On the Road to Postal Banking
By Andrew Gibson
More than a quarter of all Americans are considered financially underserved because they lack access to traditional financial institutions. This is often a result of one’s geographic location or low income. In order to access their finances and make bill payments, these underserved Americans are frequently forced to rely upon alternative financial services like money transfers, check cashing services and payday loans. These businesses frequently prey on the financially underserved by including large fees, high interest rates and forced arbitration clauses with their products.
Companies should not have free rein to exploit low-income Americans by trapping them into a vicious cycle of debt. Accordingly, Public Citizen has signed on to the Campaign for Postal Banking with others like the American Postal Workers Union and Americans for Financial Reform to advocate for expanding the non-banking financial services offered by the U.S. Postal Service.
According to a 2014 report from the U.S. Postal Service Office of Inspector General (OIG), an independent oversight agency within the USPS, more than 68 million adults in the United States rely on services like payday loans, check cashing, and prepaid debit cards to access their earnings and pay bills. Using these services cost Americans over $89 billion in 2012 on interest rates and fees alone. This $89 billion averages out to about $2,412 for the typical underserved household – each of which earned an average of only $25,500 annually. This means that financially underserved families spend approximately 9.5 percent of their yearly income on these added costs, a percentage of which is similar to the amount of their income that the average American family spends on food in a given year.
The U.S. Postal Service (USPS) already provides limited financial services such as issuing money orders, cashing Treasury checks and selling prepaid American Express debit cards. Further, in fulfilling its duty to provide reliable nationwide mail delivery, the Postal Service has office locations in the most remote and rural locations in our nation, places where traditional financial services are rarely found. A second white paper report on Postal Banking was released by the OIG in May 2015. The report, “Examining the Road Ahead for Postal Financial Services,” suggests that these characteristics would allow the Postal Service to expand on the financial services it already provides in order to supply consumers with a more affordable, accessible and financially sustainable choice in alternative financial services.
The main findings of the report suggest that by expanding services such as check cashing to include standard cashier’s checks as well as pay stubs, establishing an online domestic money transfer operation between offices, extending the scope of its international money transfers and by providing low-fee ATMs inside their offices, the Postal Service could not only provide accessible financial opportunities to the underbanked but also bolster the agency’s finances. Little upfront costs would be needed since postal workers are already trained on anti-money laundering compliance, the Bank Secrecy Act and the required knowledge to provide their existing services every year. Moreover, the USPS already owns the brick and mortar locations as well as the technological infrastructure needed to make the idea a reality. By instituting the expanded services mentioned above, the OIG reported that the Postal Service could generate $1.1 billion in new revenue over five years.
While the timeline is optimistic, requiring all these expanded services to be adopted during the first year, the U.S. Postal Service should embrace this new opportunity to better serve the quarter of Americans who remain overpaying and underbanked. Having the Postal Service provide financial services is by no means a novel concept. Postal Financial Services are offered in other countries such as Israel, South Korea, Ireland, and Germany. In fact, from 1911 to 1967 under the Postal Savings System the U.S. Postal Service once provided more comprehensive banking services. Expanding postal financial services is a common sense solution to assist the most financially exploited segment of our society.
Though the most recent OIG report was an important first step, it took a very conservative view of the products the USPS might be able to provide and we are calling for the agency to look at new products as well as just expanded existing products. Therefore, it was disappointing to see the U.S. Postal Service’s statement in response to the May OIG white paper report. In it, the USPS, which operates independently from its watchdog, the Office of Inspector General, suggested it was reluctant to expand the existing financial services that post offices provide. Much of its short statement attempted to discount the overly optimistic financial claims of the OIG’s report on the revenue effects of these services. However, this is not the true intention of the postal banking proposal, as large fees and other revenue generating mechanisms would go against the mission of providing affordable financial services to the underbanked and the larger economic impact that it should have for those families.
By expanding existing financial services, the Postal Service could deliver low-cost and accessible financial opportunities to the millions of American families in need. This proposal would not only benefit the consumers who lack access to traditional banks and increase their financial stability, but it would also ensure that strength and integrity of our nation’s postal service is preserved.
Find out more about the Campaign for Postal Banking here.
Andrew Gibson is an intern with Public Citizen’s Congress Watch division