Update 275 – Bank to the Future or Going Postal? S. 2755 and Postal Banking’s Promise and Pitfalls
Last month, Sen. Kirsten Gillibrand introduced S. 2755, the Postal Banking Act. The bill would establish retail banking services at every U.S. post office and authorize the U.S. Postal Service (USPS) to offer checking and savings accounts, small-dollar loans, debit cards, cash withdrawals and money transfer services in each of its roughly 30,000 offices.
The idea is not unheard of. Below we look at the history, the proposal, and the promises and pitfalls of postal banking.
In 1910, President William Howard Taft introduced a postal-savings system for new immigrants and the poor that lasted until 1967. The idea of postal banking has been revived by several recent events.
The USPS Inspector General (IG) published a report in 2014 in response to its $2.7 billion deficit on how the USPS would implement postal banking policies to address the funding crisis. The report found that if the USPS implemented postal banking, it could generate $9 billion in profit. Sen. Warren has been a long time advocate of postal banking since the 2014 report and lauded many of the benefits of postal banking. Then Sen. Sanders brought postal banking back to the forefront with Sen. Warren during the 2016 primary campaign.
The endorsements of progressive stars Sens. Warren and Sanders led to an explosion of popular support, but neither has introduced legislation. While there is progressive support and Senators have shown interest in postal banking, S. 2755 is the first legislative step taken to implement the practice since 2014.
S. 2755 — Benefits Told and Untold
- Serving lower income and rural communities
Due to a lack of access to high quality financial institutions, many Americans take out high interest, high-cost alternative financial products, totaling up to $100 billion a year. This costs the average underserved household 10 percent ($2,412) of their gross income in fees and interest. Postal banking would allow more than 80 million lower-income Americans without bank accounts to access essential financial tools and be safeguarded from predatory lenders.
The USPS’s 30,000 office locations would house the retail arm of the bank because they are located in every community. These locations exist in banking deserts. 38 percent are in zip codes with zero banks and 21 percent are in zip codes with only one bank branch. Providing access will help Americans generate savings, wealth and credit, while bringing millions of households into the banking system.
- Eliminating the USPS funding crisis
President Trump recently gave a speech blaming Amazon for the USPS funding crisis. Nevertheless, Congress is the entity most responsible for the funding crisis facing the USPS. This funding crisis has plagued the USPS since the Bush administration passed the Postal Accountability and Enhancement Act of 2006 (PAEA). The USPS has reported losses every year since 2007, losing $2.7 billion in 2017 alone. This can be attributed to the provision in PAEA that requires the Postal Service to prefund its retirees’ health benefits up to 2056. Costing $5 billion per year, this is a requirement that no other entity, private or public, has to make. According to the 2014 IG’s report, postal banking would generate $9 billion in profit annually, effectively eliminating the funding crisis the USPS faces.
- Payday Lending
The main focus of S. 2755 is to fight payday lending. S. 2755 would implement smaller short term loans as a public option. 12 million people spend a total of $7 billion a year on short term, smaller loans known as payday loans. These loans average $375 initially with an additional $520 (138%) in fees and interest. Payday lenders have been known to charge interest rates in excess of 300 percent. The USPS has estimated that they could provide the same loan for less than 30 percent in interest rates. S. 2755 would set the interest rates around 10 percent.
Payday lending may be a trickier legislative fix than the first two benefits provided by the bill. There would be underwriting issues that would have to be solved and the interest rate would have to be debated. Implementing small dollar loans into postal banking, however, would decrease predatory payday lending and increase the number of low income Americans who have access to loans they can pay back, improving credit scores.
Why the Idea Hasn’t Been (Re-)taken up
It should come as no surprise there are opponents to incorporating financial services into USPS operations. The Citizens Against Government Waste has been vocal, publishing a letter arguing the Postal Service should not be trusted to manage money, pointing to it surpassing its statutory debt limit and $120 billion unfunded liability. Consisting of anti-government conservatives, the Republican Party is unlikely to warm up to an idea like S. 2755 anytime soon. The bill is something to watch for down the road after Democrats regain power in upcoming elections.
Expanding Access to Financial Institutions
S. 2755 would assist millions outside of the banking system who are vulnerable to predatory lenders and other risks, especially those living in rural areas. Many of these people have been denied access to financial institutions simply because of their location.
Although access to financial institutions has not been regarded as a fundamental right in the past, this bill attempts to frame it that way and poses the question: why haven’t we regarded it that way before? And why isn’t access to financial institutions a fundamental right?