Pennsylvania is one of just 15 states that ban predatory payday loans, for now. If state Rep. Chris Ross (R) and state Sen. Pat Browne (R) have their way, though, the Keystone State will open its arms to companies that already pull billions of dollars out of poor communities each year through loans with average interest rates of over 300 percent.
Browne has sponsored a bill to remove the state’s 24 percent cap on interest rates. The legislation is modeled on a bill Ross pushed through the Pennsylvania House last year, but which never won Senate passage in 2013. While Browne did not comment on the effort, Ross told the Pittsburgh Tribune-Review that their efforts are meant to give the state better control over companies that currently operate in the state from the internet shadows.
“I believe there is a need for a properly structured, short-term lending in Pennsylvania,” Ross said. “We’ve got the Internet, for which there is no effective means of regulation to protect consumers.”
The Department of Justice is fighting illicit online lending, despite criticism from industry-friendly Republicans at the national level. And while that indicates that there is a real demand for cash advances in poor communities where paychecks don’t always come in time to cover the bills, it doesn’t mean lifting the cap on interest rates is necessarily the right solution. If lawmakers want to do something to help satisfy that demand, they don’t have to invite the fine-print trickery of private payday lending companies into their states’ neediest corners. (Each year more than 12 million people take out payday loans nationwide and end up paying roughly $520 in interest and fees for every $375 they borrow thanks to limitless interest rates.)
The most promising alternative would be to resurrect the Postal Service’s (USPS) long-dormant banking powers. The USPS has physical locations in many communities that have been abandoned by banks — places where payday lenders flourish by virtue of being the only option for desperate people — and could provide the same basic banking services and short-term loans at non-abusive prices. The revenue that postal banking would bring in would also close the budget hole Congress created for the USPS when it required the agency to keep its pensions fully funded for the next 75 years, a requirement no other business or government agency faces. Polling on the idea is scarce, but one survey found significant support for the idea with many still unsure what to think.
Using the post office to meet the needs of poor people without access to bank accounts would also end the cycle of legislative gamesmanship that has surrounded payday lending for decades. The companies that profit from the practice spend a lot of money on political contributions, and use the resulting clout to either kill reform efforts in states where the loans are allowed or expand their access to customers in states that regulate the industry more tightly. Payday lenders have proven adept at evading state regulators, and have slipped through the cracks of national financial regulation. While the Consumer Financial Protection Bureau is finally putting regulatory cops on the payday lending beat and winning unprecedented legal victories for abuses, postal banking offers an even more elegant solution.