With little fanfare, the Postal Service is trying an experiment that could be a life-changer for low-income Americans without a bank account. At selected post offices, consumers can cash their paychecks and get up to $500 on a Visa gift card.
The concept is called "postal banking" and it's been a favorite theme of Reps. Alexandra Ocasio-Cortez (D-NY), Marcy Kaptur (D-OH), and Bill Pascrell, Jr. (D-NJ), who introduced legislation that would establish a pilot program earlier this year.
The idea is to bring check-cashing and other basic banking services, like ATMs and bill-paying, to the five percent of Americans who are "unbanked," meaning they don't have a bank account. Many commercial banks don't offer free or reduced-fee checking to low-income people.
People without bank accounts often wind up cashing their checks at currency exchanges, pawn shops, neighborhood bodegas and other establishments that may take a hefty cut. When they need to pay bills or send money to relatives, they must resort to postal money orders or expensive services like Western Union.
For short-term loans, unbanked consumers often wind up turning to payday lenders, who charge exorbitant interest rates that often make it impossible to pay off the loan on time, leading to endless extensions at ever-higher rates.
The post offices involved in the pilot program are in Washington, D.C., Bronx, N.Y., Falls Church, Va., and Baltimore. There's no official word on when, or whether, the pilot program will be expanded to other cities.
A first step towards "public banking"
The postal banking idea is part of "public banking," a broader concept Democrats have been promoting lately. Ocasio and Rep. Rashida Tlaib (D-MI) recently introduced the Public Banking Act, which would set up a grant program to help establish locally-controlled banks.
"From overdraft fees to charging for having a checking account period, Wall Street-run banks put key financial services out of reach for many of my residents who are struggling to make ends meet," Congresswoman Tlaib said.
"It's long past time to open doors for people who have been systematically shut out and provide a better option for those grappling with the costs of simply trying to participate in an economy they have every right to—but has been rigged against them."
The idea is not without opponents. "There’s no shortage of (bad) ideas to reform the U.S. Postal Service, but those that involve turning it into a federal bank need to be marked 'Return to Sender,'” sniffed Ross Marchand writing in American Banker.
"Even if this proposal is never implemented, it’s clear that the administration wants to monitor all accounts within its reach. That portfolio could expand significantly if postal banking becomes the law of the land," Marchand saidA question of timing
Critics of postal banking say the Postal Service is already operating in crisis mode as it tries to navigate the COVID-19 pandemic and the resulting slowdown in business and personal mail. It would be difficult for the post office to take on new responsibilities, the critics say.
But supporters, including the American Postal Workers Union, say new services could bring in the new revenue the Postal Service needs.
“New services will not just have the post office doing well by the people, but will bring in needed revenue,” said union president Mark Dimondstein in a Washington Post report.
Union officials told the Post they expect the program will expand after the holiday season and they think the post office will begin promoting it then.
Wouldn't be the first time
Postal banking isn't exactly a new idea. The United States had postal banking in the early 1900s. It was, in fact, the predecessor to the Federal Deposit Insurance Corporation (FDIC).
The postal banks fell victim to the Great Depression. President Theodore Roosevelt establishing the FDIC to help stem the outflow of deposits from commercial banks, eventually draining business from the postal banks.