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59 percent of post offices are in ZIP codes with one or no bank branches.
This story is part of the Prospect’s series on how the next president can make progress without new legislation. Read all of our Day One Agenda articles here.
Nearly every Democratic presidential candidate promises to address growing economic inequality and increase financial stability for American families. From the $15 minimum wage pushed by Bernie Sanders to Elizabeth Warren’s universal child care plan to Kamala Harris’s significant expansion of working-class tax credits to Cory Booker’s baby bonds, lots of big ideas have been floated to put more money into the pockets of those who need it most.
What these plans overlook is a quick and easy way to accomplish what they want, without further congressional action: Use the power of the White House to kick-start postal banking across the country, offering financial inclusion to those who are currently shut out of the mainstream system. “Access to basic banking and financial services is part of basic economic security,” noted Mark Paul, assistant economics professor at New College of Florida, who has written about postal banking.
More than one in five Americans relies, at least in part, on institutions outside of traditional banks. Six percent of Americans have no bank account at all—including 14 percent of black people and 11 percent of Hispanics—and another 16 percent are “underbanked,” meaning they have a bank account but also turn to nontraditional services. Families that make less than $40,000 a year are far more likely to fall into these categories than those who earn more.
That pushes them toward predatory operators: payday lenders who give borrowers fast cash for interest rates that can amount to more than a 600 percent APR, for example, or check cashers who exchange quick money for checks for a fee. In 2018, two-fifths of the unbanked, who have no bank accounts, turned to these alternative financial services. They charge outrageous prices, costing customers about $89 billion in interest and fees in 2012.
Meanwhile, traditional banks are closing up shop. They shuttered over 6,000 branches between 2008 and 2016. Those losses created 86 new “banking deserts,” populated areas with no banks within ten miles. The problem is disproportionately afflicting majority-black neighborhoods and low-income ones.
Tens of millions of Americans can’t access broadband internet to do their banking and need to visit a storefront for basic transactions. In too many areas, there’s no bank to serve them. But there is “a brick-and-mortar post office in every single ZIP code across this country,” Mark Paul pointed out. And, importantly, 59 percent of post offices are in ZIP codes with one or no bank branches. “The basic idea of postal banking is to intervene in this broken marketplace,” Paul explained.
Postal banking could also help support the post office. Despite revenue increasing last year, it still has $13.2 billion in debt and a net loss for the year of $3.9 billion. The crisis, which was mostly manufactured by 2006 congressional legislation forcing the agency to prefund its retiree health benefits 75 years out, could be eased by new revenues from expanded financial services. “Even lending out money at rates far below those offered by payday lenders, the post office would indeed be able to secure a significant revenue stream,” Paul said. In other countries, after letter mail, financial services represent the biggest driver of revenue for postal services, accounting for 14.5 percent of revenue in developed countries in 2012.
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“It’s good for the people of the country and it’s good for the post office,” said Mark Dimondstein, president of the American Postal Workers Union. “The post office has a mission of binding the country together, and certainly this does that.”
Perhaps the best news is that some of this could be accomplished without getting Congress involved. In a report published in 2014, the U.S. Postal Service Office of Inspector General noted that the 2006 Postal Accountability and Enhancement Act mostly prohibits the postal service from offering new, non-mail services. “However, given that the Postal Service is already providing money orders and other types of non-bank financial services, it could explore additional options within its existing authority,” the report states.
The postal service also agreed to a contract with the APWU in 2016 that included memoranda of understanding that established a joint task force to consider opportunities to increase revenue, including expanding financial services, requiring at least one pilot program to be launched within a year. The APWU even selected three potential host cities—Baltimore, Cleveland, and the Bronx, New York—as sites for the pilots. But they have yet to occur.
Action could easily be goaded along by whoever occupies the White House. The U.S. Postal Service is run by the postmaster general, which a Board of Governors appointed by the president and approved by the Senate appoints. “A new president could just fill that board with directors who are friendly to [postal banking] and then … say to the postmaster general, ‘This is what we want,’” said Mehrsa Baradaran, law professor at the University of California-Irvine, who has also written extensively about postal banking.
The major holdup at the moment is the current postmaster general, Megan Brennan. “She’s focused on cutting costs as opposed to starting new things,” Baradaran said. But the postmaster general serves at the request of the Board of Governors, which could easily ditch Brennan if their desires for postal banking are not met.
The USPS inspector general at the time of the 2014 report promoting postal banking, David Williams, is actually the current vice chair of the Board of Governors. So that’s at least one member in support. Currently, only five of the nine board slots are filled. Four new pro–postal banking members plus Williams would give the board a majority for pilot programs almost immediately, and the muscle to get them implemented.
Even funding is available to test out the process. Congressman Bill Pascrell (D-NJ) successfully passed a bipartisan amendment in the Fiscal Year 2020 Financial Services and General Government appropriations bill allocating $1 million to establish a postal banking bill. The appropriations package passed the House of Representatives but is awaiting action in the Senate.
The U.S. has already tried out postal banking before. Between 1911 and 1967, the post office offered a place to deposit savings. For some time it was very popular, peaking in 1947 at four million customers and nearly $3.4 billion in deposits. It’s “an all-American idea,” Paul said.
Other countries do it to this day: 51 postal services had 1.6 billion savings and deposit accounts as of 2010. According to a Universal Postal Union report, after banks, postal services are “the second biggest worldwide contributor to financial inclusion.”
The 2014 USPS OIG report argued that the post office could most easily start offering payment services, such as bill and e-commerce payments, electronic money orders, and person-to-person money transfers not unlike Venmo. It could market a reloadable prepaid debit card that would allow people to load their paychecks or other money onto it and then withdraw cash, pay bills, and exchange money. The report also notes that the cards could be used to send or receive tax refunds or payments and other government debts. The post office could partner with a bank to offer interest-bearing savings vehicles tied to their cards.
This would be relatively simple for the post office to implement. It already issues more than $20 billion in money orders every year, sells international money orders to nine Latin American locations through the “Dinero Seguro” program, and cashes U.S. Treasury checks. So it has the infrastructure to handle money ready to go. Postal banking might require expanding that infrastructure and adding software, but it would be building on an existing platform, not creating one from scratch.
The APWU and its Campaign for Postal Banking wants to see pilot program sites in both rural and urban areas with these types of basic services. “Based on those pilot programs, make an assessment of what worked and what didn’t work and then how to spread it,” Dimondstein said. “Really the obstacle is the political will and the operational will of the post office to try some new things.”
The OIG report also argued that the post office could offer small personal loans, stepping into the breach to offer a nonpredatory service to people who currently have to turn to payday lenders or even pawnshops for fast cash. These could be delivered at less than one-tenth the fees charged for a typical payday loan of similar size, the report claims, while still affording a small profit for the post office. If the next president wants to ban payday lending and limit interest rates on consumer loans, providing an alternative would be critical, as access to emergency credit remains desperately needed.
A postal banking regime under existing authority probably could not deliver these types of loans, not without legislative approval. But debit card and online bill-pay accounts that simulate most of the features of basic banking, without the potentially high fees or data brokering of private-sector options (postal banking would fall under the Privacy Act of 1974, which governs the use of government data collection and would likely prohibit selling financial information) would provide a strong start. If a Democratic president got smaller pilot projects off the ground, it could lift the larger project, creating demand to increase the offerings nationwide. “You can start out helping low-income people, then if it succeeds expand to help everybody,” said Baradaran. “The next step, the home run, would be a public option in banking.”
Advocates like Paul and Baradaran would like to see a full suite of offerings at the post office, including checking and savings accounts, debit cards, and no-fee ATMs. Eventually, a true public-banking option could compete with traditional banks. It wouldn’t just be for the poor, either. “I can think of plenty of middle-income folks that really hate their bank,” Paul noted. Look only to the continuing exposures of Wells Fargo’s efforts to cheat its customers. A postal banking option could draw people away and pressure traditional banks to change their practices.
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Proving the concept of a service that is widely used globally and was once in place domestically would reap benefits beyond financial inclusion, Baradaran explained.
“I think there’s been, starting in the Reagan era, this idea that the government does everything badly and the private market can do everything better,” she said. “The post office has a very democratic and egalitarian mission at its heart. Allowing the post office to show that, I think, would be a good way of allowing for more things like that in the future.”
Candidate Spotlight
Several candidates have endorsed the concept of a postal banking system, including ELIZABETH WARREN (since back in February 2014), BERNIE SANDERS (since back in March 2014), ANDREW YANG, BETO O’ROURKE, and JOE SESTAK Joe Sestak. Yang’s statement does not suggest that he would support the creation of post office banks through the Postal Service’s existing authority. Sestak did express support for a pilot program. Sanders and Warren appear to be more determined to make this a reality. On his website and in a statement to the Prospect, Sanders stated that “the Postal Board of Governors and Postmaster General must work with postal workers and unions to provide banking services.” He even cited the APWU’s collective bargaining agreement. Warren has taken this a bit further. In 2018, she met with Postmaster General Megan Brennan, urging her to honor the APWU agreement and initiate pilot postal banking programs. “I firmly believe current law permits the USPS to expand the financial services it offers,” Warren wrote in response to our questionnaire. There’s little doubt that Sanders and Warren will work to get postal banking done; most of the other major candidates in the race have said little to nothing about it.
