Dream 2015 is a shocking new report describing the systematic impoverishment of people of color. By denying them access to banking services (eg checking accounts to cash their pay checks), Wall Street forces them to rely on fringe financial services, such as check cashing outlets, payday loans and auto title lenders. As Robert Manning writes in Credit Card Nation, many of these predatory outlets are owned by the big banks. Charting interest rates as high as 730% a year, they siphon off $103 billion annually from desperately poor communities.
In 2014, 16.7 million Americans were “unbanked,” ie had no access whatsoever to banking services. Another 50.9 million were “underbanked.” The “underbanked” typically have a checking account but lack access to small dollar loans and other banking services.
A total of 53.6% of black households and a total of 46.4% of Latino households are unbanked or underbanked. The most common reasons given are the absence of full service banks in communities of color and insufficient income to meet minimum balance requirements and overdraft fees. Ninety-three percent of all bank branch closings in 2008 were in zip codes with below median income.
Dream 2015 proposes a number of practical solutions to a problem that clearly plays a major role in growing poverty and income inequality. Among other potential solutions, they propose
• Enacting federal legislation capping interest and limiting the size and length of payday loans. Seventeen states have anti-usury laws, but according to Manning, fringe financial companies evade these laws by incorporating in states that don’t have caps. An existing federal law prohibits lenders from charging military personnel more than 36% annual interest – this protection needs to be extended to all Americans.
• Strengthening the Community Reinvestment Act to require all banks to provide small dollar loans to the communities they serve.
• Strengthening the Consumer Financing Protection Bureau.
• Strengthening public-private partnerships such as Bank On and Lending Circles that provide microlending* services to communities of color.
• Modernizing US electronic payment technology. In the US electronic transfers take three to five business days to be credited to the recipient bank account. In most other countries (including New Zealand and Mexico), electronic transfers take at most a few hours.
• Expanding financial services at all 36,000 US post office branches to include checking, debt, savings and small loan services.
In my view, the latter is the most practical and easily implemented. Last year Senator Elizabeth Warren argued eloquently argued for it in the Huffington Post. There are post offices in most communities, regardless of income level, postal workers already get financial services training (because they sell money orders), and it would provide a new source of income now that digital communications are eroding the demand for snail mail service.
The US post office used to offer postal savings accounts between 1911 and 1917. They were phased out because they couldn’t compete with the higher interest rates banks offered (no longer an issue now that US banks pay less than 1% interest on savings).
Presently France, Germany, Japan, China, Brazil, India and New Zealand offer banking services in their post offices. New Zealand’s Kiwibank is a full service bank offering low cost credit and debit cards and mortgage loans in addition to checking and savings accounts. They also have some really clever TV ads.**
*Microlending or microcredit is the extension of small loans to enterpreneurs too poor to qualify for traditional bank loans.
**The surly looking suits represent the Australian banks that own all but one of our private banks.