USPS as Alternative to Payday Lenders?

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The Office of the Inspector General of the USPS released a white page report in January detailing a plan to offer new non-bank financial products and services in post office branches across the country. The report states that, among other reasons, offering these products and services in post office branches will provide affordable access for many Americans whose only other alternatives are expensive payday lenders and check-cashing services. These underserved Americans commonly live in zip codes where banks have closed branches, often because such branches are unprofitable.

Alternative lenders charge very high interest rates and frequently require borrowers of payday loans to sign over their next paycheck. However, this is often not enough and the borrowers get stuck in a cycle where they never get out of debt. The high interest rates and fees associated with payday loans can translate, as the USPS report states, to as much as $2400 per year. For those who are just barely making ends meet, these fees can mean perpetual debt, inability to save and possibly bankruptcy. The report states that for families who used payday services and ended up filing for bankruptcy, the median amount by which they were away from paying their monthly bills was just $26. With so much of their money going to interest and fees, saving only a fraction of that money could prevent these families from falling into severe financial distress. The USPS plan aims to provide the necessary products and services to prevent low income families from experiencing financial problems.

It is unlikely that goodwill and warm-fuzzies will motivate private banks to set up traditional branch offices where they are not likely to be profitable. The USPS may be well-suited to fill the gap and provide these products and services to those who wouldn’t otherwise have access to them, thereby preventing bankruptcies and providing financial stability to those who need it the most.


Posted by Patrick T. VanderJeugdt on Mon. June 30, 2014 3:53 PM
Categories: Student Research
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