Small-Dollar Lending from your Post Office?
A new United States Postal Service Office of the Inspector General (USPS OIG) white paper proposes that the Postal Service offer non-bank financial services, including payday loans. The USPS OIG provides yet another independent voice – among researchers and academics, think tanks, and some regulators –acknowledging the financial challenges faced by millions of American consumers, their unabated need for small-dollar loans, and the stark fact that banks and credit unions’ are increasingly unable or unwilling to effectively meet this need.
The USPS OIG concludes that consumer demand for short-term credit is significant, and proposes an innovative – if incomplete – way to expand borrowers’ choices. But this recommendation comes at the same time that other federal agencies are pressuring banks to end their deposit advance programs, and as the CFPB considers placing further restrictions on short-term credit services more broadly. I hope that the USPS OIG proposal will help to inform the actions of other federal agencies who appear more interested in eliminating regulated short-term credit than meeting the needs of consumers.
Advance America welcomes increased competition in the short-term credit marketplace – it is our firm belief that consumers are always best served by a well-regulated, competitive environment with a diverse array of options. But comparable products MUST be governed by the same rules. The USPS proposal raises considerable questions as to how these products would be regulated at the federal and state levels, both in the extension and repayment of the loans. For instance, the proposal suggests that USPS could “collect debts from the tax refunds of debtors,” a prospect with troubling consequences for Americans already struggling to make ends meet.
Notably, the USPS OIG also underestimates the challenge of offering consumer financial services in an increasingly competitive marketplace while in full compliance with complex federal and state laws. Absent a sizable government subsidy, the USPS OIG’s suggested interest rate for small-dollar loans could not even cover basic operating expenses. A number of credit unions, community banks and nonprofit organizations that have piloted similar low-cost, small-dollar loan programs have struggled to sustain operations, much less make a profit. This has led many institutions – credit unions in particular – to conclude they cannot viably provide short-term credit, according to research by University of California, Davis Professor Victor Stango.