it’s paid off so figure it out. $400 paid back at $100 per month plus $120 interest per month it cost me $500 in interest on a $400 loan ($900 total paid). Easy credit is the problem, living within your paycheck is the cure, but those liberals like Warren do not believe in living within a budget. I learned the hard way, now I buy what I can afford to pay cash for. Don’t want to keep up with the Jones or anyone. My family comes first they get what they need not always what they want. Now I have savings which I call my emergency fund, in 5 months I will owe no one and 3 months after that My family and I will take a completely paid in advance vacation to Disney. Oh and we only make about $45000 a year. The Govt and the liberals and President need to get the same mind set. Stop giving away money.

        • kcgoat

          in this great country there should not be 300% interest on anything

          • nitemare2

            I agree certain states have declared payday loans as illegal now the Feds like Warren think it would be a good thing. NC is one state which has put a cap on loan interest percentages. The Govt has its hands in to many loans now.

  • Kent

    Our big banks actually managed to make payday lenders look good.

    • nitemare2

      in what universe are you living? You call charging 300% interest making any bank look good. People need to get their finances in order, say no once in awhile, as some on who has paid (stupid tax) interest to payday loans in the amount of over $6000 (just the interest) over the last 5 years I speak from experience. You borrow $400 and they charge you $120 per month interest which you pay until it’s paid off so figure it out. $400 paid back at $100 per month plus $120 interest per month it cost me $500 in interest on a $400 loan. Easy credit is the problem living within your paycheck is the problem, but those liberals like Warren do not believe in living within a budget. I learned the hard way, now I buy what I can afford to pay cash for. Don’t want to keep up with the Jones or anyone. My family comes first they get what they need not always what they want. Now I have savings which I call my emergency fund, in 5 months I will owe no one and 3 months after that My family and I will take a completely paid in advance vacation to Disney. Oh and we only make about $45000 a year. The Govt and the liberals and President need to get the same mind set. Stop giving away money.

  • Jason

    The US Post Office offered banking services from 1911 to 1967. I don’t see why they couldn’t do it again. Commercial banks don’t want small time savers and the Post Office already has the infrastructure in place.

  • Michael Smiley Gawthrop

    Here’s a radical idea, how bout we let the Post Office have some level of independence from Congressional oversight so that they can actually increase efficiency and improve service. Last I heard the USPS deficit was artificially created and represented more of a failing to put as much cash into long term savings as Congress wanted, and that Congress wanted a completely unrealistic amount put into savings (along the lines of having enough to pay for retirement benefits for the next 75 years… yes, long enough that they are saving for the retirement of people who haven’t been born yet).

  • Michael Smiley Gawthrop

    As far as providing pay day loans, please don’t get into that… there are enough sharks out there that will take advantage of people who are unwilling or unable to get their finances in order, the USPS doesn’t have to sink to their level.