House Hearing: No Consensus on How to Help Unbanked

Members of a House subcommittee and financial services experts agreed Wednesday that providing financial services to the unbanked should be a high priority for policymakers.

But they did not agree on how to solve the problem.

Several witnesses testifying at a House Consumer Protection and Financial Services Subcommittee hearing called for the federal government to become involved in providing financial services through programs such as public or postal banking.

Republicans and one witness panned those proposals. Congress “should not get involved in providing banking services to consumers,” subcommittee ranking member Rep. Blaine Luetkemeyer, R-Mo. said. He criticized witnesses who had no experience in private business, adding that their lack of knowledge is “breathtaking.” Luetkemeyer’s family owns a community bank.

The subcommittee listed several draft bills that were discussed at the hearing. One of those bills would directly affect credit unions. That bill would allow all federal credit unions to expand their field of membership to include underserved communities, including communities that lack a depository institution branch within ten miles. The bill also would exempt loans made by credit unions to businesses in underserved areas from the member business lending cap.

Mehrsa Baradaren, a law professor at the University of California Irvine School of Law, called on Congress to allow the Postal Service to provide financial services. “A postal savings account made possible through a local postal branch could significantly ease the burden on many families leading to more savings,” she said. She said a transition to postal banking would not require substantial costs or changes to the Postal Service.

“The post office already has the transactional capabilities to deal with cash as well as the back-end security systems in place to transport cash because it sells money orders,” she said. “A simple ATM machine can be placed inside the post office and tellers can offer debit cards or other transactional services through USPS-contracted servicers or in partnership with a bank.”

The Postal Service also could offer small loans at lower interest rates than the payday lenders many people in underserved communities now use, she said.

Deyanira Del Rio, chair of the Lower East Side People’s Federal Credit Union in New York City, called on Congress to create public banks that would partner with Community Development Financial Institutions and other community groups.

She also added that the Consumer Financial Protection Bureau must crack down on predatory overdraft policies. “Regulators have effectively let banks off the hook when it comes to predatory overdraft, by inappropriately categorizing this clearly usurious form of lending as a savings product,” she said.

Ameya Pawar, a fellow at the Open Society Foundation and a senior fellow at the Economic Security Project, also endorsed the idea of public banking. “These banks would be set up as public entities with membership in the Federal Reserve and originate wealth-creating home and business loans,” he said.

John Berlau, a senior fellow at the Competitive Enterprise Institute, suggested that Congress should enact legislation that would allow credit unions to expand their fields of membership to include a variety of underserved areas. “This lifts regulatory barriers to individual credit unions that decide it makes good business sense to add new customers based on their mission of service,” he said.

Credit union trade groups also endorsed that legislation.

Reacting to the testimony, members of the subcommittee were divided along party lines. “I have seen some really bad ideas proposed,” Rep. Barry Loudermilk, R-Ga., said, in discussing the public banking option. “This has to be near the top.”

Rep. Al Green, D-Tx., endorsed the proposal and scoffed at the notion that the witnesses were uninformed because they did not have a business background. “You don’t have to be a banker to serve on the Financial Services Committee,” he said. “Very few of us have been bankers.”

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