6 ideas
Banks operate on public subsidy: deposit insurance, central bank lending and implicit bailout guarantees lower their funding costs and absorb their risks. Because the state underwrites the industry, it has a legitimate claim to require that banks serve the whole public, not only profitable customers.
Historically, banks accepted restrictions and a duty to serve their communities in exchange for government protection. Deregulation from the 1970s onward kept the protections but dropped the obligations. Banks were then free to chase high-margin products and exit low-income neighbourhoods while still enjoying the safety net.
People excluded from mainstream banks pay steep fees to fringe lenders simply to cash cheques, pay bills and bridge small shortfalls. Payday loans carry effective annual rates of several hundred percent. Poverty is therefore not only a lack of money but a surcharge on every financial transaction, and that surcharge drains the income of those with least.
Payday lenders and cheque cashers are not a market failure or a sign of borrower irrationality. They are the predictable result of mainstream banks exiting small-dollar credit because it is unprofitable at regulated prices. Asking why the poor use predatory lenders misses the point; the useful question is who withdrew the alternatives and why.
From 1911 to 1967 the U.S. Post Office offered savings accounts, reaching immigrants and rural people who distrusted or lacked access to banks. Its deposits peaked around World War II.
Post offices already exist in nearly every community, carry public trust and do not need to maximise profit. They can therefore offer basic accounts, cheque cashing and small loans at near cost. Many countries run postal banks, and a U.S. version would compete directly with payday lenders on price rather than relying on regulation to tame them.