Driving out payday lenders
Secretary of State offices seem made to order to provide much-needed banking services
The Secretary of State’s Express Facility in Chicago’s Pedway might be closed for now, but driver’s license offices like these could potentially offer financial services as well for those unable to afford bank accounts. (Facebook)
By Ameya Pawar and Ted Cox
In the moment, a public option for financial services is critical.
Payday lenders and mercenary currency exchanges were already preying on low-wage workers and others without bank accounts before the pandemic. With major banks continuing to consolidate, and closing up many of the branches they once had, that problem has only become worse.
According to the Federal Deposit Insurance Corp., over 80 million Americans are underbanked or unbanked — about a quarter of the country.
Consider that many people who received $1,200 COVID-19 relief checks under the CARES Act then had to pay a fee just to cash them because they didn’t have a bank account — government checks with no chance they’d bounce. So payday lenders and currency exchanges continued to extract money from the people who can least afford to lose that extra cash.
We’ve mentioned before that the U.S. Postal Service could conceivably step in and offer those basic banking services — check cashing, money orders, bill payments, and even short-term loans — in a bid to fill a basic need and undercut predators like payday lenders.
The federal government moves slowly, however, and there’s something similar we could do more immediately on the state level in Illinois to fill the same void.
Have Secretary of State offices, like driver’s license facilities, offer those additional banking services as well.
They already handle cash; they have vaults. Their frontline workers already handle incredibly sensitive information, even dealing with the U.S. Department of Homeland Security, so you’re talking about a pretty sophisticated workforce. The Secretary of State Office has its own fleet of vehicles — and own police. It has the scale to deal with the assignment — with license facilities in urban areas and rural communities, both of which have been hard hit by consolidation in the banking industry. The Secretary of State has dozens of locations across the state, and while some are closed in the pandemic, the vast majority are open and dealing with driver’s licenses and tests.
According to banking expert Mehrsa Baradaran, low-income households spend up to 10 percent of their annual income drawing on financial services. This extraction reduces incomes and robs them of future wealth.
The alternative financial services industry extracts $100 billion annually, with payday lenders commonly charging what ends up being multiple times whatever small loan was originally taken out as fees and interest accumulate. This is money that’s not going to rent, food, consumer goods, or flowing through the local economy.
Obviously, the license facilities would have to staff up and in some cases specialize, but at that point they could conceivably offer other financial services such as helping people file tax returns. That could lead to them also helping low-wage workers draw on both the state and federal Earned Income Tax Credit.
In fact, just this week the Pritzker administration streamlined the process for workers to claim tax rebates under the state’s parallel program when they file for the federal Earned Income Tax Credit. And with still more eligible workers failing to apply for both, that’s readily available money that could provide what amounts to another stimulus package when it’s drawn on and spent in local economies — especially without payday lenders and currency exchanges siphoning off their fees and interest.
Those Secretary of State facilities could offer free check cashing — at very least on government checks with no chance of bouncing — and utility-bill payment without tacking on the 1 or 2 percent surcharge currency exchanges typically impose.
We know that in this pandemic people are struggling to make ends meet, and all too often financial predators are ready to take advantage of their desperation. Enabling post offices and driver’s license facilities to fill those needs seems like a common-sense plan to provide some relief where it’s most needed.