Postal Banking is simply the provision of low-cost, consumer-driven financial services via the Postal Service. Products and services could range from cheque cashing to bill payment to savings accounts to small-dollar loans. Postal Banking will benefit consumers who do not have access to traditional banks as well as those who would prefer a more public option. Every other developed country in the world has postal banking. The expansion of services would also strengthen our public Postal Service. Postal Banking would:
- Serve individuals underserved by traditional banks who turn to the expensive and predatory practices of the ‘Alternative Financial Services’ industry;
- Promote an economy that serves the people, not Wall Street; and
- Strengthen and protect a vibrant public institution mandated to provide universal and affordable service.
Over half of all Americans live in a constant state of economic insecurity, and tens of millions of those Americans lack access to banking services. While lack of access isn’t the root cause of economic insecurity, it exacerbates it, making it very expensive to be poor and hard to get out in front of it.
To cash checks, millions of Americans pay check-cashing stores part of their take-home pay. To pay for emergencies and sometimes just to pay the rent, millions more Americans take out high-interest payday loans from those same businesses. These loans can ruin lives and their impacts fall harder on vulnerable people, from people of color to domestic violence victims.
Despite successful efforts by some states in the early 2000s to end the practice, for the most part payday lenders remain undeterred by weak federal regulations, and easily dodge attempts at state-level limits.
Postal banking is both a radical and simple solution to some of the challenges of economic insecurity. The vision of postal banking put forward by senators Bernie Sanders, Elizabeth Warren and, most recently, Kirsten Gillibrand, is to take basic banking services that were once provided (between 1911 and 1967) at very low cost by the USPS, and add small lending (the risks of which the large federal entity could absorb relatively easily) to give people an alternative to high-interest payday loans.
For University of Georgia law professor Mehrsa Baradaran, author of How the Other Half Banks and The Color of Money: Black Banks and the Racial Wealth Gap, the calculus is simple: Governments offer all kinds of services, including financial bailouts, to the wealthy and their banks. Government should offer similar services to the non-wealthy. Potential beneficiaries include over half of the U.S. population.
Recent interest in Postal Banking increased with the release of a 2014 white paper by the Inspector General of the USPS entitled “Providing Non-Bank Financial Services for the Underserved.” The Executive Summary of the white paper (p. i) argued that “The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector.” The USPS report in turn drew on a 2012-13 series of reports and reform proposals regarding payday lending by the Pew Charitable Trusts.
In September 2020, Senators Kirsten Gillibrand and Bernie Sanders announced their introduction of the Postal Banking Act. This is a bill that would enable the US Postal Service provide a “public option” in some retail banking services.
The text of the Gillibrand-Sanders bill authorizes the US Postal Service to provide:
- ‘low-cost, small-dollar loans, not to exceed $500 at a time,” or $1,000 in total loans over the course of a year (these loan amounts indexed to the CPI-U), at total annual percentage rates, inclusive of fees, that “do not exceed 101 percent of the Treasury 1 month constant maturity rate,” a rate that currently stands at 0.08%;
- “small dollar lending servicing”;
- “small checking accounts and interest bearing savings accounts” up to $20,000 per account, with the savings accounts paying interest rates at or above the FDIC’s “weekly national rate on nonjumbo savings accounts,” an average of rates paid by commercial banks that currently stands at 0.05%;
- “transactional services, including debit cards, automated teller machines, online checking accounts, check-cashing services, automatic bill-pay, mobile banking, or other products”;
- “remittance services” for sending funds to domestic or foreign recipients; and
- “such other basic financial services as the Postal Service determines appropriate.”
The bill and other recent proposals for postal banking seek to provide a consumer-friendly alternative to state-regulated payday lending, and to the check-cashing services presently used by the unbanked. A secondary objective is to turn a profit for the deficit-laden USPS. An economist’s first question of any proposal for a government-sponsored enterprise is naturally: What’s the evidence that the existing market is inefficient? Undeniably, interest rates on payday loans are high relative to interest rates on other loans, but is there reason to think that the higher interest rates aren’t necessary to cover higher loan default rates, leaving payday lenders a normal rate of return?