Why Banking at the Post Office Could Be a Better Option Than Payday Loans鈥攁nd Wall Street
New York City post office. Photo by
Why you can trust us
The U.S. post office on Martin Luther King, Jr. Blvd. is a bastion on its Harlem block. Entrenched beside a pawnshop, a cash-for-gold business, and a commercial bank many in the neighborhood are unable to use, the facility is essentially a fortress. Complete with heavy brick walls, steel screens, vaults, ATMs, and armored trucks, the premises evoke one word: Security. If you鈥檝e followed , they also suggest a second word: Bank.
Post offices are built like banks.
And that鈥檚 just one reason why postal banking, a hot idea in economic policy debates, is viable. Physical and operational structures already exist that could help USPS offer basic financial services: prepaid debit cards, mobile transactions, new check cashing services, savings accounts, and even simple, small-dollar loans.
鈥淭here鈥檚 a post office every five blocks in Manhattan鈥攖here鈥檚 accessibility in every zip code,鈥� explained Frankie Wright, 32, a USPS Supervisor of Customer Services in East Harlem. 鈥淥n an operational level, we鈥檙e already capable.鈥�
The idea, popularized by journalist听 and law professor , would create听a public option for credit and help insulate Main Street in the likely event of another financial crisis.
For example, a borrower without access to a commercial bank might typically accept a small loan at an unreasonably high interest rate from a payday lender. If a postal banking system were in place, that customer could instead walk into the local USPS branch and take out a simple loan as a government-provided public service. Due to the restricted nature of postal banking, customers鈥� access to funds would be comparatively safe from vultures and the whirlwinds of the broader, deeper financial system.
Although the idea seems new here and now, a successful U.S. Postal Saving System already existed from 1911-1967, and similar schemes operate overseas today, including in Germany, Japan, Switzerland, and the UK.
Though the proposal is not without its critics, there are surprisingly few legal and political hurdles to implementation. Senator Elizabeth Warren recently penned a in earnest support, and just three weeks ago, she joined the Pew Charitable Trusts for a conference in Washington, D.C., where speakers debated common concerns: Postal banking advocates deplored the struggles of the financially insecure, while opponents expressed skepticism regarding the operational capacity of USPS to offer financial services, and questioned the effects of those new services on the federal budget.
It’s expensive to be poor
In the U.S, 38 percent of the population鈥�88 million people鈥攅ither have no bank accounts (the 鈥渦nbanked鈥�) or are at least partially dependent upon high-cost services like payday lending (the 鈥渦nderbanked鈥�). These households pay dearly for basics.
In 2012, the income for the average underbanked household was about $25,500, but it spent an average of nearly $2,500 solely on interest and fees for alternative financial services (AFS) like payday lending. That鈥檚 almost 10 percent of their annual income鈥攁bout as much as they spent on food.
Unbanked and underbanked people are a mix of working and middle-class families, students, the unemployed, and others living paycheck-to-paycheck. Yet financial exclusion is disproportionately rampant among people of color and immigrants, and especially women within those groups. According to the , published in September 2012, more than half of African-American households were either unbanked or underbanked, with similar numbers for Hispanic and unmarried, female-led households.
There are many reasons for this maldistribution鈥攎ost of them structural and . Regardless, the disparate impact of financial insecurity is unacceptable. Former Harlem resident and public banking advocate Alexander Hamilton such an exclusive system. Providing broad access to money and credit is why the government charters, insures, and regulates financial institutions .
The brick-and-mortar network
鈥淧eople have faith in the post office,鈥� said Wright. 鈥淯SPS is a structured, silent organization. We operate discreetly. Every stamp, every dollar is accounted for. People know this.鈥�
Wright, who started as a letter carrier at 20 and now works in management, has expertise in distribution, delivery, and labor relations鈥攁nd he鈥檚 overwhelmingly supportive of postal banking and confident USPS can make the transition. 鈥淲e鈥檝e handled the invention of email and the shift from letters to parcels. We can handle this.鈥�
USPS is the country鈥檚 most federal agency and one of the institutions of any kind when it comes to privacy. As Wright mentioned, much of USPS management, as well as its lawyers and regulators, insist the country鈥檚 second-largest employer can and should provide basic financial services.
Post offices proliferate in the United States including in “banking deserts” like much of rural Montana. More than 3.5 million Americans live more than 10 miles from the nearest bank branch. Source: The Pew Charitable Trusts “” (2014).
Indeed, the USPS Inspector General has written a white paper detailing steps for implementation. The American Postal Workers Union (AFL-CIO) is also supportive. At the Pew conference, representative Phil Tabbita argued USPS is well-suited to the task. USPS employees are already trained to handle simple financial transactions in the form of money orders and remittances. Conservatives like Rep. Darrell Issa (R-Calif.) might that the workforce鈥攁 quarter of whom are military veterans鈥攚ill suddenly become utterly incompetent if saddled with an expanded job description. But these cries often stem from a poorly disguised鈥攁nd poorly informed鈥攁nti-labor ideology.
Deficit hysteria
There is rampant misunderstanding regarding the laws and accounting that would govern postal banking.听Opponents claim that new financial services would financially tank USPS and subsequently create an unsustainable fiscal burden for the federal government.
But these concerns don鈥檛 add up. First of all, the post office is not directly funded by tax revenues. The Postal Reorganization Act of 1970 has legally forced USPS to become self-sufficient, to generate its revenue from its own services, whatever draconian cuts Congress has since imposed. Furthermore, the analysis by the Inspector General suggests USPS itself is likely to turn a profit off of new financial services through modest fees and interest.
If preventing Main Street from falling into the flames along with Wall Street is indeed a national concern, then a stable postal banking system could be our best defense.
Even so, regardless of the post office鈥檚 own financial situation, the federal government’s balance sheet does not include USPS assets and liabilities. Indeed, the separation is so complete that there鈥檚 a mandating USPS set aside money today for all future retiree health benefits鈥攚ithout subsidy from the Treasury. This unique burden, which is , is the chief cause of USPS鈥� financial woes.
Even if USPS finances were included in the broader federal budget鈥攁s they arguably should be鈥擠eficit Hawk policies like the pre-funding requirement would make even less sense. As , like former Deputy Treasury Secretary Frank Newman, , asking a federal agency directly funded by the U.S. government to save for a far distant future, is like forcing us to wear sweaters in July so we can store warmth for January. Uncle Sam can always create money out of thin air, subject only to inflationary constraints; .
Of all the services USPS could offer, small-dollar loans have come under the most scrutiny. Yet they deserve the least concern from the perspective of U.S. government fiscal sustainability. Opponents like Issa have whipped up public skepticism by conjuring an image of hard-working taxpayers 鈥渟ubsidizing鈥� lending for the poor. In this scenario, postal goblins would hoard tax revenues in a vault and dish it out to poor people, who would presumably never pay it back, sending the country hurtling toward the apocalypse.
Issa鈥檚 statements at the Pew conference reveal ignorance about how bank lending works in the modern era. When you go to a bank and ask for a loan, the banker does not check the bank鈥檚 deposits or reserves before she lends you money.
As have observed for decades and the Bank of England , financial institutions do not lend pre-existing funds at all, but instead create 鈥渕oney鈥� out of thin air as they lend. When you receive a loan, the bank also places your funds in an account, simultaneously expanding both the asset and liability sides of its own balance sheet. That鈥檚 how banking works.
As such, as long as postal banks are granted the same legal license as private banks鈥攏otably access to the federal discount window and interbank lending鈥攖he financial stability of postal lending would not depend on some hoarded of taxpayer money.
The fire next time
When the next financial crisis hits, a postal bank might need a bailout鈥攂ut it鈥檚 less horrifying than your typical private bank bailout.
During the last crisis, arguments were made that Wall Street firms had to be rescued in order to save Main Street. If preventing Main Street from falling into the flames along with Wall Street is indeed a national concern, then a stable postal banking system鈥攁 safe place for most people鈥檚 money鈥攃ould be our best defense.
Although some advocate for a public-private partnership with existing commercial banks, postal banks could instead become an integral piece of a new financial architecture insulating the public and Main Street businesses from the storms of high finance.
For example, imagine the economy busts and people start to lose their jobs. The Federal Reserve could directly credit post office accounts, either with flat transfers, or preferably wages for . This policy would inject money into Main Street and stabilize prices and wages.
And if you don鈥檛 like that idea, as even conservative commentator Reihan Salam at The National Review has recognized, a strong postal banking system could eliminate the need for federal deposit insurance and create more room for the private financial sector to innovate as it pleases. As a corollary, if trauma to Main Street could be avoided via the postal banking system, the case for bailing out Wall Street would lose steam.
To put it bluntly, there鈥檚 a strong case for the more affluent clients of commercial banks and the broader public to go their separate ways.
Fighting for basic security
Some progressives and populists might prefer a policy more cooperative or decentralized, but this is the immediately viable alternative to the status quo. The U.S. Conference of Mayors just endorsed the idea and Rep. Cedric Richmond (D鈥揕a.) just in the House of Representatives. Although Postmaster General Donahoe is against postal banking, many of his workers, managers, union leaders, regulators, and lawyers support it.
And soon the Postmaster鈥檚 endorsement won鈥檛 matter. President Obama is on the USPS Board of Governors: There are now 4 Democrats and 4 Republicans and the remaining seat will likely go to a Democrat鈥攁t which point the Board can override the Postmaster General.
There might be a confrontation in the courts, but under the Supreme Court ruling in Chevron v. NRDC, agencies are granted wide latitude to interpret their governing statutes. So USPS would likely survive a challenge to providing basic financial services.
Postal banking should be part of every social justice rallying cry. According to the Pew survey results, 31 percent of the unbanked said they would open an account at their local branch. Eighty-one percent of the underbanked said they would use USPS to cash checks, 79 percent percent to pay bills, and 71 percent would choose postal loans over payday loans. That鈥檚 71 percent who could pay for food, childcare, and transportation instead of exorbitant fees on small loans.
These numbers are monumental and they reveal a widespread desire for a public option for basic financial services.
听
While most Americans say it doesnt matter to them whether the post office offers alternative financial services the ones who would use them could avoid high-interest services like payday lending. Source: Pew Charitable Trusts.
USPS has a duty of public service and can at least be held more accountable than potential servicers like , which has been moving into the AFS market. Instead of bringing megastores and megabanks to communities lacking credit, we could be asking the federal government to do its job and provide economic security and opportunity.
It鈥檚 time to push the envelope.
Inspiration in Your Inbox
Sign up to receive email updates from 精东影业
