* Ameya Pawar and Ted Cox…
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.
Thoughts?
- Blue Dog Dem - Thursday, Oct 29, 20 @ 11:22 am:
Rather than expand a beauracy, just mandate that banks and savings and loans must cash checks issued by the federal govt free of charge.
- Hamlet's Ghost - Thursday, Oct 29, 20 @ 11:26 am:
Could? Not sure. Need to look at the law
Should? Yes, if legal
Postal Banking would be better but that’s a federal program.
- Powdered Whig - Thursday, Oct 29, 20 @ 11:28 am:
Horrible idea. Having the SOS responsible for banking is a nightmare waiting to happen.
- Franklin - Thursday, Oct 29, 20 @ 11:29 am:
Good idea Blue Dog. While you are at it have state and federal regulators ease up on their restrictions for check cashing for non-customers.
- Dan Johnson - Thursday, Oct 29, 20 @ 11:30 am:
This would help hundreds of thousands of people build wealth. This should be a core part of the 2022 primary platform for the next SOS (assuming our most popular elected official doesn’t run again).
- SSL - Thursday, Oct 29, 20 @ 11:33 am:
First, it isn’t that easy. These facilities often don’t function well today at what they’re supposed to do. Now we want to have them do banking functions? There needs to be a solution for the under-banked population, but having the state do it is a poor idea.
- HotSauce - Thursday, Oct 29, 20 @ 11:33 am:
To my knowledge, the only public state bank in the nation is the Bank of North Dakota. The advantage in a state bank is it SHOULD be run based on prudent financial policies, not high risk practices. North Dakota ranks low on state debt and has a AAA credit rating.
Illinois ranks high on state debt and has a BBB- credit rating.
I am not opposed to public banks, but I do not think Illinois is the state to do this in, strictly based on principle. That being said, the secretary of states office would be the only competent governmental agency that I think could handle this task.
I vote no.
- BulfrogVino - Thursday, Oct 29, 20 @ 11:40 am:
I’m NOT a Bernie fan but I do believe his idea on a postal bank was a good idea. Granted there would need to be significant changes to the post office structure, it would reach a great many unbanked people.
- H-W - Thursday, Oct 29, 20 @ 11:41 am:
I agree with Bluedog generally. Given that most banks must be insured by the FDIC, mandating that these same banks cash federal and state issued checks seems wholly reasonable.
In addition, it should be noted that SOS facilities charge fees for using debit cards/credit cards, but do accept checks and cash. Those fees are also problematic.
- City Zen - Thursday, Oct 29, 20 @ 11:42 am:
Let’s see if SOS can improve their Corporation/LLC Search website first before we saddle them with more responsibilities.
- Lake Effect - Thursday, Oct 29, 20 @ 11:49 am:
I like this idea. Both Chase and Bank of America don’t let me bank with them anymore because too many candidate committees wrote me bad checks that bounced. I wish I was making this up.
- thunderspirit - Thursday, Oct 29, 20 @ 11:56 am:
Blue Dog Dem and I rarely agree, but both on saying no to the SoS office conducting banking and on the idea of prohibiting fees to cash government checks, we’re in concord.
I’d expand the prohibition to state government checks too.
- northside reformer - Thursday, Oct 29, 20 @ 11:57 am:
cashing a check, selling money orders, and adding bill payment processing seems like a value-add for the SOS. issuing small loans will be harder to do.
- Benjamin - Thursday, Oct 29, 20 @ 11:59 am:
HotSauce: the Bank of North Dakota does not, to my knowledge, have a retail operation. It’s only for government operations. As I understand it, banking proposed for the SOS offices would just be retail savings, checking, and banking–no loans or government bill handling envisioned.
This isn’t a bad idea, but postal banking is probably a more comprehensive solution for the same problem. There are post offices everywhere–probably as many in Chicago alone as there are SOS facilities in the entire state.
- Scott Cross for President - Thursday, Oct 29, 20 @ 12:03 pm:
Great idea, let’s move it forward.
The unbanked poor have a problem.
Our govt offices can solve it.
Because the invisible hand just wants to keep dipping payday lenders’ fingers in the small pockets of the poor.
- Dan Johnson - Thursday, Oct 29, 20 @ 12:03 pm:
It would make a big difference to open up a basic free checking account automatically for everyone. Accept / cash all government checks. And get a money order for free. Poor people pay a lot more than they can afford on bank fees. (Plus every local government should be able to offer these same basic services. Lots of them already have accounts for residents. Taking checks and issuing money orders would save them cash and that is sadly a significant portion of their income and wealth
- Jibba - Thursday, Oct 29, 20 @ 12:13 pm:
As someone who lived paycheck to paycheck in the past, I know there are too many businesses who prey on the defenseless poor, providing little and taking a lot. They should be shut down, but banking reform is better.
- Anyone Remember - Thursday, Oct 29, 20 @ 12:14 pm:
Benjamin -
The North Dakota State Bank does have retail operations, but makes it a policy to NOT compete with the private sector for deposits. No ATMs, debit cards, credit cards, or on-line bill pay. They DO have student loans.
- Fiscally Sound - Thursday, Oct 29, 20 @ 12:17 pm:
The Illinois Bank-On Commission was proposed by the Comptroller three years ago, supported by all three financial institution trade associations, unanimously passed both chambers and was signed with much fanfare by the Governor in a bank lobby. Commission members have been appointed but to date have met exactly zero times. The purpose of Bank-On is to find ways to serve the un-banked and under-banked. Private enterprise is on board. It’s state government that is dragging their heels.
- thisjustinagain - Thursday, Oct 29, 20 @ 12:18 pm:
Theoretically, yes. The State trying to run ANYTHING else, OH H— NO. Instead, pass laws to lower fees and interest, make government check cashing either free or cost-of-processing only. End the legalized usury of financial institutions and service providers.
- 1st Ward - Thursday, Oct 29, 20 @ 12:23 pm:
micro non-payday loans and banking options already exist. Even big players are jumping in with Bank of America announcing they will do loans up to $500 for a flat fee of $5 for 90 days.
FinTech is the equalizer. If its fully automated the Bank shouldn’t loose money once scaled. The marketing and access to technology will be key.
Is Pawar living under a rock? The IDES system wasn’t funded to update technology. What gives him the belief the state will continuously update its own Banking system and stay-up on evolving technologies like Blockchain, Digital Payment technology, and evolving consumer finance regulations of the alphabet soup.
https://www.bloomberg.com/news/articles/2020-10-08/bofa-debuts-small-dollar-loans-in-threat-to-payday-lenders
- Bully Pulpit - Thursday, Oct 29, 20 @ 12:25 pm:
A “government option” credit card with low interest (and no teaser rates)might be a good resource for those that don’t want to get charged a 15% or higher interest rate for their consumer credit.
- East Sangamon - Thursday, Oct 29, 20 @ 12:37 pm:
I like the idea of a Postal Bank and believe it could help out those with small checking and savings accounts. However, the main reason many go unbanked is the federal rules against money laundering and the Patriot Act. Financial institutions have to narc on people who do unusual transactions. I’m aware of this because I formally served on a board of a credit union. The rules discriminate on low-income individuals.
- Anon221 - Thursday, Oct 29, 20 @ 12:38 pm:
H-W: “In addition, it should be noted that SOS facilities charge fees for using debit cards/credit cards, but do accept checks and cash. Those fees are also problematic.”
***
SOS is accepting e-checks at least through renewing stickers online. While credit cards did still have that extra processing charge, the e-check did not. Got the sticker in the mail just a few days after purchasing online.
- Lewie - Thursday, Oct 29, 20 @ 12:42 pm:
Everyone has a right to affordable banking services. (snark)
- BRuce - Thursday, Oct 29, 20 @ 12:45 pm:
Could offer savings accounts with high interest rates backed by full faith and credit of land of Lincoln
Cut out the bond houses and deal directly with creditors.
- Bruce( no not him) - Thursday, Oct 29, 20 @ 12:50 pm:
No, bad idea. The SOS has enough issues without adding banking.
- hisgirlfriday - Thursday, Oct 29, 20 @ 12:54 pm:
I have supported postal banking for a while (and post offices already have experience handling money orders) but am not sure about putting this on the secretary of state. I would support this if I was convinced they could do this in a limited fashion but would not want it to hamper existing DMV services.
- yinn - Thursday, Oct 29, 20 @ 12:56 pm:
I’m not strictly against states taking action via SoS but the PO is a better idea. SOP would be the same everywhere, as it is for mail services.
While we’re figuring this out, we could attack the problem with a federal regulatory approach by limiting or eliminating predatory fees and let people know where they can go for low- and no-cost banking options. The local credit union is often a good choice.
FDIC has a tool called BankFind to help people “get banked.” https://www.fdic.gov/about/initiatives/getbanked/index.html
- Klaus von Bülow - Thursday, Oct 29, 20 @ 1:03 pm:
A State run bank is a great proposal but not under the auspices of the Secretary of State. Maybe DHS FCRC’s facilities run by the Treasurer as they are proposing alternatives for the Cannabis sellers.
- Anyone Remember - Thursday, Oct 29, 20 @ 1:07 pm:
SoS, no. USPS, they used to, and should again. Off the record, most financial institutions say they don’t want to deal with “lower” income customers (”lower” varies from bank to bank) due to the issues and bad PR caused by NSF fees.
- Amalia - Thursday, Oct 29, 20 @ 1:24 pm:
No. Credit unions are the best alternative for those who want financial services not a bank or S & L. you can find one that is community based as opposed to institution based if you are not in, for example, a company or union. they have all the services, including credit cards. I would write more but I’m too distracted by the report that the Sox hired Tony LaRussa….
- RNUG - Thursday, Oct 29, 20 @ 1:35 pm:
== It would make a big difference to open up a basic free checking account automatically for everyone. ==
I guess I’m having problems with the whole idea of people not having some kind of bank account.
Some banks offer free checking if you have direct deposit of either a paycheck or other regularly scheduled government check. And there can be zero fees IF you use their online check payment app, receive paperless statements, and meet other requirements. But there are minimum amounts to open an account that can exclude some people, so I can see why some people can’t use banks.
Credit Unions are an even better deal. My credit union only requires a minimum deposit of $5 kept in a savings account and a one time membership fee of $1. A savings account is all you need to be able to deposit / cash a check. Their checking accounts may have fees, depending on account balance, but you don’t have to have a checking account to have a savings account.
I guess I can see a barrier if you don’t have a home address. So yes, the homeless might have a problem. Or if you don’t have access to a computer / smart phone, but even a lot of the poor seem to own or have access to one of those.
So NO, I don’t see where SOS needs to get in the banking business.
But I can see where the Federal bank regulators should mandate either government checks being cashed for zero fees or being required to provide a minimum level checking account (10 or less transactions a month?) for no fee.
- spending - Thursday, Oct 29, 20 @ 1:44 pm:
Just what we need….another government agency.
- ETown60120 - Thursday, Oct 29, 20 @ 1:44 pm:
Illinois Bank-On Commission was proposed by the Comptroller. I know they have not had meeting since it was passed. Having SOS become a financial institution is a mess waiting to happened they need to upgrade there tech and process to 20020!
- Uh, no. - Thursday, Oct 29, 20 @ 1:51 pm:
SOS can barely handle the Real ID, the Vets ID, traffic flow at the facilities, and/ or technology.
- indianbadger - Thursday, Oct 29, 20 @ 2:23 pm:
Growing up in India, Postal Banking was a thing. for a lot of villages, that was their only bank. This is an idea whose time has come in the US, especially to curb all these check cashing places.
- @misterjayem - Thursday, Oct 29, 20 @ 2:27 pm:
Can someone with more knowledge about this matter explain why not-for-profit credit unions can’t address this need?
– MrJM
- back bench - Thursday, Oct 29, 20 @ 2:46 pm:
Field of membership. Credit Unions pick and choose who they let be members.
- @misterjayem - Thursday, Oct 29, 20 @ 3:17 pm:
The DuPage Credit Union doesn’t seem very picky: https://app.loanspq.com/xa/xpressApp.aspx?lenderref=dpcu011116&type=1
– MrJM
- Gerard2 - Thursday, Oct 29, 20 @ 3:18 pm:
First of all, the US had Postal Banking. From 1911 to 1967. In many post offices, you can see the old banking vestibules still there.
Second, doesn’t the SoS regulate currency exchanges? I’d be curious to know if the industry donated to SoS candidates in the past, and that may explain why the SoS hasn’t taken on banking. Not that it’s necessarily a bad idea…
- bear 3 - Thursday, Oct 29, 20 @ 3:20 pm:
competition TO HIGH CHARGE CURRANCY EXCHANGES AND PAY DAY LOANS THROUGH THE SOS and post office would be welcome. The post office can do items today……
- RNUG - Thursday, Oct 29, 20 @ 3:29 pm:
== Credit Unions pick and choose who they let be members. ==
Unless they are doing discrimination I don’t see, the only requirements at my credit union are $6, age 21, proper ID, and a mailing address.
- Dutch - Thursday, Oct 29, 20 @ 4:01 pm:
It’s not a bad idea. I just don’t think it would work very well in practice.
- northside reformer - Thursday, Oct 29, 20 @ 4:06 pm:
credit unions can work if they were able to open in every community. the SOS solution does not solve this problem but their facilities are more ubiquitous than credit unions. postal banking is the best solution, but check cashing and bill payment services are an easy add-on for SOS.
- Odysseus - Thursday, Oct 29, 20 @ 4:36 pm:
“Unless they are doing discrimination I don’t see, the only requirements at my credit union are $6, age 21, proper ID, and a mailing address.”
All credit unions are required by federal law to have some affinity test. That test can take several forms - resident of a geographic area, employment by a corporation, serving in the armed forces, etc but it must be there.
- Jimbo26 - Thursday, Oct 29, 20 @ 4:49 pm:
Postal banking worked well until the big banks wanted all the money that working people had in the Postal Banking system. I remember as a kid (a long time ago) when I had a Postal Savings account. Was a great way to get young people started saving.
- RNUG - Thursday, Oct 29, 20 @ 5:50 pm:
== All credit unions are required by federal law to have some affinity test. ==
That ‘affiliation’ is pretty loose these days … seems you just have to be 6 feet above ground.
- Just Wondering - Thursday, Oct 29, 20 @ 8:03 pm:
==Could offer savings accounts with high interest rates backed by full faith and credit of land of Lincoln==
Or since it’s SOS, more like “full faith and credit of Benigno”