Adam Levitin of the Credit Slips blog has written an intriguing post on aiding the unbanked via government-sponsored prepaid cards, an idea floated by Steve Randy Waldman a few months back.
I think there’s a case that since the private market is not providing low-cost access to basic financial services for LTMI consumers that government competition in that market is a reasonable policy response. A low-intensity form of postal banking through prepaid cards could be a way to bank the unbanked.
The government already transfers a variety of welfare benefits to consumers using prepaid debit–SNAP benefits (foodstamps), Social Security, state benefit programs, etc. But these programs are just using prepaid cards as a means of transferring funds to consumers. They could be leveraged to achieve a broader goal of providing LTMI consumers with no-or-low-cost access to basic financial services like payments and safe-keeping of funds. For this to work, entitlement programs would have to be combined with a reloadable, prepaid government-sponsored debit card.
I didn’t like the public option in the president’s health reform proposal. I was far more amenable to a well-designed public reinsurance plan, as proposed by Harold Luft. But a public option for prepaid debit might be a reasonable, cost-saving idea.
Here’s one conceptual approach: Mitch Daniels has advanced the idea that government should work to increase the net disposable income of households. That implies focusing on tax restraint, delivering value for money in public services, and seeing to it that transfer to the poor aren’t wasted. When astroturf groups pop up to oppose the expansion of Walmart and other chain retailers in urban neighborhoods, they’re not just attacking the interests of Walmart shareholders and low to moderate income households that could use the lower prices. They’re also working against the taxpayers who transfer resources to low income households to keep those households out of poverty. The dollars skimmed by higher cost retailers were meant to make it easier for poor households to channel resources towards economic advancement.
I certainly don’t have a settled view on this. But I do wonder if a “public option” on prepaid debit is preferable to a command-and-control ban on payday lending, to name just one example of an anti-usury initiative.