In pursuit of a fairer and more equitable economic system, The Peoples’ Union proposes a comprehensive approach to addressing critical issues in the financial sector. These reforms aim to empower citizens and prevent financial exploitation. By addressing credit card interest rates, passing an updated Glass-Steagall Act, strengthening government accountability, and enhancing oversight of the Federal Reserve, we can prioritize the financial well-being of all citizens and promote a fair and sustainable economy.
Banking Industry Subsidies
The Peoples’ Union is concerned about taxpayer dollars being used to subsidize the banking industry. We question whether these subsidies are being used to expand opportunity for average Americans or are used to inflate profits. A recent Congressional Budget Office Report on government subsidies directed to the Federal Home Loan Banks (FHLB) system confirms our concerns. As a government sponsored enterprise, the FHLB industry is supposed to provide public benefits such as “helping meet unmet credit needs, facilitating financial products for underserved groups, and supporting community development” (Consumer Federation of America, 2024). In 2023, the industry received $7.3 billion in federal subsidies and continued to receive tax exemptions. The CBO report found that subsidies were largely being used to inflate profits rather than increase housing opportunities for average Americans.
Sharon Cornelissen, chair of the Coalition of Federal Home Loan Bank Reform and the Director of Housing at the Consumer Federation of America, explained, “The bulk of these billions in public funds subsidize corporate profits rather than Americans’ ability to afford a house. Consumers deserve much more from the FHLBanks, especially as we find ourselves in the middle of a national affordable housing crisis.”
Consumer Federation of America, 2024
An additional federal subsidy goes to member banks of the Federal Reserve System. These subsidies are “in the form of a 6 percent dividend, paid on stock that over 2,900 banks purchase to participate in the Federal Reserve system” (Dayen, 2014). In 2023, these subsidies totaled $1.637 billion in tax-free (generally) dividends to banks (Board of Governors of the Federal Reserve System, 2024). Because these dividends are tax-free, some argue that these subsidies are an over-generous handout from the government to private banks.
Credit Card Costs
Credit card annual percentage rates (APR), which is interest on the balance of unpaid credit card charges, have increased exponentially over the past decade. The high cost of credit cards is a result of lenders increasing interest rates beyond the prime rate (benchmark interest set by banks). According to the Consumer Financial Protection Bureau, “Even consumers with the highest credit scores are incurring higher costs.” The Peoples’ Union advocates for reigning in credit card interest rates through tighter regulations that prohibit charging more than 5% APR above the prime interest rate at any given time.
Glass-Steagall Act
The Great Depression demonstrated that when banks mix commercial and investment business under one roof, banks can become unstable when the stock market crashes. The Glass-Steagall Act of 1933 prohibited banks from using more than 10% of commercial funds for investment banking activities. The goal was to keep these bank functions separate so that consumers’ accounts were not wiped out by investment banking failures. The Act was repealed during the Clinton Administration. Some argue that the Act’s repeal contributed to the existence of banks that were “too big to fail,” during the Great Recession.
While the Glass-Steagall Act had become outdated since it was enacted in 1933, we believe an updated version should be adopted and implemented. Senator Elizabeth Warren has proposed a 21st century Glass-Steagall Act which would prohibit consumer lending banks from engaging in a variety of high-risk investment activities that did not exist in 1933, including “complex derivatives and swaps.” (see legislation fact sheet). The revised Act would also separate consumer lending from traditional investment activities.
Federal Reserve Bank
We also believe that the Federal Reserve Bank needs more oversight. We propose granting the Government Accountability Office (GAO) the authority to vote on and approve major decisions made by the Federal Reserve, ensuring that these decisions align with the best interests of the public. Additionally, establishing a committee of non-partisan economic experts to counsel the GAO on matters such as rate hikes and monetary policy will contribute to responsible decision-making. This increased transparency and accountability will foster greater confidence from the people in our financial institutions and ensure they operate in a manner that benefits all.