Behind the smoke and mirrors, a bank is just a legal box that has a public charter allowing it to privately do the public work of money creation. As Robert Hockett and Saule Omarova once described on this very website, “a modern financial system is best modeled as a public-private franchise arrangement” where “[t]he franchisor is the sovereign public,” “[t]he franchised good is the monetized full faith and credit of the sovereign—its ‘money,’” and “franchisees are those private sector institutions that are licensed by the public to dispense, in the form of spendable credit, the franchised good”—that is, banks. Accordingly, as much as the banking sector may also be a conduit for making certain people wealthy and providing the rest of us free pens, its most basic function as a body of government franchisees is to advance a public benefit through the work of money creation.
But what are these public franchisees actually providing for us, the public, and not just for Jamie Dimon and his friends? The bankers are cashing in on this public franchise to the tune of $300 billion of profit a year; what are we getting in return? And what does the banking system mean for someone who doesn’t already have thousands of dollars in their accounts? Does it actually promote opportunity, or does it just help solidify the increasingly K-shaped nature of our economy?
The fact of the banking sector having an underlying public mission means that it should be something that substantively works for working people. It means at the very least that folks should be able to keep their money at a bank without having to endure endless junk fees, contractual traps, and hidden risks; get a loan that actually helps them buy the car they need to get to work and secure the mortgage that truly allows them to reach their dream of homeownership; and expect meaningful access to the credit that might one day allow them to send their kid to college or start their own small business.
If banks cannot deliver those basic services, it is not obvious how they can possibly be delivering public benefits in their role as public franchisees. And if our franchisees have already failed on this front, we need to say so—and we need to realize how overdue we are for a profound rethink of the relationship between the private work of banking and the public project of money creation.
The Banking Sector is a Predatory Mess
Unfortunately, the banking sector’s recent record in the “public benefit” sphere has been essentially disastrous, underscoring how badly progressives need to reset the conversation around who the banking sector is really for and what we should expect from it. Consider what the banking sector has been up to in recent years.
For one, it has been failing in its basic mission of broadly delivering publicly beneficial products and services. Right now, many of the most basic banking services are becoming more expensive, riskier, and harder to access for working people. Research from the Financial Health Network, for example, indicates that the cost of merely “participating in the financial system” has increased by almost 25 percent ($100 billion) over two years to reach $455 billion in annual interest and fees, with the greatest expenses falling on low-income people and people of color. Under the hood, that means Americans who are just trying to get a bank account are spending more than ever before on harmful overdraft and insufficient funds fees, grappling with rising ticky-tack costs such as account maintenance fees, and more—all because they don’t already have enough money to avoid those charges. The same dynamic is present in the credit card space—the “cash cow[]” of banking—where the amount consumers are paying in interest and fees on their cards is now higher than “ever recorded.”
Rather than question whether it should view every instance of consumers needing liquidity or income-smoothing as a chance to gouge people, the credit card industry has recently been busy promoting products like medical debt credit cards that can turn health problems into financial disaster, and competing mainly on how to deliver optimal rewards experiences to superprime borrowers. Worse, in markets that banks have generally abandoned—such as subprime auto lending—consumers have been left to navigate a dark world of specialty creditors well-versed in predatory tricks and extractive conduct.
Taken together, these trends point to a situation where struggling consumers are forced to choose between bank offerings of declining quality on one hand and even riskier options outside of the banking perimeter on the other. That status quo is a far cry from the banking sector’s supposed promise of broad-reaching public benefits.
Second, adding insult to injury, the banking sector has recently been busy sub-leasing its franchised public function to scammers. In particular, certain banks have made a massive business out of so-called “rent-a-bank” deals, where an online lender pays a bank in a state without meaningful usury laws (that is, interest rate caps) to “make” a loan on the lender’s behalf. That way, the online lender can purportedly get around usury laws in other states, including ones with strong usury protections.
The products these shady deals produce are startling. In one example, a company was caught pushing online loans at “up to 189% APR” for people to use to buy puppies. Behind that scheme was Utah-based TAB Bank, whom the online company paid off so that it could make loans to borrowers in states where that 189 percent APR “is illegal.” In another case, online companies were caught partnering with Missouri-chartered Lead Bank to push so-called “rent now, pay later” loans onto people who can’t afford their rent. The industry claims that rent now, pay later loans are a way to spread out the cost of housing, but a Protect Borrowers investigation showed how those loans can carry fees equivalent to an APR above 180 percent, involve a range of illegal tactics, and make eviction more likely.
Those two examples are only the tip of the iceberg. Consumer advocates have uncovered predatory installment loans at triple-digit interest rates that make basic goods more expensive, risky subprime private student loans that make the promise of education more illusory, employer-backed payday loans (including ones targeting kids) that reinforce wage stagnation, and more—all powered by rent-a-bank deals.
This conduct is not just a question of bad apples in the banking industry—it is the cynical work of banks, their lobbyists, and their friends in more permissive states to attempt an end-run around consumer protections. Some states have recently been fighting back against rent-a-bank arrangements, but they cannot solve the problem alone.
Third, banks have been throwing small businesses to the wolves. In particular, while small businesses have long struggled under the weight of unfair competition, recent years have seen banks systematically abandon small businesses as financial consolidation has encouraged lenders to particularize their focus onto larger business clientele. The results are stark, with a recent Federal Reserve Bank of St. Louis report noting that a decline in small business lending has left nearly 60 percent of small businesses with unmet financing needs. By one statistic, as much as 42 percent of small business financing now comes from non-bank lenders, up from only 25 percent as recently as 2018.
The mom-and-pop shops that are the backbone of the American economy have instead had to turn to things like “Merchant Cash Advance” (MCA) loans (better known as “payday loans for businesses”) to meet basic financial needs. MCA loans involve both sky-high interest rates and a substantial risk of subsequent, causally related bankruptcy—and they are sometimes themselves facilitated by banks. Worse, the rise in MCA loans has only accelerated as the effects of President Trump’s disastrous trade war have reverberated through the economy.
Last, but certainly not least, the banking industry has been waging war on basic consumer protections. Banks have always fought against accountability, but the extent to which they have used parts of the $300 billion franchise we have given them to assist in the Trump-era battle against consumer safety has been striking. First, banks donated cumulative millions of dollars to Trump’s inaugural fund, handouts that conveniently coincided with the dismissal of pending enforcement actions. Then, once the new admin was in office, bank industry groups heightened calls for the new electeds to “right size” the Consumer Financial Protection Bureau (CFPB), America’s key watchdog in the consumer the financial marketplace.
Those industry groups appear to have fished more than they could have possibly wished for—the CFPB is now a “zombie regulator” whose staff has been emphatically sidelined. Worse, the bank lobby has both cheered and offered supportive input as the few politicals who have been allowed to continue actually working at the CFPB have unilaterally dismantled remaining safeguards and attacked core protections.
Public reports estimate that the Trumps’ deregulatory spree has helped the six largest banks add $600 billion in market value in 2025. For the public, however, the results of an atrophied consumer protection apparatus are increasingly disastrous. Again, it is not clear what relationship this conduct could possibly have to the advancement of the public good.
Making Banking Work for Working People
Part of what’s going on in the examples above is that the core lever American policymakers have used to address social problems for the last century has been, in so many words, to throw credit at them. On issues ranging from homeownership to higher education access and beyond, the dominant paradigm in D.C. has been to meet any problem with an ever-more-baroque lending facility. Policymakers have deployed that catch-all “solution” regardless of what the choice to use it and the loans it has subsequently involved have actually looked like for working people.
Against that backdrop, it makes sense that the banking system might perceive of itself—however incorrectly—as meeting its fundamentally public mission by pushing yet more expensive and even predatory credit as the scope of Americans’ financial precarity has risen. It’s no wonder that our franchisees at the banks and their advocates regularly put out materials praising the purportedly key societal value of their often hugely risky and expensive offerings.
At a certain point, though, it becomes necessary for the rest of us to acknowledge that this set of policy choices has been a terrible bet for American households and a driver of inequality. The issue here is not just that we refuse to invest in public goods and assume on ideological grounds that consumer debt can fill the breach, though it certainly is that. The issue is that we have failed to successfully articulate a set of progressive principles around what we expect the banking sector to do for us.
To be sure, folks in progressive circles have floated a variety of big rethinks or changes to the banking system, from the possible advent of postal banking to the introduction of deposit accounts at the Fed, and even to bank-adjacent applications (in this very blog!) of crypto. The point of this post is not to settle that debate. Rather, it is to encourage it to be even broader. We don’t just need low-fee prepaid cards at the Post Office, though they would certainly be important. We also need to identify and say out loud that a system that is already supposed to be working for us simply isn’t, and to build toward solutions that cut to the core of that failure.
A big rethink along those lines should involve asking whether the panoply of public benefits we collectively offer banks (deposit insurance, charters, master accounts at the Fed, and discount window access, to name a few) should be preconditioned on a commensurate set of obligations to substantively meet public needs. Those obligations should include, at the very least, making affordable accounts and credit broadly available—and refraining from breaking the law. Under that new paradigm, there would need to be a real threat that privileges could be revoked if banks fail to meet their end of the bargain, whether they are running away from meaningfully provisioning credit to the public or diverting scarce resources toward enabling predatory products.
In the meantime, regulators should be taking a hard look at opportunities—of which there are already many—to apply existing banking laws against anti-social behavior. And in the long run, if private incentives around credit intermediation prove unable to advance the public interest, we will need to ask why we would continue choosing to rely on the private market in the first place.
As much as industry might attempt to obfuscate the truth, progressives should never forget that the fundamental core of the banking system is the public’s choice to delegate money-creation to private actors. If we are going to stick with that choice, we have to decide its terms.
