The U.S. House Financial Services Subcommittee on Consumer Protection and Financial Institutions considered proposed legislation to expand access to financial services for underserved communities.
In the hearing, titled "Banking the Unbanked: Exploring Private and Public Efforts to Expand Access to the Financial System," the Subcommittee reviewed:
- H.R. ____, the "Public Banking Act of 2021," which would (i) establish a public banking incubator program that would facilitate the creation of new public banks through grants and technical assistance, (ii) enable public banks to be members of the Federal Reserve System and clarify that they have access to the Federal Reserve's payment systems and FDIC deposit insurance and (iii) create new Federal Reserve liquidity and credit facilities to assist new public banks and their communities;
- H.R. ____, the "Access to No-Fee Accounts Act," which would require, among other things, that the Federal Reserve make available to individuals and small businesses no-fee digital transaction accounts that have no minimum balance requirements. Such accounts would be available at Federal Reserve System member banks, other participating banks and credit unions, and bank offices of the U.S. Postal Service (the "Post Office"); and
- H.R. ____, the "Expanding Financial Access for Underserved Communities Act," which would (i) enable all federal credit unions to expand their membership field to include underserved communities by applying to the National Credit Union Administration and (ii) exempt from the credit union member business lending cap loans made by credit unions to businesses in underserved communities.
The Subcommittee heard testimony from:
- Mehrsa Baradaran, Professor of Law, University of California Irvine School of Law, who advocated for delegating lending responsibility to the Post Office because it (i) does not have a profitmaking primary motive, and so is not incentivized to take advantage of customers for private gain, (ii) can inherently reduce the cost of lending through the use of its large and existing network of branches, and (iii) already has an "ongoing relationship of trust" with underbanked communities. Ms. Baradaran emphasized that a public banking option can take a variety of forms and can potentially resolve existing inequalities in banking;
- Deyanira Del Rio, Co-Executive Director, New Economy Project, who argued that (i) inequalities in access to banking are longstanding and systemic, and require systemic solutions, (ii) financial inclusion requires equitable and full access to financial services, not "alternative" products that fortify the "two-tiered financial system," and (iii) public banks and community development financial institutions must strategize to expand fair banking access;
- Ameya Pawar, Senior Fellow, Economic Security Project, and Fellow, Open Society Foundations, who expressed support for the Public Banking Act and the Access to No-Fee Accounts Act, explaining that they would aid in developing trust between the underbanked and the financial system through affordable and reliable banking services;
- David Rothstein, Senior Principal, Cities for Financial Empowerment Fund, who pointed to the success of the Fund's "Bank On" initiative, which he leads, as an indication that the banking system does not need to be fundamentally modified in order to increase access to fair banking; and
- John Berlau, Senior Fellow, Competitive Enterprise Institute, who asserted that the government should avoid "heavy-handed" regulation or the development of state-owned financial services entities that may "smother or crowd out" private banking innovation.
Commentary Steven Lofchie
Given that the Post Office is reportedly losing $36 million a day and has massive pension obligations, a strong argument can be made that the Post Office does not have a profit-making motive. The link between delivering mail and running a bank is less obvious, beyond the fact that both services may take place out of a building.
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