ONE IDEA I’VE BEEN MEANING TO WRITE ABOUT is a proposal to provide banking services to underserved communities — typically poorer neighborhoods and neighborhoods of color — through the U.S. Postal Service.
As a practical matter, the only financial services now available in those underserved communities are payday lenders and check cashing joints. For those unfamiliar with how such places work, they make their money by charging exorbitant fees to the people in our society who can least afford to bear the cost.
According to a report prepared by the Office of the Inspector General of the U.S. Postal Service: “The entire underserved population comprises more than a quarter of all U.S. households — some 68 million adults. They are an economically diverse mix of working- and middle-class families, poor and unemployed people hurt by the recent economic crisis, young people, immigrants, and others who are trying to make it paycheck to paycheck. Together, they represent a huge market. In 2012, they spent about $89 billion just on interest and fees for alternative financial services.”
Even if there is a regular bank available in poorer communities, banking in the present day has its own hazards. For someone living close to the bone, virtually any miscalculation resulting in an overdraft will result in a $35 fee they can’t afford — and if they make two mistakes, it is $70, and so on. Those miscalculations are a continuous hazard for any of us: Have you ever noticed that when you open an ordinary checking account, the teller will hand you a brochure with a bunch of legalese of almost Homeric length? That brochure explains in arcane language how happy your bank will be if you make a simple arithmetic error.
(Quick aside about that subject: A few years ago, the fees banks charged got so ridiculous that middle class people began to complain, so Congress actually took action. In the wake of those changes, I called my bank to ask what options were available in the event of an overdraft, and what I was struck by was what wasn’t available: there was no option for “If there’s no money in my account, then the transaction is declined.” The reason that option is not available, I’m convinced, is that the bank doesn’t make money that way.)
For our poorer fellow citizens, the burden of these banking costs is not just an annoying inconvenience. Often it is the difference between eating and not eating, or between being able to afford both medicine and food, and having to choose one over the other.
My favorite senator, Elizabeth Warren of Massachusetts, has described the situation poignantly:
“(T)he average underserved household spends roughly 10 percent of its annual income on interest and fees — about the same amount they spend on food.
“Think about that: about 10 percent of a family’s income just to manage getting checks cashed, bills paid, and, sometimes, a short-term loan to tide them over. That’s more than a full month’s income just to try to navigate the basics.
“The poor pay more, and that’s one of the reasons people get trapped at the bottom of the economic ladder.”
The Inspector General’s report I mentioned earlier explained how the Postal Service is uniquely positioned to alleviate this situation because it can “provide non-bank financial services to those whose needs are not being met by the traditional financial sector. It could accomplish this largely by partnering with banks, who also could lend expertise as the Postal Service structures new offerings.
“The Office of Inspector General is not suggesting that the Postal Service become a bank or openly compete with banks. To the contrary, we are suggesting that the Postal Service could greatly complement banks’ offerings. The Postal Service could help financial institutions fill the gaps in their efforts to reach the underserved.
“While banks are closing branches all over the country, mostly in low-income areas like rural communities and inner cities, the physical postal network is ubiquitous. The Postal Service also is among the most trusted companies in America, and trust is a critical element for implementing financial services. With affordable financial offerings from the Postal Service, the underserved could collectively save billions of dollars in exorbitant fees and interest.
“This could make a big difference to struggling families — on average, people who filed for bankruptcy in 2012 were just $26 per month short of meeting their expenses.”
While I find the economic arguments persuasive, I am even more persuaded by the moral case for a postal banking system. I think the fact that our poorest citizens are paying $89 billion per year for basic financial services is outrageous. Sen. Warren again:
“Families rely on financial services more than ever, but those who need them most — who struggle to make ends meet — too often must contend with sky-high interest rates and tricks and traps buried in the fine print of their loan products.”
It is time we provided those citizens with a better alternative than payday lenders and check cashing places. Postal banking can be an important step in providing that alternative.
Matt Talbot is a writer and poet, as well as an old Benicia hand. He works for a tech start-up in San Francisco.
Sharing is caring!
The USPS is already poorly run and losing money hand over fist. The government doesn’t do anything well or efficiently. So let’s throw another terrible system at them. Then we will need more employees to take on the additional services at a taxpayer expense. Then they will lose even more money.
Great idea ……. maybe not so much.
If they are paying 10% of their income in interest and fees they could save money by just getting a bank account. It is not hard to learn how to manage one. You can watch on YouTube.
There is one important thing though; you have to learn how to not spend money you don’t have.
Matt there is a better alternative. Do not overdraft your ACCOUNT. If the folks that you are talking ABOUT do not understand that they for sure should not have a bank account. The fees have nothing to do with it. It is personal responsibility. Go to the library check your account if you are so out of touch with your own finances. Matt it is very simple take care of your own finances and get a bank account. Matt you and I know exactly why they do not have a bank account. It was their own abuse. Nothing to do with fees. MATT you are way out of line on this one. Warren is your favorite. Just proves you are very left leaning LiberaL Socialist. Your ARTICLE also proved that.. Matt wake up and get in the real world. Issues are caused by bad behavior. Do you over draft andf have those fees? If you do you also have the same issue.. Not paying attention and want to blame others bad behavior for the issue. Not the case Matt. Every where these folks go are ATM’s in store banking. I guess they buy food. They use the places you are talking about because of their bad behaviour. Start blaming the source and not the system.Matt think responsiblitie for once in your life.
Matt,
This is a great idea! Kudos to you for thinking of it!
The USPS is losing 15 Billion a year and the poor are paying $89 Billion a year to balance their check books. We can combine these:
Decrease the fees on the poor by 70% and save the USPS! What’s not to like?
U.S. Postal Service on brink of bankruptcy
If the numbers are right we come out 15 Billion ahead!
Glad to see you have started thinking like a capitalist!
I admit I am surprised that you are willing to use these fees on the poor to save a failing USPS system.
Or am I mistaken? Do you really want everyone else to pay for all thi?
Another look at US Postal Service deficit position for Mr. Talbot, our citizenry and appointed and elected officials to seriously contemplate…
“But what has been lost in the political debate over the Post Office is why it is losing this money. Major media coverage points to the rise of email or Internet services and the inefficiency of the post model as the major culprits. While these factors may cause some fiscal pain, almost all of the postal service’s losses over the last four years can be traced back to a single, artificial restriction forced onto the Post Office by the Republican-led Congress in 2006. ”
“At the very end of that year, Congress passed the Postal Accountability and Enhancement Act of 2006 (PAEA). Under PAEA, USPS was forced to “prefund its future health care benefit payments to retirees for the next 75 years in an astonishing ten-year time span” — meaning that it had to put aside billions of dollars to pay for the health benefits of employees it hasn’t even hired yet, something “that no other government or private corporation is required to do.”
“As consumer advocate Ralph Nader noted, if PAEA was never enacted, USPS would actually be facing a $1.5 billion surplus today.”
http://thinkprogress.org/economy/2011/09/28/330524/postal-non-crisis-post-office-save-itself/
Don’t worry Bob, President Sanders will square things away for everyone!
(Though personally I would prefer Col. Sanders over Comrade Bernie.)
Well Dennis AKA DDL I guess you are the other usual suspect. Now the no names will come back. Using the USPS as a bank is a goofy idea. Who is going to pay for the bad behavor or is it forgiven. + Overdrafts are not caused by the banks nor are pay day loans. It is caused by bad behavor. Next will be Government store and shopping center. The only thing that would work is there money going directly into this bank. See as that these folks that Matt is talking about cannot control there habits. This will have complete control over distribution of funds. Rent, utilities, food etc. When the money is gone an advance will be applied at no interest and paid back at next deposit . The bad part about that is the folks will now demand more money because they do not make enough or are not entiteled to enough. If this could help correct the behavor it could work. But no government bail out just control over their money that they cannot seem to control. They will not except without strings and more government money for these folks to spend. Bad deal any way you look at it. . Now their lives are completely under Socialist rule. See how they like that. No they will not. Want to commit bad behavor and it is no one elses business. Remember the old company towns. Everything owned by the company. It did work in very isolated areas. schools, stores, housing ect. The bad part was you were locked in. Matt you trying to control the lives of these folks. How about job training and financial training. I think that could help.
I was being facetious in my original comment, thinking that the government trying to make money off the poor people once again, was hypocritical.
(Currently all state lotteries are largely funded by the poor, who play the lottery in numbers far higher than do more affluent people. Billions are taken out of the poor areas on this ‘poor tax’.)
But I looked up the report Matt is referring to and found this gem:
“Financial services have been the single best new opportunity for posts to earn additional revenue. For the Postal Service, this might ultimately translate into $8.9 billion per year.”
Here is the link:
https://www.uspsoig.gov/sites/default/files/document-library-files/2014/rarc-wp-14-007.pdf
So apparently bilking the poor is wrong, when private industry is doing so. But it is OK when the government does it, because they are not as greedy?
Dennis I did read that link. The word revenue keeps popping up. Does that tell you something. The reason the folks are using payday loans is a simple one. They cannot qualify for regular banking loans. Even if you have excellent credit 25% is not unusual if you do not pay bac k the amount in the period of time such as 12/24 months. What this could do is give unqualified loans to very high risk folks. It then puts the onus on the folks that are very low risk to now assume the finanical loss by now charging them higher fees/interest.. Matt this is a noble idea looking for a financial crisis for the USPS. If all the normal rules are followed in getting credit it will not help the folks that are now paying all these high charges. Why should anyone now be charged higher interest rates becsause iof bad behavior. Matt that is apparently whaty you want. Pure Socialist ideals Matt. Take from the responsible folks and give to the bad behavor folks. Matt ARE you sure you are thinking this thru. It appears you lifted this from something else. I do not know that but it for sure is not an orginal idea. Matt please rethink this very serious issue.
My problem with the USPS, too much f***ing junk mail in my mail box. Think about how much money/energy (not too mention trees) could be saved if the USPS did not have to haul around 3 million tons of junk/unwanted mail annually. Plus, there are not very many things left you can get in the mail that you can’t get through other means these day. They might actually have to re-purpose the USPS.
I have friends that have retired from long careers with th USPS and their report is that it is a train wreck and completely inefficient.
Matt –
As always, an interesting concept. Couple of questions:
Given that the USPS is losing money, who will fund the loans?
What will the loan terms be? Slightly above market rates, market rates, or below market rates?
What penalties will be levied if a borrower defaults?
Will banking services be provided by all Post Offices or only certain ones? What criteria will be used to determine which Post Offices will provide banking services?
Who will qualify for loans and what documents will be required? Will I need to be below 80% of median income, provide copies of form 1040 and my SSN? Will I need to be a legal resident? Or will these be no doc loans?
Now Tom stop it. There you go asking very good questions and you will get no answers. I love your questions. Keep it up.
Great questions. We’ll figure it all out and get rolling.
Matt i have always been a believer that bad behavior by others should be supported by the governmebnt or the tax payers. It is their responsibility to correct it and build a better life for themselves. There is not a government program that will correct bad behavior.
correction: Should say not supported by