Feb 10, 2014 Sean Albert
Short term lending gets a bad name. Federal regulators have come out against this type of financing for years, claiming it takes advantage of consumers who are in desperate need of financial help. But, if short term loans are so bad, then why is the federal government attempting to offer similar services through the United States Postal Service (USPS).
A recent report from the U.S. Office of Inspector General revealed plans to begin offering financing to "underbanked" Americans through the USPS. The idea was quickly supported by U.S. Sen. Elizabeth Warren, who helped create the Consumer Financial Protection Bureau (CFPB) - the organization that has attacked short term lending for quite some time.
What conclusion can we come to if the senator who helped create the CFPB supports government-sponsored short term lending? Well, it appears as though the government is hypocritical, as it is attempting to put short term lenders out of business, and dominate the space on its own.
What's the worst part of it all? The official proposal attacks short term lenders and other alternative financial services for charging the average underbanked household $2,412 in interest per year – an outrageous number that any credible, objective source would dispute. However, by offering similar financing, the USPS could generate $8.9 billion per year, which would help the struggling government agency eliminate some of its billions of dollars of debt. This is a transparent takeover of the private sector by an out-of-control government looking for more coffers to fill.
What is the real motive here? Does the government really want to help out struggling Americans? No. It wants to put yet another private-sector industry out of business and save the USPS in the process.
Warren is adamant on pursuing this proposal despite obvious flaws
While Warren and anyone else in support of taxpayer-subsidized short term loans won't admit the move is hypocritical, it is clear that is the case. In fact, Warren is adamant on pursuing the idea.
"This is an issue I am going to spend a lot of time working on - and I hope my colleagues join me," she wrote in an op-ed for The Huffington Post. "We need innovative ways to create pathways for struggling families to build economic security, and this is an idea that falls in that category."
What she failed to mention is that the USPS has been in the red for quite some time. If we can't trust them to deliver mail, how can we trust them to deliver complex financial instruments to economically fragile American consumers? This proposal will no doubt lead to more red ink on the government's balance sheet, with hard-working American taxpayers left holding the bill.
What services would be offered by the USPS?
If this idea gets legs and becomes reality, the USPS would offer multiple services, including:
• Payment services: Electronic money orders, bill payments, facilitating e-commerce payments, etc.
• Products to encourage savings: Interest-bearing savings feature for Postal Cards, which could help encourage people to save.
• Credit services: Small loans borrowers could use to purchase rent, groceries, utilities, mortgages and student loan payments.
While the first two services seem like something beneficial the USPS could offer, the last service sounds awfully familiar. That's because it is exactly what a short term loan provides for consumers. Before we allow the government to move forward with this idea, they should be forced to reveal the true motive behind it. A