People need payday loans because no matter how well they manage their money, many folks can't make ends meet with today's poverty wages. People turn to payday loans in particular because their often-stressed financial situation means they don't qualify for other loans or, in many cases, even for a bank account.
For payday predators, of course, it is a very sweet situation. Wall Street investors love it, too, as it's another way to pile up wealth while lawmakers look the other way from human suffering. One case in point is Cash America, a profitable chain of predatory financial services, including payday loan storefronts. Cash America's largest investors include Allianz, Fidelity, Vanguard and Wells Fargo.
Without a trace of irony, Allianz’s website announces: "Love, Family, Money: Landmark Allianz study exposes difficulties faced by modern families." Yes, and the loving family company is right there to make matters worse by investing in a leading payday predator. In fact, Allianz is Cash America’s largest shareholder, owning more than 10 percent of its stock.
Meanwhile, as of 2011, Wells Fargo topped the list of Wall Street institutions backing predatory financial services. Wells Fargo provided the industry with $1.2 billion in loans and credit lines – nearly a third of Wall Street’s total. Cash America alone got $127 million in loans and credit lines from Wells Fargo.
Cash America’s overall cost of borrowing from various sources was just under five percent — a hundred times less than the effective interest rates the predator firm charges working moms who are trying to make ends meet on poverty wages.
Cash America recently posted annual revenues of $1.9 billion, according to SEC filings. Last year the company's five top executives together took home $8.9 million; CEO Dan Freehan alone made $3.3 million.
None of these legalized criminals pocketed less than a million. And no wonder. Cash America's 2012 annual report boasted: “....we’ve built a thriving business...when, often, our customers have nowhere else to turn.”
The Public Option: Postal Banking
As tempting as it sounds, putting Cash America and other financial predators like it out of business won't by itself solve the problem. Cutting off supply doesn't magically eliminate demand. So until everyone in this country sees a living wage, there's another solution: the public option. Let the U.S. Postal Service offer small payday-type loans, at one-tenth the cost of predators like Cash America, and the economic transformation would be swift.
The idea of postal banking gained traction following a January 2014 report by USPS Inspector General Dave Williams, who detailed the concept. Next, Elizabeth Warren came out swinging in her talk at Pew's July 2014 conference on the subject. See the highlights of her performance here.
At this point it's hard to deny the widespread public anger directed at payday lenders, other financial predators and their Wall Street backers. Those who are more fortunate feel compassion for the 12 million working American families and retirees they see caught in the predatory debt trap. Just how bad is it?
A December 2013 study by the Center for Financial Services Innovation, cited in the USPS Inspector General’s report, found that predatory financial services siphoned $89 billion in 2012 and estimated that the total would rise to $95 billion in 2013.
Extending the trend, in 2014 and thereafter the total will exceed $100 billion a year. That’s $1 trillion per decade diverted from the pockets of financially stressed people and families – $1 trillion that would otherwise be spent on rent, utilities, food, clothes, car repairs and other necessities; $1 trillion that would generate jobs in local communities and sales tax revenues for municipalities while reducing demand on tax-supported assistance programs.
With this urgency in mind, the nonpartisan U.S. Conference of Mayors in June adopted resolutions in support of postal banking, calling on the U.S. Postal Service to offer low-cost financial services.
Americans need to get behind this proposal. Demand the public option. Insist that the U.S. Postal Service grant low-cost financial services. Read up on the concept here, and help make postal banking a reality today.
Ira B. Dember is a strategic consultant, business writer and co-founder of BankACT.