The U.S. Postal Service is having a rough summer. President Donald Trump in August implied in a TV interview that he was intentionally undermining the agency to prevent mail-in voting, which he claimed, without evidence, leads to fraud. Postmaster General Louis DeJoy, who was appointed in June, has since appeared before Congress twice to discuss the removal of mail-sorting machines, and now he's being subpoenaed to provide documents for an investigation into recent delays.
Tack this onto years of budget troubles, which have only gotten worse during the coronavirus pandemic, and the future of this essential government service looks even more uncertain.
Amid this turmoil, the suggestion that the post office should offer banking services, such as checking and savings accounts, has resurfaced.
Champions of the idea argue that it would provide low-income consumers with an accessible financial option — not to mention a source of much-needed revenue for USPS — while critics say the federal agency should stay clear of banking.
The most recent debate over postal banking came to the fore with news that JPMorgan Chase had held talks with USPS to discuss placing ATMs in some post office locations.
"We had very early conversations with the Postal Service about what it might look like to lease unused exterior space for a small handful of ATMs," a JPMorgan spokesperson told Cheddar. "These conversations never materialized, and there are no imminent plans to continue the conversation or move forward. There was never any discussion about an 'exclusive partnership' for banking services."
While that proposal may be dead-on-arrival, the prospect of a large U.S. bank elbowing into USPS struck many proponents of postal banking as a move in the wrong direction.
"It's a distraction, and it's a harmful distraction, because it creates a two-tier system," said Marc Armstrong, development director for the Public Banking Institute, a research and advocacy group that supports postal banking. "You're putting in place a middleman who is just going to soak everybody for fees."
The goal of any postal banking system, he added, should be to provide a low-fee, universal option to the most vulnerable, not a system that benefits the account holders of a specific bank.
For the cash-strapped agency, however, the prospect of getting a cut of those ATM fees, regardless of who runs them, could prove tempting.
To understand where this debate might be heading and who is arguing for what, here is Cheddar's primer on postal banking.
How does it work?
A postal bank could take a number of forms, but the basic idea is that the post office would offer banking services at all of its 30,825 branch locations across the U.S. At a minimum, this could mean providing a simple checking account. It could also mean prepaid debit cards, ATMs, and even small personal loans.
One potential benefit is that it would help consumers avoid predatory non-bank options such as payday lenders and check cashing companies, which millions of Americans rely on.
The most recent data from the Federal Deposit Insurance Corporation (FDIC) found that 6.5 percent (8.4 million) of U.S. households were "unbanked," meaning they had no bank account, and 18.7 percent (24.2 million) were "underbanked," meaning they had a savings or checking account but still went outside the banking system for some financial services.
The nationwide footprint of USPS, which tracks with population centers as opposed to commercial activity, offers a way to reach this vulnerable population quickly.
"The 30,000 post office locations are an ideal way to provide core banking services and money payment services to many of the people who do not have bank accounts," Armstrong said. "That's why it's so attractive, because of the physical locations."
Indeed, the United States has done this before. Between 1911 and 1967, USPS offered a savings account that actually insured deposits long before the creation of the Federal Deposit Insurance Corporation, a fact that proponents often point to.
"At one point our postal banks serviced 4 million customers," Senator Bernie Sanders (I-Vt.) tweeted in December 2019, after suggesting a bill with Representative Alexandria Ocasio-Cortez (D-N.Y.) that would have created a postal banking system. "We must guarantee basic financial services to Americans by allowing every post office to offer basic banking services again."
Notably, most proposals for postal banks stipulate that it would remove things like overdraft fees and egregious ATM charges, situating them as an alternative to not just exploitive non-bank options but also major consumer banks such as JPMorgan.
Critics of the idea believe the FDIC and modern banking have replaced the need for a postal banking system, although they admit that consumers still need to be savvy to avoid pitfalls.
"No matter your income level, you do have access in this country to those basic services," Joel Griffith, a researcher for the conservative think tank Heritage Foundation. "If you're smart about it, you don't have to pay an arm and a leg each month in ATM fees."
Griffith chalks up the problems of the unbanked and underbanked to an issue of "poor planning," which could be remedied by better financial education at a younger age.
Others maintain that private banks are plainly neglecting low-income consumers, but that postal banking isn't the answer.
"It would cost the postal service a great deal of money in order to ramp up operations as a financial service provider," said Ryan Donovan, chief advocacy officer for the Credit Union National Association, which has long opposed postal banking in favor of expanding access to credit unions. "It just doesn't seem like the juice would be worth the squeeze from a financial perspective."
'Not Rocket Science'
For evangelists of postal banking, however, these arguments fall flat when you look at the wide adoption of postal banking in other countries.
"This stuff is not rocket science," said Sheldon M. Garon, a professor at Princeton University who studies financial habits around the world. "There are 150 countries that do this. Most other advanced economies in the world do it extremely well, Japan, France, New Zealand, etc., etc., but every time you get into a conversation with people in America, they say 'I can't understand how this is possible.'"
For the most part, Garon said, other countries have stuck to providing basic savings accounts, but in the last decade or so some have started to adopt financial services such as online banking and credit cards. Some have even entered into public-private partnerships to expand their offerings.
The difference is that these systems are often striking deals from a position of strength, rather than desperation.
"Some of these systems will team up with private financial services," Garon said. "But usually when they do, the post office is the senior partner, because they've got the advantage, the staff, the infrastructure."
USPS, by comparison, is in desperate need of revenue — in large part due to a 2006 law that required the agency to pre-fund 75 years worth of retiree health benefits at a cost of $110 billion. While there have been attempts to remove this burden, none have succeeded so far. This partly explains the recent removal of collection boxes and sorting machines, though a more political motive is still being investigated by Congress.
Since the Great Recession, there have been several attempts to put postal banking back on the table, including a bill from Senator Kristen Gillibrand (D-N.Y.), but the movement never got significant bipartisan support. In 2014, the U.S. Postal Service Office of Inspector General also issued a report exploring how it could provide affordable financial products.
In addition, the American Postal Worker Union launched its Campaign for Postal Banking around this time, though its efforts have slowed in recent years.
The debate continues, however. Forbes Magazine, a decidedly pro-business news source, published an article this month titled "The U.S. Needs Banking-As-A-Public-Service" that argued that some kind of public option is necessary to reach the consumers who regular banks aren't currently serving.
"There's this connecting of the dots that's happening and general awareness of what's really needed," Public Banking Institute's Armstrong said. "The question on the table is: 'Well, how do you address this effectively if the free market has failed? Many of us think the best way to do it is a postal bank as opposed to ATMs through JPMorgan Chase."
