A new report from the United States Postal Service inspector general proposes that the agency offer non-bank financial services, including payday loans. Opinion pieces and blog posts praised this idea as a way for the post office to solve its fiscal woes while reaching a portion of Americans outside the traditional banking system. A Reuters “Great Debate” piece, “Transforming Post Offices into banks”), called the proposal a “win-win.”
The Great Debate
In these hard times, many people believe the solution to our nation’s economic ills can be summed up in one word – jobs. But that’s just the start. A stable economy can only exist when every family finds a place in the economic mainstream. Finding that place requires financial literacy.
Credit access remains a challenge for millions of Americans, leaving them with limited options to meet their financial obligations. Payday loans are just one form of short-term, small-dollar credit that bridges this gap, ensuring access to cost-competitive, reliable and transparent credit when faced with periodic financial challenges. Unfortunately, this service is often misunderstood and misrepresented, as demonstrated by a recent “Great Debate” piece, “Is the payday loan business on the ropes?” (September 21, 2012).
Payday lenders have a lot in common with pawn shops, their close cousins: They depend on lending money to desperate people living close to the edge with nowhere else to turn. They first surfaced about 20 years ago in the South and Midwest, often as small mom-and-pop shops. Now the industry is dominated by large national chains, with some 20,000 storefronts nationwide. Coming out of the shadows of cyberspace, however, are Internet lenders, which are like storefront lenders on steroids.
There are the Liberty Tax guys dancing at strip malls in Statue of Liberty costumes. The “FA$T CA$H” banners plastered on storefronts. And in a cult classic of advertising, all over the South there were those ridiculous Mo’ Money Taxes commercials in which buffoonish Southerners bumble through financial crises. Each one ends with advice on how to avoid a similar mess: “Just come on down to Mo’ Money!”
All of these campy promos are actually selling costly loans against your own money, but they have in fact generated lots of easy cash – for the lender, if not the borrower.