Banks are no friends of the poor

I have a friend who lives below the poverty line. She and others I know do not use banking services. They can’t afford it. At her job, she receives her weekly pay in cash because she can’t cash a check. One time she lost her pay. This meant it was lost for good. She couldn’t go to her employer and say, “Cancel that check and write another.” It was gone.

I volunteer for Circles of Hope, which works to help people get out of poverty. Every month, we hold a “big view” meeting to consider issues that affect people in poverty. We’ve looked at transportation, housing, health care and employment, among others. One evening, a man spoke about financial services and told people to keep in mind that banks are about making a profit.

 

 

You may say, Of course, they have to make a profit. However, as Mehrsa Baradaran of the University of Georgia School of Law argues in her book How the Other Half Banks, by denying financial services to the poor, banks have broken the social contract that justifies their public charter.

In his article “When the Bank Robs You” (In These Times, November), David Dayen points out that “the average unbanked family spends more on financial transactions than they do on food.”

The Ferguson Commission, convened by Missouri Governor Jay Nixon to identify root causes that led to the social dislocation of racially segregated cities around St. Louis, named banking as one of those causes. “Without a bank or credit union account,” Dayen writes, “simple functions like converting government benefits into cash or converting that cash back into a check to pay bills or securing a small loan in emergencies become exorbitantly expensive.”

Dayen refers to Baradaran’s book, noting that modern banking wouldn’t exist without the state. “Customers freely deposit trillions in banks because of government-backed insurance, and the quasi-public Federal Reserve lends directly to banks at slim interest rates.”

Under the Reagan administration in the 1980s, when deregulation ruled the day, “banks won the argument that they should be treated like any other industry, without a public responsibility,” Dayen writes.

With this profit motive in mind, and with the blessing of the government, banks abandoned poor areas because the poor don’t make profitable customers. “Between 2008 and 2013,” Dayen writes, “banks shuttered nearly 2,000 branches.” Of these, 93 percent were in postal codes with incomes below the national median.

Baradaran recounts the history of this kind of behavior. One 19th-century Chicago banker even said his firm levels “a prohibitory charge upon all accounts which average less than $300 for the express purpose of driving them away.”

Most attempts to bring the poor financial services have failed. Even credit unions are today more likely to serve upper- and middle-income customers, and community banks have been overwhelmed by mega-bank consolidation.

What to do? Baradaran notes that from 1911 to 1967, the post office offered savings accounts, attracting millions. She calls it “the most successful experiment in financial inclusion in the United States” and thinks we should restart it.

A USPS bank would not only reduce inequality, writes Dayen, “it would shore up the Postal Service’s finances and sustain post-office employment as a middle-class career.”

It would also eliminate predatory payday lenders and check-cashing operators, “interested only in skimming a hefty take for providing financial services the middle and upper classes take for granted.

The Bible denounces usury, lending money at exorbitant interest rates and preying on the poor. We need banks that provide public, not just profitable, service.