Despite promises from Congress to reform the notorious payday loan industry, it's unlikely that anything will happen during an election year. NBC News noted that there are more payday lenders in the U.S. than McDonald’s, evident in the signs visible at just about every strip mall. The fees involved can lead to interest and borrowing rates that soar over 300 percent for whom the Pew Trust estimates are the 12 million Americans spending $7 billion on these payday loans.
The growing outcry to reform this industry is loud, but regulators and politicians haven't listened.
Until there is a change in how these companies are regulated, technology is offering more alternatives for those who find themselves suddenly cash-strapped. And they could have a role in closing the financial literacy gap that keeps many Americans mired in poverty. These options, some of which are still under development, include:
Consumers should also consider community banks and credit unions, which often have lower fees and thresholds necessary to open an account. Many of these financial institutions are waiving fees with the expectation that the paycheck-to-paycheck customer of today will eventually be the mortgage payer and retirement saver of tomorrow. Consumers who have ties to a university, large company or government agency – as in, a relative – could be eligible to open an account at a credit union. The rise of online banking and smartphone apps also makes it more affordable for these companies to take in less affluent customers. And for that sudden emergency, many credit unions offer their members access to small payday alternative loans (PALs), a much more affordable alternative to the more predatory payday loans.
Once the dust settles from this election, Congress could also take action and boost the number of banked consumers by once again launching the U.S. Postal Savings system. First established in 1910, this program’s popularity surged during the Great Depression, but was eventually phased out by the end of the 1960s. Post office savings accounts are still the norm in many countries, where consumers can not only deposit money, but can also pay bills. The USPS could also leverage technology so that most banking can be done online or on a smartphone app – preventing longer lines at post offices while transforming these locations into a national banking system for millions of Americans. Such a system would be a cost-effective way to boost national savings, rejuvenate the Postal Service’s sagging fortunes, and make the financial system more inclusive and less punishing for younger and poorer workers.
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