US Post Office Could Soon Begin Offering Banking Services

Inside Subprime: Aug 15, 2018

By Ben Moore

A survey conducted in 2015 by the Federal Deposit Insurance Corporation found that only 26.9 percent of American households have no bank and rely on “non-banking” institutions for any financial needs. When looking specifically at black and Hispanic communities, these numbers more than quadruple compared to white Americans. These non-banking households spend approximately $2,400 a year (which equates to 10 percent of their annual income) on interest and fees for financial services that the rest of the country gets for free through their bank.

New York Senator Kirsten Gillibrand (D) recently proposed new legislation that would enable the United States Postal Service to offer some of these financial services, such as savings accounts and short-term loans. Although this concept is new to the modern age, back in the early 1900s the Taft administration passed legislation which created a “postal savings system.” The intention was to improve trust in private banks across the country and also assist immigrants with investment opportunities.

At the system’s peak in 1947, the bank had $3.4 billion in deposits. After World War II, Americans began moving their accounts out of the post office and eventually the system was ended by Congress in 1966. Since then, financial inequality has increased and services from payday lenders and check cashing businesses have grown in popularity as overdraft fees, limited loan opportunities, and bank closures also increased. Now, under the Trump administration, payday lenders are thriving and low-income Americans are paying up to 400 percent interest on short-term loans.

In fact, Americans now spend $9 billion a year in payday loan fees, with payday lenders being two times as likely to target African American and Latino neighborhoods. Gillibrand believes the payday loan industry is purposefully preying on low-income Americans and sees the post office banking opportunity as a way to “end predatory lending nationwide” while also providing “low-cost, basic financial services to all Americans.”

A major upside to the post office providing banking services is the fact that, unlike banks, post offices are required to serve areas typically deemed unprofitable, meaning the infrastructure is already in place to provide provide immediate access to these services nationwide. Over 40 percent of zip codes in the US lack a bank or credit union but do have a post office. USPS has been willing to discuss the bill and is “open to any new service [that] would generate revenue” according to Postmaster General Megan Brennan, but the bill has not yet been fully endorsed. It has already been estimated that the bill could generate more almost $10 billion in revenue for the USPS.

The major obstacle blocking the bill passing is currently Congress, as Congress has been notoriously difficult with any bills relating to the agency. The Republican party has also started to come out against the legislation, and there are rumors that Trump will try to privatize the post office, which could make any banking services the agency provides just as predatory as payday lenders. Gillibrand hopes that the 2020 election could place more Democrats in Congress and push forward what could be a monumental bill for low-income Americans.

Learn more about the dangers of payday loans in the United States in all of our Subprime Reports.