Americans deserve immediate access to money in their accounts

Tuesday, Sept. 24, 2019 | 2 a.m.

Imagine depositing your paycheck in the bank one morning, then going back in the afternoon to withdraw cash for necessities only to be told your funds weren’t available.

Inconceivable?

Not for many lower-income Americans, who often face days-long delays in obtaining their money due to a major shortcoming in the nation’s banking system.

The culprit is the lack of a universal real-time payments system, a structure that essentially allows account holders to make payments as a credit push while their deposits are being processed.

Without a universal RTP system, Americans who live paycheck to paycheck often have to wait up to three days to withdraw their deposited funds. As Brookings Institution economics expert Aaron Klein told a Las Vegas audience last week, that delay can lead to overdraft fees, late charges for bill payments and other severe repercussions for those depositors. It also pushes those Americans to payday lenders and fee-based check-cashing businesses, which provide emergency funds but often with high interest rates and fees.

At every level, Klein points out, lower-income Americans are hit with charges not faced by those who can afford to keep a cushion of funds in their accounts. The numbers are staggering: Banks impose $35 billion in overdraft fees annually, there’s $24 billion in payday lending, and check-cashing is a $7 billion industry.

“This delay in our payment system is a large driver of income inequality because people without money are paying an inordinately large amount of money for access to their own money,” Klein said in an interview with the Sun.

Worse yet, there’s no legitimate reason for the delay. The technology is readily available, and other industrialized nations adopted RTP systems long ago — Japan did it in 1973, Korea in 2001, Mexico in 2004, England in 2008, etc. Even the European Union created an RTP system, which was a remarkable achievement given the complexities of its multinational banking system.

American banking leaders and lawmakers have been discussing the creation of an RTP system for years, but have made inadequate progress. Several large banks have adopted a privatized system that, while solving the immediate problem of account holders’ access to funds, operates on fees.

Meanwhile, under congressional pressure, the Federal Reserve has announced that it will launch a universal RTP system in four or five years.

But that’s unacceptable. There’s no need to wait that long.

The right approach is for congressional lawmakers to approve a new bill that would make funds immediately available while the Fed works on its system.

It’s that simple. As Klein persuasively argues, the banks could either use the existing privatized system or, better yet, could simply front account holders their money while deposits are being processed. To guard against fraud, he notes that the approach of fronting money would apply only to bank customers whose accounts have been active for at least six months, and then only up to $5,000 of a deposit.

Either way, it gives working-class Americans access to their money, which they deserve.

We trust that Southern Nevada’s congressional delegates will get on board with the Payment Modernization Act of 2019, as it’s known in the Senate, and its companion bill in the House.