Bloomberg, Sanders, and Warren want to use post offices as banks
Most American city dwellers are used to seeing a favorite ice cream shop or watering hole seemingly replaced overnight with a shiny new consumer bank. The switch from PBR to APR can be quick and ruthless, but it has come to be expected.
Now, proposals by presidential candidates former New York City Mayor Michael Bloomberg, Sen. Bernie Sanders (I-Vt.), and Sen. Elizabeth Warren (D-Mass.) could turn the United States Postal Service’s 31,324 offices into quasi-banks.
But unlike the shuttering of mom-and-pop shops in favor of ATM vestibules, this progressive plan would work to service the 25% of U.S. households (closer to 50% for Hispanic and African-American households) that are either unbanked or underbanked and often fall prey to payday lenders and others peddling unsavory and egregiously high-interest loans.
Nearly 60% of Americans live in zip codes with one or no banks available to them, and using the post office to provide financial services could open new doors to financial planning and saving.
Bloomberg has in the past called the United States Postal Service (USPS) antiquated and falsely accused the institution of using taxpayer dollars (it is self-funded). “Members of both parties spend money to protect public sector jobs in antiquated industries—maintaining traditional postal service in the Internet age is a good example of that,” he said in a 2014 speech at the The Economic Club in Washington, D.C.
Bloomberg, until recently a Republican who served as a partner at an investment bank and owns a private financial firm, has surprisingly eschewed his moderate roots and signed on to support the progressive ideals of postal banking. As part of his proposed presidential financial reform plan, released in February, he would offer a “curated selection of financial services” through the USPS.
The plan, says his campaign, would aid the Postal Service, which lost nearly $8.8 billion last year. The details, however, are still TBD. The campaign tells Fortune that they would lean heavily on the trust that the public already has for the USPS, which has a favorability rating of 90%, higher than any other federal agency.
“This would be a very good opportunity to create a safe place for financial services. You can be sure you won’t get a bad payday loan here,” says Mark Whitehouse, a policy adviser to the Bloomberg campaign. “We’ll provide a selection of services offered by private companies and give them a nationwide reach.” The services, he said, would have to pass certain federally mandated guidelines: no overdraft fees, and inexpensive loans. “The goal here is to make banking less expensive for the poor.”
The services would be based on a Federal Deposit Insurance Corporation pilot program of “safe accounts,” which provide free direct deposit, automatic saving, and online access, opening balance requirements of less than $25, and a monthly minimum balance of just $1. They would also provide small-dollar loans and allow for kiosk bill payment.
At the end of the pilot program’s first year, 81% of checking accounts and 95% of savings accounts remained open. Banks that participated in the programs reported no extra costs involved in implementing the program.
The Bloomberg campaign says that it would work with outside nonprofit organization Cities for Financial Empowerment Fund to ensure that all of the companies contracted meet basic requirements. This year, the organization, in partnership with the Federal Reserve Bank of St. Louis, tested out implementing its Bank On National Account Standards. It worked alongside four large financial institutions with positive results: Almost 3 million accounts were opened, representing 60% of zip codes nationwide.
The campaign pictures partnering with fintech companies that offer low rates but typically don’t have brick-and-mortar outposts. It’s possible that Postal Service workers will be trained to administer loans and open bank accounts on behalf of said companies. But most importantly, says Whitehouse, the post office would become a hub for government-vetted information.
“The problem is that for-profit schools and payday lenders spend tons of money on marketing, and they tend to target these communities,” he says. “People don’t receive the information they need to make sound decisions about financial services.”
The Bloomberg campaign isn’t the first to suggest such a change. The USPS Office of the Inspector General released its own white paper on the idea years ago, concluding, “The Postal Service arguably has the only public or private infrastructure that can reliably reach people in every American neighborhood. By bundling residual in-person services from several industries that are going digital into a single network of post offices, the Postal Service could help industries and citizens, and find much-needed new revenue.”
Between 1911 and 1967, banking services were provided at post offices under the United States Postal Savings System, signed into law by President William Howard Taft. Postal banks serviced nearly 4 million customers and held almost $3.4 billion in deposits at its peak around 1950. Eventually, the creation of the FDIC restored trust in private banks and rendered the postal bank redundant.
In recent years, facing insurmountable minimum balances, excessive charges, and overdraft fees that disproportionately impact those with median annual incomes of less than $30,000 (with interest rates sometimes higher than 3,500%), Democrats have suggested using post offices to institute banking services that specifically aid low-income Americans.
Sen. Kirsten Gillibrand (D-N.Y.) proposed last year to turn post offices into banking centers, and Warren and Sanders have also embraced the progressive idea. Moderate candidates with closer links to the banking industry have, however, left the concept off their campaign website policy pages (former Vice President Joe Biden uses the cause of saving the post office as a way to collect potential voter data on his own site).
Mark Dimondstein, president of the American Postal Workers Union, tells Fortune that while he hasn’t heard from the Bloomberg or Warren campaigns directly, he has worked with the Sanders campaign, and they are “very, very supportive” of postal banking and expanding financial services.
The next President, he says, will have a significant amount of control over the direction of the Postal Service, appointing people to the postal board of governors with confirmation by the Senate. There are currently four vacancies on the nine-person board with another expected to open up next year.
The board will be able to sign off on a number of financial services without congressional approval.
“Something has to be done in a more serious way with this predatory payday lending and check cashing industry,” says Dimondstein. “And what better way to deal with it than have the public entity within every community trusted by all, both in terms of the agency itself and the workers that serve it.”
The union, which represents nearly 225,000 members, proposes beginning with basic expanded financial services like payroll cashing, ATMs in every post office, electronic bill payment through the postal system, and electronic money transfers.
“People who work hard for their money and who don’t have access to banks at all could come to a post office, cash their check, put it on some kind of no-fee or low fee plastic instead of relying on predatory lending,” says Dimondstein. “Low-income workers who get stuck in this alternative financial industry of payday lending and check cashing spend about 10% of their incomes on fees and services. So if that can be diminished to 1%, then we’re helping to manage income inequality.”
While the prospect of light banking at postal offices seems like a no-brainer, Dimondstein says his union has faced opposition from trade groups like the American Bankers Association.
“Although there have been a number of proposals over the past few years to turn the U.S. Postal Service into the world’s largest shadow banking system, we are very concerned that allowing the U.S. Postal Service to provide banking services will be beyond the Postal Service’s core competencies, will raise a number of serious regulatory and consumer protection questions, and will present significant competitive issues for private sector entities,” the ABA wrote in a letter to Congress in 2018.
President Donald Trump’s administration also opposes the idea, writing in a 2018 Treasury Report (that recommended the Postal Service consider privatizing), “Given the USPS’s narrow expertise and capital limitations, expanding into sectors where the USPS does not have a comparative advantage or where balance sheet risk might arise, such as postal banking, should not be pursued.”
But Dimondstein argues that large banks aren’t interested in serving low-income Americans. He says he’s befuddled by their opposition to handing off the job to someone else.
“I think it’s ideological. I don’t think it’s even about revenue because the banks are pulling out of these neighborhoods or they were never in these neighborhoods,” he says. “I think it’s hostility to anything that belongs in the public domain and for the public good. So, you know, it’s whatever their lobbying efforts are, whatever their influence is, but we aren’t trying to go up against the banks tomorrow with a public savings bank in the postal office.”
As the Postal Service continues to lose money at a rapid clip, Republicans have moved to privatize the institution.
But advocates for the Postal Service argue that it was a 2006 piece of Republican legislation that requires the USPS to pre-fund all future retiree health benefits that led to the current financial hemorrhage. The congressional mandate, according to former Postmaster General Megan Brennan, has led to 80% of the agency’s losses.
“The pre-funding mandate is an onerous, draconian, and absurd mandate that needs to be fixed on its own,” says Dimondstein. He doesn’t think that allowing the Postal Service to profit off offered financial services will be enough to fill the pre-funding hole that led to a net loss of $8.8 billion in fiscal year 2019 even with a $514 million increase in operating revenue.
But, he says, it would certainly bring in revenue while providing a social service to solve a social problem.
“The predatory payday lending industry, according to the Office of the Inspector General of the USPS, is an $89 billion industry,” says Dimondstein. “There is a lot of revenue to be gained.”
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