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For the Working Poor, Postal Banks Offer a Leg Up

Donna Borak of the wall street journal recently published an article unpacking the tenets of the proposed party platform as the DNC opens in Philadelphia. Highlighted among these concerns is the unusual sounding prospect of Postal banking.

The idea is this: the infrastructure available to the USPS can be used to provide basic financial services for low-income and struggling Americans. Without the pressure to generate profit, the post office may be able to provide savings, checking, and small loans at cost.

While it may sound strange to offer banking through the post office, the idea is popular throughout the rest of the world where 75% of global postal services also offer banking.

It may interest you to know that, in fact, we used to have it in the states too. Signed in to law by none other than the obese ombudsman, W.H. Taft, all the way back in 1916. The bank was very popular as a secure alternative to commercial banks, at a time banks generally weren't insured. At its height in 1947, the bank held $3.4 billion in American savings, checking, and CDs.

But the service was slowly stepped down, and dismantled entirely by 1967.

It was created at a time when there was little public trust in banks, and when poor and rural populations had a hard time finding branches where they lived.

By the 1950's, things had changed dramatically. Accounts were federally insured, and an increasingly urban population had better access to a range of financial services. Not to mention that many people took advantage of competitive interest rates offered by commercial banks.

In light of these developments, the system was deemed to be old fashioned and redundant. And thus was slowly taken apart.

But now we're again facing the problems that led to the creation of the postal bank. For one, public trust in banks is still low following the sub-prime mortgage bubble. For another, online tools and ATMs have banks closing down brick-and-mortar branches. Which again leaves poor and rural Americans without access to savings.

The American Postal Workers Union calls these areas "bank deserts, (specifically, zip codes containing only one or fewer banks branches counts as deserts) and they advocate that post offices will bring the rain. Couple this with the fact that interest rates for savings are nil, and what you get is a lot of people clamoring for an alternative.

The concern of many proponents is that, without some low-cost banking alternatives, it is impossible for the working poor to get ahead.

Without access to a bank, poor workers often turn to payday lenders for check cashing and short term credit. The problem here is that payday and title loans come with impossibly high interest, trapping people in a hellish cycle of debt.

A new postal bank would offer services at a minimal cost, giving the poor a better chance to hold on to what money they have.

Another set of discouragements for those living paycheck to paycheck are the fees. Account minimums and overdraft fees make it hard to hang on to a bank account; if you have to cash out your entire account to the pay the rent every month, then the fees make it cheaper to stash savings under the mattress.

The push to bring back the postal bank has gained support from the likes of Elizabeth Warren and Bernie Sanders, and now democrats are looking to make it part of their official platform. Democrats have taken to the idea with verve, in part because it's a potential win-win-win scenario. democrats get to help out low income Americans, while supporting the struggling postal service, and do it all without a tax increase.

But whether or not the plan can work is a question for some debate. First off, it won't fix what's wrong with commercial banks. Nonexistent interest rates, arbitrary fees, and account minimums will still be there.

And, arguably, with a cheaper option in place there will be little incentive for banks to get better. On top of that, and in spite of very recent memories of financial meltdown, the Republican controlled congress is trying its best to dismantle regulations and consumer protection. And will not revive the postal bank unless public opinion strongly favors it.

Ultimately, having what is essentially a "public option" of banks might force commercial banks into being more competitive, but it might also do nothing.

After all one of the reasons for discontinuing the old bank was how unnecessary it became.

Certainly, though, it will be interesting to see how this plays out, particularly if the delegates at the DNC vote this issue onto the party platform. But with gridlock as usual in congress, it will be where it goes from there.

As always contact us to schedule a consultation with one of our experienced attorneys today.

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