“There is no reason for Congress to act or to politicize this. Ignore the politics: it’s time for the Postal Service to move forward,” Sen. Elizabeth Warren said.
WASHINGTON — A proposal that would see the U.S. Postal Service once again offer basic banking services at its branches across the country is picking up momentum, enough to result in new pushback from banking lobbyists.
The proposal, which would include bank accounts, credit cards and related services, was first offered earlier this year in a report by the Postal Service’s Office of the Inspector General. While a banking component would be one way to address the Postal Service’s crushing budget problems, the report trumpeted the idea as an immediate opportunity to reduce the onerous financial burden experienced by Americans outside of the formal financial system.
The “unbanked” in the United States, predominantly made up of poor and immigrant communities, is estimated to be surprisingly high. The inspector general’s report put this number at some 68 million people, more than a fifth of the U.S. population. In order to carry out day-to-day financial transactions, such as cashing their paychecks, those without bank accounts are forced to use lightly regulated services that typically charge high, even usurious, rates.
“Private, for-profit banks have done a horrible job of financial inclusion. They’ve had their chance and they’ve shown that their allegiance is to making a buck and not to serving the American public,” Marc Armstrong, the president of BankACT, a group that advocates for publicly owned banks, told MintPress News in an email.
“As banks in rural communities and in cities close, retail branches in wealthy suburbs are opening. In effect, bankers are going where the money is, not where the people are. Post offices are located where the people are, whether rural or urban.”
On Wednesday, Sen. Elizabeth Warren, a key proponent of the new postal banking proposal, noted that those lacking bank access in the U.S. have average incomes of around $25,000 per year. Of that, they pay some 10 percent, around $2,400, in interest and fees for non-bank services — about the same amount as they spend on food, she said.
“This trend takes an enormous toll on families who can least afford it, as well as on economic growth in our country,” the senator told a day-long policy discussion on the proposal held Wednesday at the Pew Charitable Trusts, a research institution here. “Traditional banking no longer works … we have a market failure and it’s only going to get worse.”
Warren and Armstrong both cite recent research finding that national banks in the U.S. are closing branches in areas with median incomes of under $50,000 a year, even as they’re increasing service in areas with incomes above $100,000.
“Since late 2008, banks have shut more than 1,800 branches, 93 percent of which have been in ZIP Codes with below-national median household income levels,” the Postal Service’s inspector general, David Williams, told the Pew audience Wednesday.
“So, yes, there is an issue here. Millions of Americans trapped on the fringes of our financial system are looking for solutions. Some of the alternative financial services that have sprung up are abusive to these isolated citizens.”
The federal Postal Service, meanwhile, operates more than 31,000 well-established offices across the country, and many of these are in small towns that have few or no banking options. Indeed, Warren noted on Wednesday that some 60 percent of post offices are in “banking deserts” — zip codes that have one or no banks.
“We have a serious problem but also a ready solution … but we have to take this out of politics,” she said.
“The Postal Service already has the statutory authority to do this, either on an experimental basis or it could roll it out across the country. There is no reason for Congress to act or to politicize this. Ignore the politics: it’s time for the Postal Service to move forward.”
She was quick to note that the details of any eventual plan would still be important, and that safeguards would be necessary.
“We must consider how to balance revenue for the Postal Service with providing affordable products,” Warren said. “Without careful safeguards, institutions that start off with a goal of access can lose sight of that goal if attention turns to maximizing profits.”
Late last month the proposal received significant additional support when the U.S. Conference of Mayors voted in favor of two resolutions around the issue. The first backed postal banking as a stable alternative to the predatory “payday lenders” that those without access to banks often are forced to use. The second would see revenues from such a system used to capitalize a new national infrastructure bank, a proposal that was floated last year.
“[T]he conventional banking industry has experimented with affordable financial products and services geared to poverty-level customers,” the mayors state, “but has generally failed to provide effective nationwide solutions.”
Defending a monopoly
The new proposal isn’t actually new. The U.S. Postal Service offered basic banking services until the late 1960s, and still handles important day-to-day financial transactions such as money orders and international remittances. Other countries, meanwhile, have similar setups that are seen as extremely successful.
Yet the plan has so far received only a tepid response from lawmakers, alongside strengthening attacks from the big banks.
In a widely circulated article last week, for instance, Richard Hunt, the head of the Consumer Bankers Association, noted that the inspector general’s report “was produced by an office with zero experience operating a modern financial institution. It lacks any significant experience navigating state and federal banking regulations, underwriting loans, handling consumer financial data or building a nationwide financial services network.”
Hunt also addressed the inclusion issue, noting that the total number of bank branches in the country — more than 96,000, as insured by the government, triple the number of post offices — would seem to suggest that Americans have easier access to the financial system than to the postal system.
At Wednesday’s conference, the Consumer Bankers Association again pushed back against the idea that banks don’t focus on inclusion. When asked whether the group’s membership pays much thought to the unbanked, Dong Hong, regulatory counsel at the association, responded, “A resounding yes.”
“Banks feel this is a long-term relationship they’re establishing with their customers,” he continued. “We want to welcome them to banking, and we try to figure out different ways to bring them in. We think the banking system can provide a safe haven for most customers out there.”
Yet Sen. Warren says the facts speak for themselves.
“We’ve heard from some of the big financial institutions — they like their monopoly. It works well for them,” she said. “But I bristle at the notion that they can be closing branches in zip codes making under $50,000 a year and opening them in areas making above $100,000 — and then oppose this plan for the Postal Service” to fill that gap.
Proponents of the postal banking proposal say the idea would likely be a boon to small-scale financial institutions. Community banks and credit unions, for instance, could be called in to partner with local post offices to set up the new programs, and could eventually receive these new customers for larger transactions.
The plan would also offer a nationwide opportunity similar to a local bank.
“Nonprofit banking has credit unions at the local and regional level, but we don’t have a national nonprofit alternative,” BankACT’s Armstrong said. “A national nonprofit postal bank would provide a set of low-cost services to people who have paychecks but who need to reduce their monthly costs for payment and banking services.”
Both proponents and opponents of the postal banking proposal inevitably focus on one overriding issue in this debate: the Postal Service’s massive operating deficits. Last year the agency was some $5.8 billion in the red, the seventh year in a row it lost significant money.
On the one hand, then, allowing for banking services could raise a huge amount of revenue for the beleaguered system — some $8.9 billion in profits a year, according to the inspector general’s report. On the other hand, such a setup is easy fodder for those who view the federal government as inept, unwieldy and already a significant drain on U.S. taxpayers.
Yet the Postal Service’s losses are not necessarily due to fiscal mismanagement. Nor is the mail being outmoded by the Internet, with many observers noting that trends in digital purchases have actually increased the need for delivery services.
Rather, the agency’s current money problems can be directly traced back to a 2006 law called the Postal Accountability and Enhancement Act. That legislation required the Postal Service, within a decade, to put together the money required to ensure health care-related payments for its retirees for the next 75 years.
The Postal Service is the only federal agency laboring under this bizarre requirement, and many see the law as a clear attempt on the part of conservative lawmakers to weaken and eventually privatize the U.S. mail. (The 2012 Republican Party platform called for a “dramatic restructuring” of the Postal Service.) Without this requirement, Sen. Warren says, the Postal Service would likely have made some $600 million in profits last year.
“At the rate it’s going bankrupt, I’d not give the Postal Service much more than five years. And that’s exactly what the Postal Accountability Act was intended to do: to force a liquidation until lawmakers can say they have no alternative but to privatize the whole system,” Gray Brechin, a project scholar at the Living New Deal Project, in the Department of Geography at the University of California Berkeley, told MintPress.
“And what will the public lose? Services, cheap mail rates and thousands of historic, publicly-owned buildings. America has one of the best mail systems in the world, but like clean water, people just become used to it. They shouldn’t, though, because they’re about to lose it.”
Brechin warns that a sell-off is already taking place of post offices across the country, including historic properties.
According to an official report from April, around two dozen historic properties were sold by the Postal Service over the past three years “because of financial challenges,” with more than 50 more on the block. The same report warns that the agency “did not know how many historic properties it owned or what it cost to preserve them.”
Brechin, meanwhile, lauds the postal banking proposal, calling it an “excellent idea – one of two ways to save the postal system from its current congressionally-engineered catastrophe.” Yet these broader machinations have rendered him doubtful whether the plan will ever be implemented.
“The postmaster general was put in that position to liquidate the Postal Service, so I don’t think he’ll seriously consider the banking proposal,” he said. “This could only go forward if the postmaster general and the Obama administration actually wanted to save the Postal Service, which I don’t think they do.”