Have you ever thought Uncle Sam would make a good lender? Today, 57 percent of Americans say they could not cover an unplanned $500 expense. With a broken bone or a shot ignition system threatening to put many Americans in debt, maybe it’s time we consider our options for improving access to quality loans. If advocates have their way, government-to-consumer, or G2C, lending will join business-to-consumer and peer-to-peer lending as a preferred method for nonprime borrowers to access loans of $1,000 or less.
National security, humanitarian assistance, social services, roads, and bridges are normally what comes to mind when you think of government services. We don’t think of state and federal agencies as financial services institutions, but that’s exactly what Sen. Kirsten Gillibrand, D-N.Y., proposed last month. Her proposal would expand the role of the Post Office to include offering financial services like debit cards, check cashing, and small-dollar loans to everyday people. This sounds like a seismic, out-of-the-box innovation in the relationship between citizens and their government — in reality, Americans have been going to the Bank of Uncle Sam for generations.
Residents in every state from Alabama to Wyoming can access a mortgage, student, farm, business, and myriad other loans under borrowing programs offered by private lenders but guaranteed by the federal or state government. Additionally, these same governments offer direct loans for mortgages, student aid, rural development, and more. More recently, Native American tribal governments have developed internet-based financial services businesses and used the revenues for social, cultural, and infrastructure projects on the reservation.
Historically, such legislation to enable government-to-consumer direct lending, or loan guarantees, is in response to an economic disaster (i.e., the Great Depression), a systematic failure or weakness in the current system (such as inaccessibility of higher education due to cost), or to correct inequalities (for example, disparities in home ownership and mortgage eligibility by race of applicant).
Gillibrand’s postal banking concept, an idea that has also been proposed by Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., is a natural evolution in already well-established government financial services and has the possibility to provide a powerful new economic tool for those who need it.
Opponents insist that government-to-consumer lending is an unproven, big-government takeover of a mature, well-regulated (but disliked by some) industry. However, state, federal, and tribal government-to-consumer direct lending is nothing new. G2C lending has been alive and well since at least 1949 when Title V of the Housing Act of 1949 empowered the Department of Agriculture to offer direct loans for rural housing and farm improvement.
Skeptics are also quick to point out the roadblocks to postal banking that, for now, seem insurmountable:
- A need for bipartisan legislation in our hyperpartisan political reality.
- The complexities of data sharing and systems integration between the USPS, Treasury, Internal Revenue Service, and others.
- The lack of any kind of financial services thought leadership or domain expertise within USPS management.
- The other usual barriers to starting a new business.
The G2C post office lending idea does face some steep barriers, in part because the government is so far behind in this area, where many in the private sector have developed technologies and innovation that have reduced risk and increased efficiency. Still, I believe this is an important opportunity for the private sector to work with the government to improve services to American consumers, not act as a barrier to progress.
Despite the complexities of the USPS expanding their footprint to include nonbank financial services, postal banking could be a natural evolution in G2C lending that will drive down costs and improve access to needed credit for middle America.
Mark E. Curry is a financial technology entrepreneur and philanthropist.
