For much of the 20th century, the United States Postal Service had a role that would surprise many Americans today: financial services. The USPS offered savings accounts between 1911 and 1967, until low enrollment forced them to shutter that service.
Adapting that service to fit today’s needs, the USPS could help millions of “unbanked” and “underbanked” American households access banking services.
As of 2017, approximately 6.5% of households in the U.S., totaling more than eight million, don’t have an account open at an insured bank, according to the Federal Deposit Insurance Corporation. An additional 24.2 million households utilize non-traditional financial services that often make them vulnerable to usurious lending rates.
Without the loans and services afforded by traditional banking, these Americans are forced into using alternative financial services that expose them to predatory loans and aggressive fees. One of the most common of these services, payday loans, offer people short-term loans on the promise that they will be repaid after receiving a paycheck.
These loans come with an average annual percentage interest rate of almost 400%. That, rate, though, can reach as high as 700% in states with fewer regulations.
When people are forced to delay the repayment of these loans, the amount they owe quickly adds up. Many then take out new loans to repay the original one, forcing them into a never-ending cycle of debt.
As a $30 billion industry, payday loan companies wield great influence on Capitol Hill, and while the Trump administration has gutted the protections in place for borrowers, this influence extends to Democrats, as well.
After receiving more than $68,000 in contributions from the payday loan industry, Rep. Debbie Wasserman-Schultz, D-Fla., the former Democratic National Committee chairwoman, sought to delay the implementation of Obama-era rules designed to protect lenders.
These rules centered on forcing payday loan companies to ensure that borrowers had the means to repay loans upon receiving their paychecks. Their implementation would have shuttered many payday loan centers and struck a blow at the industry.
The real challenge today, though, is coming from President Donald Trump.
In the wake of the 2008 financial crisis, the Consumer Financial Protection Bureau was established to do as its name suggests — protect consumers in the finance industry. But the bureau has been all but gutted under the Trump administration.
Its former director Mick Mulvaney went as far as to request a zero-dollar-budget for the bureau last year, and pursued an exhaustive legal effort to scrap the implementation of the Obama-era rules.
An alternative to extensive regulation of the payday loan industry is offering consumers another way of receiving necessary cash advances without falling into a cycle of debt.
Sen. Kirsten Gillibrand, D-N.Y., a 2020 presidential candidate, unveiled a plan last summer that would allow post offices to take the place of payday loan centers in addition to offering checking and savings accounts.
The USPS has 59% of its locations in zip codes that have one or fewer banks, according to a 2011 government report. This could help people to overcome a geographic boundary.
More important, though, is the financial barrier to securing traditional banking services.
Traditional bank accounts are often out of reach for many low-income Americans due to the fees that banks impose on low-balance accounts or accounts without direct deposits from employers.
When these underbanked Americans are forced to pay bills, they often have to use money orders or online services that also charge fees.
Americans utilizing alternative forms of credit spend nearly 10% of their salaries on fees alone. For a family making the average salary of $25,500 in 2012, those fees average out to $2,412.
Gillibrand’s proposal would give Americans access to low-cost accounts through the USPS that would allow them to build savings. Additionally, these Americans would have access to small, short-term loans in the case of emergencies. The money saved from fees would be spent elsewhere in the local economy.
This plan also allows the USPS to gain revenue in the face of rapidly declining use of its postal services.
In countries that implemented it, postal banking became their second-strongest form of revenue behind mail delivery. In the U.S., its implementation could bring in an additional $8.9 billion each year for the USPS, according to the Office of the Inspector General.
Large banks don’t reach out to low-income Americans because they aren’t seen as valuable customers. Post banking could offer us a way of protecting vulnerable unbanked Americans while also revitalizing the USPS.
Christopher Murdy PO ’22 is an intended international relations major from Lido Beach, New York. Agree? Disagree? Email him at christopher.murdy@pomona.edu.
Facebook Comments