Banking the Un-Banked

At a recent event, Senator Elizabeth Warren described postal banking as a triple win for the government, public and postal service. For the public it could be an essential new route to provide basic banking services to rural areas and inner cities.

One in four households are estimated to be underbanked – with high proportions of those under the age of 25 and in black or Hispanic communities. Basic banking services like ATM access, check-cashing, and small-scale lending could save these underbanked households $2,412 each year.

The underbanked are also most vulnerable to the practices of predatory financial service providers – nearly half of Americans would have to borrow money should they have a financial emergency that cost over $400. That’s the equivalent of an emergency room visit or a car accident. This has led to fringe lenders in the U.S. outnumbering McDonalds and Starbucks.

The poorest American families have been faced with exacerbated charges on their earned income while the majority of bank closures happen in the areas they live, the areas that are the most in need.

Even community banks and (in some cases) credit unions, which once existed to serve the underbanked, can be bogged down with account fees and the cost of staying open that make it impossible for lower income clients to continue banking there.

Postal banking is a rational solution to the many problems faced by the chronically underbanked, according to the book How the Other Half Banks, by Mehrsa Baradaran, who also spoke at the event.

Post offices could provide check-cashing services, bill payment services, reloadable debit cards, as well as small-scale lending and savings accounts with little barrier for entry, according to a 2014 whitepaper released by the Inspector General’s Office at the United States Postal Service.

The post office is a trusted, existing figure in most communities, and they already provide financial services in the form of transfers and money orders. USPS would incur no additional overhead costs in order to provide egalitarian financial services in existing locations, while post offices have the unique luxury of lacking shareholders and working exclusively in the public interest.

By providing a nonprofit alternative, consumers would no longer be forced to choose between Wall Street-backed big banks and high-interest, high-risk alternatives like payday lending or check-cashing.

The government has a social contract with the public to work in the best interests of the economy and the tax payers.

The time is ripe for the government to ensure democratic banking access.

Keira Thompson is the online advocacy organizer for Public Citizen’s Congress Watch division.

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