Reviews | It’s high time for postal banking

USPS has a public service mandate to provide a similar level of service to communities across the country, regardless of local economic conditions. In addition to daily mail delivery to remote locations, the Postal Service maintains post offices even in low-income urban neighborhoods and small towns that lack other basic services. The postal service is able to fulfill its mission while maintaining low postal rates due to economies of scale.

Once the fixed costs of post and delivery offices are covered, the additional cost of new services is often minimal. If not prevented from doing so, the Postal Service could take advantage of underutilized capacity and build on Americans’ confidence in the Postal Service to deliver new services to the public while providing the necessary revenue. at the agency. But first we must abandon a regulatory framework that protects private sector competitors to the detriment of consumers.

The most talked about expansion idea is a revival of postal banking, although advocates have offered everything from home delivery of perishable groceries to wellness checks for seniors. Until the discontinuation of postal banking services in 1967, La Poste charged a modest fee for administering basic savings accounts, in partnership with private banks that paid interest to account holders in exchange for loanable funds. . As Senator Sherrod Brown (D-Ohio) proposed, an updated postal banking system could be combined with broader government efforts to modernize the monetary system.

Once the fixed costs of post and delivery offices are covered, the additional cost of new services is often minimal.

While a growing number of Americans have moved away from using cash in favor of debit or credit cards and paying bills online, many more face barriers in accessing a modern payment system. These obstacles include the “deserts” of bank branches, minimum balance requirements and privacy concerns. As a result, low-income Americans in particular – disproportionately people of color – often end up paying high fees just to access and protect their own funds and perform simple financial transactions, many remaining entirely “unbanked.” The average person who uses paycheck lenders and other alternative financial services pays around $ 3,000 in fees and interest per year, but even households with bank accounts often have to pay hefty fees for basic services.

Maintaining a secure monetary system that serves as a store of value, a system of accounts and a medium of exchange is a government service par excellence, as fundamental as defense against military attacks. But the government has given up as the private sector has trespassed, most noticeably with cryptocurrencies, but also by charging high fees for ATMs, check cashing and similar services. These service fees – and “trap” fees like overdraft fees – represent a growing share of banking income and contribute to underserved communities’ mistrust of banks.

Many fees and penalties could be avoided with fast and secure electronic payments and the ability to check the availability of funds. The big banks already have a private system in place for real-time transactions between them, but community banks and households are waiting for the Federal Reserve to put in place a public system, a process that has been maddeningly slow. With that system in place, the next step is to create secure accounts for anyone who wants them, such as the toll-free accounts accessible through the Postal Service and Community Banks offered by Senator Brown.

As with other neglected infrastructure, deferred investment in a digital payment system is costly, as evidenced by recent challenges in securing COVID relief payments for many households. In addition to contributing to household financial stress, such delays can affect the timing and effectiveness of stimulus efforts. Other government transfers, such as the child tax credit, are also better managed through periodic electronic payments than through paper checks or annual tax returns.

A postal banking bill co-sponsored by Senators Kirsten Gillibrand (D-New York) and Bernie Sanders (I-Vermont) is more narrowly focused on the postal service than Senator Brown’s bill and includes small loans to compete with high cost lenders. This would require congressional action because a 2006 law restricts the postal service to financial and other services similar to those it already offers. To work around this restriction and address any concerns about the Postal Service’s loan underwriting capacity, some Postal Banking advocates, including Senator Elizabeth Warren (D-Massachusetts) and former USPS Inspector General David Williams , suggested that the postal service partner with credit unions and community banks who could offer competitively priced loans and other banking services in more communities if they did not bear the cost of opening new ones. branches. As Warren said, “This is just an opportunity for the post office to use its space and use its people more efficiently to provide the services needed by more Americans.”

The Postal Service recently took small steps in the direction of postal banking, converting paychecks and other business checks to single-use debit cards at four locations as part of a pilot program launched in September. While not a substitute for a bank account, low-cost check cashing can help undocumented immigrants, people with no fixed address, and others who are suspicious or unable to open bank accounts to avoid points. selling at high costs. Since the Postal Service already offers limited collection of government checks and sells generic gift cards, the pilot project is an extension of existing services and does not require congressional approval to expand to other branches. .

In its current form, however, postal banking looks set to collapse. This is not only because there are too few locations and services offered to capture the public’s attention, but because the conditions are not even competitive with those of Walmart, which has a control limit. higher and lower fees.

The union representing postal clerks is working to resolve this issue, but there are legal, regulatory and institutional barriers to expanding financial services beyond check cashing, bill payment, wire transfers. and ATMs. Even if Congress rescinds provisions in the 2006 act that limit the menu of services offered by the postal service, the Postal Regulatory Commission must approve services and prices, and it tends to interpret its mandate as protecting competitors from the USPS for what it considers unfair competition rather than focusing on what is best for consumers.

Meanwhile scandal-ridden Post Minister Louis DeJoy remains at the helm, intending to downsize the postal service by outsourcing work and downsizing, to the benefit of his former employer and other special interests. . President Biden, who backs postal banking, has the option of appointing members to the Postal Services Board of Governors before December who could form a majority to fire DeJoy. But he hasn’t announced his choices for the posts, and incumbent Ron Bloom, a shameless supporter of DeJoy and its controversial downturns, may well be re-appointed.

Postal banking is closer to becoming a reality than it has been in half a century. Despite DeJoy’s blatant mismanagement, the Postal Service remains one of America’s most popular and trusted institutions, lauded by Republicans and Democrats equally. We need to build on that trust – and the underutilized postal capacity – to deliver more of the services Americans need and want. It is worth the Congress and administration seriously considering how to remove the obstacles to this effort.

About Alexander Estrada

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