In the state of Alabama, many individuals resort to payday and title loan dealers to pay off regular expenses. Sixty-nine percent of first-time borrowers are taking out a payday loan for regular expenses such as rent, utilities and food. They often become trapped in a cycle of having to pay off loans that can last well beyond the original 14- or 30-day borrowing period. The average borrower will be indebted five months out of the year.
These loans have extremely high annual percentage rates, and companies mostly don’t examine the debt-to-net income ratios. For a 30-day title loan, the APR is 300 percent, and for a 14-day payday loan, the APR is 456 percent. Almost half of the lenders are based outside of Alabama, so we do not receive the full benefit of their profits or taxes.
A surprising way to solve these issues came up recently. A report by the USPS’ inspector general was picked up by Sen. Elizabeth Warren, progressives and groups such as the public interest Appleseed Network, and it was based on the idea of post office banks.
While this might seem quite strange to my generation of Americans, it’s an idea Americans have supported before. In fact, President William Howard Taft ran, in part, on the idea of a post office bank, and the bank he proposed had around $3.4 billion on deposit by 1947. After WWII, the banks began to increase their interest rates, and the post office bank died out by 1967. Despite this, post office banking is common in other countries, such as the United Kingdom, Germany and Japan.
This is a likely successful project that people should support because banking underserves some 68 million Americans. These Americans live in ZIP codes where there is one or no bank. On the other side, there is a post office in every ZIP code, and more than half of all post offices in the United States exist in ZIP codes with one or no banks.
The lack of services leads many Americans toward the title loan and payday loan services, as well as check cashing places. If we were to establish post office banking, individuals would be able to cut down on the nearly $2,500 in fees that Americans currently have to spend. It would also provide individuals with banking services they currently cannot access.
The post office would not be doing this for purely generous reasons. The report by the Inspector General expects that the Postal Service would make an estimated $8.6 billion more annually. This is extremely helpful for an agency that lost an estimated $5 billion last year largely due to unrealistic retirement savings requirements.
This is a win-win scenario for both Americans and the U.S. Postal Service. The Postal Service would likely be able to finally be profitable, regardless of the insane requirements imposed upon them by Congress, and millions of Americans would have access to banking services that they currently cannot access. Most importantly, it would help to reduce the cycle of poverty that strikes many communities by allowing the individuals to keep more of their money and reduce their reliance upon harmful practices pushed by title and payday loan services.
Matthew Bailey is a second-year law student. His column runs biweekly.
