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“There are still people who need the money in the short term,” Warren said in an interview. “The question is, is it possible to design something and give people access to small loans without getting them into the payday lending trap? “
So-called payday lenders offer short-term loans, often under $ 1,000, with high fees and huge interest rates, which critics say catches borrowers in a negative debt cycle. . But for some of the 12 million Americans who take out these loans each year, they are the only option to pay for expenses like car repairs or unforeseen medical bills.
The plan to push the Postal Service into business, an idea Warren supported in a recent opinion piece for the Huffington Post, faces grim chances in a deeply polarized Congress. Representative Elijah E. Cummings, a Democrat from Maryland, has introduced legislation to move the proposal forward, but banks and Republicans in Congress are expected to oppose it. Senator Bernie Sanders, an independent who caucuses with Democrats, also supports the concept.
Payday lenders, who say their business has been unfairly slandered, argue the Postal Service should follow the same rules as private businesses.
Industry representatives say they provide valuable services to millions of struggling Americans who have few credit options and are on the margins of the traditional banking system.
“We’ve heard a lot of criticism from some consumer groups, but we don’t hear viable alternatives for this underserved community,” said Peter Barden, spokesperson for the Online Lenders Alliance, a business group.
In 15 states, including Massachusetts, payday loans are banned or price caps are low enough to effectively prohibit payday loans.
Consumer advocates see it as a predatory business, arguing that high fees hamper loan repayment on time. As a result, borrowers are forced to renew their loan or take out an additional one.
On average, they spend $ 520 on finance charges on loans averaging $ 375, according to the Safe Small-Dollar Loans Research Project of Pew Charitable Trusts.
“Most borrowers can’t stand this,” said Nick Bourke, project manager.
The industry has recently come under scrutiny from the Consumer Financial Protection Bureau, which Warren played a key role in creating after the financial crisis. In November, the federal agency took its first enforcement action against a payday loan company, forcing Cash America to pay $ 19 million to settle charges it broke loan laws and hampered an investigation. .
A report by the Inspector General of Postal Services suggested that the government agency could allow consumers to borrow up to 50% of their salary at an annual interest rate equivalent to 28%, a fraction of the rates at three. current figures in payday loans.
This addition, combined with the offer of other financial services, could serve about a quarter of Americans who do not have a bank account or need more affordable access to credit. More than 90 percent of bank branches closed since 2008 are in low-income areas.
The changes could generate $ 8.9 billion in annual revenue for the cash-strapped Postal Service, which loses billions of dollars each year. Agency officials are still evaluating the proposal, Postal Services spokeswoman Toni DeLancey said.
Industry representatives said they would welcome further competition in the market, provided the agency abides by the same rules.
“We wholeheartedly support this idea as long as they exercise the same level of regulatory oversight as those of us operating in the competitive regulated market,” said Jamie Fulmer, senior vice president of public affairs at Advance America, a consumer loan company.
But some representatives of the bank doubt that the postal service is able to take charge of financial services.
“What’s next? Asking Amtrak to get into the lending business?” Said Richard Hunt, managing director of the Consumer Bankers Association.
From 1911 to 1967, post offices allowed consumers to make savings deposits, but ended the practice when banks began offering higher interest rates. Today, the agency provides warrants.
The payday loan industry is pushing for a federal charter to be followed by lenders, as the business increasingly moves to the internet and crosses state borders, leading to a patchwork of loan regulations . They say this framework could help identify fraudulent companies, while giving others the ability to create more flexible financial products.
“People prefer to go online instead of standing in line,” said Mary Jackson, senior vice president of corporate affairs for Cash America.
On the other side, there is an effort to curb payday lenders, led by Senators Jeff Merkley of Oregon, Tom Udall of New Mexico, Richard Durbin of Illinois and Richard Blumenthal of Connecticut, all Democrats. .
This legislation, which Warren signed on to last year, would require all lenders, including banks, to follow state rules for the small payday-type loans they offer to customers.
“This would level the playing field for a wide range of financial service providers and ensure consistent and meaningful protections,” said Tom Feltner, director of financial services at the Consumer Federation of America.
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