On Wednesday, April 25, Senator Kirsten Gillibrand (D-NY) unveiled her plan for a set of financial services that she has proposed be provided at US Postal Service branches across the country. Gillibrand’s Postal Service Act would have the 30,000 USPS branches offer checking accounts, savings accounts, and small loans to Americans who can’t afford to take part in today’s financial services industry.
In case that’s not exactly registering, yes, if this bill passes, our post offices would start offering financial services. Intrigued? So are we…
One of the most interesting things about this bill is it has arisen without a push by a major corporate lobby. The banking industry is a trillion dollar industry that lobbies the US government with tremendous weight, yet this bill has little to do with them. Senator Gillibrand’s bill is specifically focused on the 34 million (yes…million) American households that are not part of the traditional banking system because they were deemed undesirable customers by banks like JP Morgan Chase and Wells Fargo.
Of these households, 74% overwhelmingly depend upon payday lenders and check cashers, another huge financial lobby, to pay their bills. These financial service providers that some call predatory, commonly charge clients up to 400% interest. According to the Pew Charitable Trust, a borrower who takes out a $375 loan from a payday lender is typically charged an additional $520 in interest and fees. We’ll be watching closely to see if this lobby raises it’s voice in opposition at some point down the line – a likely outcome.
In fact, seeing as how the 27% of US households that this bill will benefit are too poor to afford banking services, this bill seems to be drafted solely for the benefit of a group of Americans who have an underrepresented voice in the political realm. And it’s, for this reason, we find the Senator’s bill most notable.
But there are other aspects that make this bill well-conceived and an exemplar of the type of policy-making we should all want to see from our elected officials:
- THE NEED: 34 million American households have zero or minimal access to modern financial services, and thus, also have limited political influence in our country.
- INSTITUTIONAL SUPPORT: The USPS’s Inspector General already conducted a favorable report and analysis of postal banking in 2014, highlighting the feasibility and benefits of such a program. Support from career employees who have considerable management and on-the-ground experience in the departments that will be impacted is a hallmark of good policy. A bill is easy, but implementation is hard. Knowing that there is support from within the USPS is a good indicator that a policy like this can be implemented well. Check out the Inspector General’s findings:
- SUCCESS CASES: According to the United Nations, 183 nations offer at least some financial services through their postal services, and 87 of them provide checking and savings accounts. These countries include Britain, New Zealand, Japan, and China. Additionally, 13 nations provide small and short-term loans through their postal services. Check out the UN’s report.
- PRECEDENT: The United States did, in fact, start offering postal banking a century ago. Americans were offered banking services at post offices under the Taft Administration. These services lasted for over five decades but fell out of use and was discontinued because of the higher interest rates available at consumer banks under the Johnson Administration in the 1960s.
- OVERLAPPING GEOGRAPHY: 59% of the postal systems’ 30,000 location are located in “banking deserts” or zip code that have one or zero bank branches.
- ANCILLARY BENEFITS: This proposal could also have significant benefits from America’s postal service. According to reporting by HuffPo: “A postal banking system could be a major boon to the financially strained Postal Service. If even 10 percent of the money Americans currently spend on interest and fees for risky financial products went toward postal banking loans that cost 90 percent less, the Postal Service would gain almost $9 billion in annual revenue, according to a 2014 study conducted by the Postal Service Inspector General.”
At LawMaker, we think this is an incredibly interesting bill that not only needs more exposure, but should be used as an example of well-conceived policymaking by elected officials and voters alike.
While it has the potential for substantial benefits, this idea will likely not be universally supported. The largest likely opponent to the bill will be the payday lending lobby, which could lose customers should cheaper bank accounts and lower interest loans enter the market. Records show that this lobby has contributed nearly $14 million dollars to members of congress in the past 8 years, which means they will likely be an opposition force to be reckoned with. Without a corporate lobby in support of a bill like this, and the likelihood for corporate lobby opposition, a bill like this requires voter support to receive the proper debate and analysis to lead it to implementation.
We want to know what you think. Do you think the US Postal Service should once again offer banking services to low-income Americans? What do you think about this policy?