62 Emory L.J. 483 (2013).

Originally Uploaded at SSRN.


The United States currently has two banking systems — one for the rich, one for the poor. It wasn’t always this way. Throughout U.S. history, the government has enlisted certain banking institutions to serve the needs of the poor and offer low cost credit to enable low-income Americans to escape poverty. Credit unions, savings and loans and Morris Banks are three prominent examples of government-supported institutions with a specific focus of helping the poor. Unfortunately, these institutions are no longer fulfilling their missions and high-cost, usurious, and sometimes predatory check-cashers and payday lenders have quickly filled the void. These fringe banks do not provide the poor with useful credit and further bury them in debt.

This article tracks the neglected history of government sponsored institutions designed to offer credit to the poor and explains how each abandoned its initial purpose. In doing so, the article highlights the shifts in modern banking that rapidly increased competition among banks and caused homogenization in form. Alternative banking institutions could not survive deregulation and were forced to assimilate and operate like mainstream banks with heightened profits as their sole objective. The poor were the victims.

This article proposes to re-establish government-sponsored banks to serve the poor. Options include redesigning existing government measures as well as a novel proposal to use the existing postal service branches to offer low-cost, short-term credit to the poor. Such proposals have strong historic roots and could allow millions of low-income Americans the opportunity to escape poverty.