Earlier this month, the Office of the Inspector General of the United States Postal Service proposed expanding their financial services to include banking transactions, including small dollar loans. Many Americans use postal money orders to pay bills and send money to friends and family members. Outside the United States, postal services commonly include small financial transactions to consumers that lack access to a bank. Strengthening financial services through the United States Postal Service will immediately spread financial resources and opportunities across the vast footprint that local post offices cover.
The number of unbanked families is sadly growing in this country, with the FDIC reporting that about 10 million American families lack bank accounts. This means they are forced to use expensive check cashing locations or rely on usurious debit cards to receive payroll and to pay for utility and other bills. In addition, they lack access to credit and are susceptible to payday lenders -- firms that borrow large sums at rock bottom rates and lend it out to low-income families at APR equivalent rates as high as 500 percent.
People of color are particularly vulnerable to being unbanked, as are rural populations, the very young and the elderly. The high cost of having low wages effectively strips wealth from our communities, as the Insight center calculated in their report on the economic impact of payday lending on our country. Rather than contributing to more economic prosperity in our communities, payday firms cost Americans almost $1 billion and 14,000 jobs every year. Payday consumers are in debt, on average, for five months as the two-week loan they take out is rolled over again and again. The fees the consumer pays with each rollover come from money they would otherwise spend on food, clothing, or education.
The proposal from the Postal Service provides a real competitor to many of the high cost services that are most often left to underbanked individuals and resolves many of these harmful issues, while providing a real competitor for payday firms. The most harmful high cost product, the high interest payday loan, would be replaced with a small dollar product, which meets the NAACP standard of 36 percent interest. The current proposal for small dollar loans that could come from the post office suggests a 28 percent interest rate.
Unlike payday locations, which have been shown by studies from the CFPB, FDIC, OCC, as well as several consumer groups, to unfairly target people of color, post offices are spread equally throughout the country. They can provide most Americans with convenient, local, and safe access to simple banking services, which most in the mainstream financial industry does not provide.
Expanding selective financial services through our postal offices can more conveniently provide lower-cost financial products to many Americans, particularly the under-banked and unbanked. Additionally, it can help preserve the national mail delivery service in the 21st century. The federal government has a history of intervening to provide important services not offered by the private sector. And with a gap in the financial services arena for low- to moderate-income Americans, the U.S. Postal Service is a great fit to meet this demand.
Dedrick Muhammad is the Sr. Director of the NAACP Economic Department and the Executive Director of the Financial Freedom Center
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