What is it and how does it work

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Most Americans can rely on direct deposit, debit cards, and online bill payment to work seamlessly in their everyday lives. The maybe some fees, sure, and most of us could use a few more dollars in our accounts, but the workings of the financial system work so well that we don’t even think about it.

But that’s not the case for about 9 million households in America, who don’t have bank accounts or swiping plastic cards, and can’t work within the normal limits of the banking system. Some don’t trust banks with their money, while others can’t afford the fees and account minimums that most domestic banks charge. There is no pressure on the banks to offer financial products to these customers, because they will not make money with them (there is a reason why youD charged to your checking account, after all).

Even more people rely on payday loans with astronomical interest rates to earn an extra week because they have no other alternative. Mother Jones Remarks, “Unbanked families spend an average of $ 2,412 per year, or about 10 percent of their average annual income, on the interest on financial services that most bank customers get for free. ” As Time let’s say it, it’s expensive to be poor.

New York Senator Kirsten Gillibrand unveiled legislation that offers a solution to the problem: demanding US post offices provide basic financial services to clients, including checking accounts, interest-bearing savings accounts and short-term loans.

“For millions of families who have no or limited access to a traditional bank, the simple act of cashing a paycheck or taking out a small loan to fix a car or pay the gas bill can end. by costing thousands of dollars in interest and fees. which are almost impossible to repay, ”Gillibrand said in a press release.

Offering checking accounts would be enough to let many unbanked Americans into the financial system, but Gillibrand’s plan goes far beyond that, according to Slate: He Takes On The Predatory Payday Loan Industry:

The bill states that postal banks could grant loans of up to $ 500 at a time at interest rates corresponding to the yield on monthly treasury bills, which now stands at a low 1.65 %. This interest rate is probably too low considering the number of these loans that are likely to be in default. The Postal Service Inspector General’s report described interest rates closer to 25 percent, saving customers hundreds of dollars compared to payday loans that typically come with an APR. about 400 percent.

It won’t be an easy win for Gillibrand – payday lenders are powerful in Washington (just ask mick mulvaney, Director of the Consumer Financial Protection Bureau). But it is a solution to a serious financial problem that deserves to be considered.

(If you want to know more about this topic, check out the book America’s Unbanking: How the New Middle Class Survives, by Lisa Servon.)

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