Advocates push for the U.S. Postal Service to offer basic banking

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WASHINGTON — Until the late 1960s, you could walk into a post office and deposit money in a savings account at the same time that you bought stamps or mailed packages.

An outgrowth of the financial panic of 1907, the no-frills postal bank surged in popularity during the Great Depression. But as commercial banks expanded and offered higher interest rates, the United States Postal Savings System became as outdated as a black-and-white movie.

Now, in the wake of another financial crisis, there's a new push for the U.S. Postal Service to deliver basic banking services again.

The effort is led by consumer advocates, financial reform groups, postal labor unions and some leading liberals, such as Democratic presidential candidate Sen. Bernie Sanders (I-Vt.) and Sen. Elizabeth Warren (D-Mass.). They say that offering services such as paycheck cashing, bill payment and free ATMs would provide cash-strapped consumers with an affordable alternative to payday, auto-title and other short-term loans that have been criticized for high fees.

"We have millions and millions of low-income people who have to go to these payday lenders and pay outrageous interest rates. They're getting ripped off right and left," Sanders said on ABC's "Jimmy Kimmel Live" in October.


"We can have our Postal Service provide modest banking to low-income people where they can cash their checks and they can do banking," Sanders said. "I think it will help the post office and it will help millions of low-income people."

The Postal Service's inspector general's office agrees. It estimates that expanding financial services beyond the current limited offerings, which include money orders and international funds transfers, could pump $8.9 billion a year into the financially struggling agency.

"The Postal Service has a public mission to serve citizens and support the growth of commerce," the inspector general's office said in a report last spring that presented five potential approaches for expanded banking services. "And while it is required to cover its costs, profit is not its key motive."

The American Postal Workers Union has formed a coalition, the Campaign for Postal Banking, that in December delivered a petition with more than 150,000 signatures to Deputy Postmaster General Ronald A. Stroman urging the agency to expand its financial offerings.

"Big banks are turning their backs on families," union President Mark Dimondstein said. "Without bank accounts, they fall prey to predatory lenders."

Postmaster General Megan J. Brennan hasn't ruled out the idea of expanded banking services after her predecessor dismissed the suggestion in January as he headed into retirement. But she has some reservations.

"While we currently provide our customers with certain financial services, including money orders, electronic funds transfers and cashing of U.S. Treasury checks, our core function is not banking," the agency said in a written statement.

The service said it has an "infrastructure that is not ideal as a banking platform," and cited a decline in visits to post offices. Plus, any investments outside of its core function of mail delivery "will likely be scrutinized from both public policy and regulatory perspectives," the agency added.

The Postal Service is an independent agency that since 1971 has been required to rely on sales of stamps and other services to pay for its operations. But the growth of the Internet and competition from private shippers, such as FedEx Corp. and UPS, have taken a major toll on the agency's finances.

After peaking in 2006, total mail handled by the Postal Service has declined 27%. That has led to budget deficits, exacerbated by a congressional requirement to pre-fund retirement benefits for its workers, that have forced the agency to borrow up to its allowable limit of $15 billion from the U.S. Treasury.

Expanded financial services offer "the single best opportunity for new revenue," according to the inspector general's office.

It's not a far-fetched idea. Post offices in many other nations, including Britain, France, China and Japan, also serve as banks. And from 1911 to 1967, the United States Postal Savings System offered accounts with annual interest capped at 2%, to reduce competition with commercial banks.

Deposits at U.S. postal banks surged during the Great Depression and World War II, when many consumers viewed the accounts as more secure than those in commercial banks. But as those banks opened more branches and increased interest rates after the war, the postal banking system fell out of favor and the federal government shut it down.

The Great Recession has led to calls for the revival of postal banks as many cash-strapped households have been forced to seek payday loans and other alternative financial products.

A Federal Deposit Insurance Corp. survey found that about 9.6 million households in 2013 had no one with a bank account. An additional 24.8 million households had accounts but also used alternative financial services, such as payday loans.

"It's harder for people with less money to use their money, and much more expensive," said Mehrsa Baradaran, a University of Georgia professor and author of the book "How the Other Half Banks: Exclusion, Exploitation and the Threat to Democracy."

Many poor areas lack bank branches, but most communities have a post office, said Katherine Isaac, a consultant to the postal workers union who has been organizing the Campaign for Postal Banking.

"Even if we put all the payday lenders out of business, there's a concern that there's still no place to go," Isaac said. "The banks aren't there. They've abandoned those communities. But the post office is there."

The Postal Service is the most popular federal agency — 84% of respondents have a positive view of it, according to a recent Pew Research Center poll.

"I would guess that a lot of people would trust the post office teller with their money more than these Wall Street traders," said Baradaran, an advocate for postal banks. "There's a sense that the post office is a dinosaur, but it's not a shark."

Congress would have to pass legislation allowing post offices to take deposits and make loans. But the Postal Service could use existing authority to increase some offerings, such as expanding check cashing to include other government and payroll checks and broadening money orders into bill payment service, supporters said.

"This is not a cash cow for the post office," Baradaran said. "But it could save them."

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Mark Dimondstein, president of the American Postal Workers Union, a public sector union representing more than 200,000 current and former United States Postal Service (USPS) employees, is calling on Postmaster General Megan Brennan to allow the quasi-government agency to enter the banking industry.

In addition to its primary services of delivering mail, USPS provides some financial services, such as domestic and international paper money orders, international remittances, open- and closed-loop gift cards, and limited check cashing. USPS currently spends $5.5 billion per year more than it collects and is defaulting on pension payments to retirees.

Dimondstein’s campaign to allow USPS to expand its services is echoed by proposals from U.S. Sen. Bernie Sanders (I-VT), a candidate running to be the Democratic Party’s presidential nominee.

Reducing Costs

Mark Thornton, a senior fellow with the Mises Institute, says USPS should first master handling its own finances before adding additional services.

“There is much more the USPS can do to reduce costs, such as reducing the number of days they deliver mail,” Thornton said. “For example, some customers would get mail delivered on Mondays, Wednesdays, and Fridays, while the others would get it on Tuesday, Thursday, and Saturdays, and post box customers would get deliveries six days a week, thus allowing for a small increase in the post box rental fees.”

Thornton says postal banking would be an inefficient use of taxpayers’ money.

“I don’t see a big market for another banking system,” Thornton said. “All the good customers have already been taken, and demographically the market is moving away from the post office model and … brick and mortar banks. The USPS would be left with customers who would not be very profitable. It might help some people who do not have access to banks, but it would not solve the USPS’ problem.”

Twentieth-Century Thinking

Kevin Kosar, a senior fellow with the R Street Institute, says postal banking is an outdated idea, better left in the history books.

“The postal banking system was established back when private banks did not insure deposits,” Kosar said. “People put their money in the postal bank because it was safe. Congress created the Federal Deposit Insurance Corporation in 1933, and it guarantees customer deposits to private banks. By the time that Congress closed the postal bank, few Americans were using it.”

‘Right Its Financial Ship’

Kosar says USPS should face facts and address the real problems the agency faces.

“The agency is losing money because there is less demand for paper mail,” Kosar said. “We should accept this basic truth and let USPS take steps to cut costs so that it can right its financial ship. What we should not do is to invent new jobs for [USPS] to do, like banking, in the hopes that these ventures will provide profits.”