by Jonathan Decker
Recently, Senator Bernie Sanders (I-Vt.) and Representative Alexandria Ocasio-Cortez (D-N.Y.) unveiled a proposal that would cap credit card interest rates at 15 percent. As you probably surmised, enacting a proposal like this into law would be the economic equivalent of bombing the U.S. credit market. Heck, I have a cash-back credit card in my wallet right now with an APR of 19 percent. It’s very possible you have a similar one too. If so, you may want to take note of which 2020 Democratic presidential candidates would quite literally ban it.
In short, enacting price controls on credit card interest rates will result in less credit. If financial institutions are unable to adequately price risk to ensure their own profitability, they will be forced to reduce the availability of their products to consumers. This could manifest itself in the outright elimination of certain credit cards — possibly including my own — or by dramatically raising the standards on which borrowers are creditworthy enough to receive such a card. This means that consumers would be priced out of credit markets.
On this point, Sen. Sanders and Rep. Ocasio-Cortez actually agree with me — that is why their proposal calls for a new lender for those who lose access to credit: the Post Office.
Fox Business reports:
New York Democrat Rep. Alexandria Ocasio-Cortez and Sen. Bernie Sanders are pushing a proposal known as postal banking – a system whereby the Post Office would be authorized to provide financial services.
Some of the proposed services a postal banking system could offer include low-interest loans, checking and savings accounts, debit cards, check cashing, bill payment, ATM services, online banking services and electronic money transfers.
In a report on reforming the Post Office released by the Treasury Department earlier this year, the government came out against a postal banking option.
“Given the USPS’s narrow expertise and capital limitations, expanding into sectors where the USPS does not have a comparative advantage or where balance sheet risk might arise, such as postal banking, should not be pursued,” the report stated.
It’s a bit unclear to me why Democrats think that the organization tasked with delivering mail is somehow uniquely capable of making an excellent bank. The government-run United States Postal Service lost roughly $69 billion between 2007 and 2018, and the Democrats’ solution is “let’s give them more stuff to do”?
Postal banking has so far received support from three Democratic presidential hopefuls: Sanders, Sen. Elizabeth Warren (D-Mass.), and Sen. Kirsten Gillibrand (D-N.Y.).
Notably, all three have also endorsed “Medicare-for-All.” Their economic platforms call for a massive government takeover of healthcare and a massive government takeover of banking services — is there anything they want to leave to the private sector?
While all three tout this idea as something that would liberate people, the reality is the exact opposite. Postal baking would make people dependent on government for the most basic of financial services — and you, the taxpayer, would have to foot the bill for the inevitable malinvestment that results from it.
Having the Post Office act as your credit lender is a terrible idea. You can take it to the bank.