You may be as weary of hearing from me on these issues as I am writing about them, but unfortunately this stuff is really happening; stuff that can have a significant and “unwelcome” impact on our financial industry. We’re, of course, talking about the pilot program that involves the USPS providing banking services.
Paul Merski, the vice president for congressional relations and strategy for Independent Community Bankers of America, emphasized that the Postal Service has not provided anything beyond a few simple financial services in nearly 55 years. Merski, quoted by cnbc.com, said that “this is just a bad idea that doesn’t seem to want to go away. The post office is having trouble keeping up with just the delivery of mail and losing billions of dollars each year for over a decade now. The Postal Service is in no way, shape or form equipped to compete in the financial services space.”
The program is already in the works, with four pilot locations: Washington, D.C., Falls Church, VA, Baltimore, MD, and Bronx, NY. With the new program, customers now have the opportunity to use a payroll or business check to buy a single-use gift card worth up to $500 for a transaction fee of $5.95.
Like the recent controversy over financial institutions reporting transaction information to the IRS and the SBA making loans directly to small businesses, the idea of the USPS competing with banks and credit unions has elicited passionate rhetoric from both sides.
Sen. Kirsten Gillibrand, a New York Democrat, along with Mark Dimondstein, the president of the American Postal Workers Union, for instance, have expressed their support of the program. Gillibrand has said that this program is a great first step toward serving the unbanked and underbanked in both urban and rural communities. Senator Gillibrand points to the roughly 8.4 million households in the U.S. that are "unbanked," and 24.2 million that are "underbanked, according to the Federal Deposit Insurance Corp. Dimondstein sees the expansion into banking “as a win for the people of the country, a win for the Postal Service itself, because it will bring in new revenue, and, of course, a win for the postal workers who are extremely dedicated to the mission.”
Proponents of the plan contend that many people do not have easy access to banks, but most can find a post office. A lack of access, they say, along with the costs associated with banking, and a distrust of the banking system, have discouraged some people from using banks, leaving them out of the system entirely. Banking trade groups, on the other hand, said the pilot program detracts from the industry’s own efforts to bolster financial inclusion. American Bankers Association spokesman Jeff Sigmund said in a statement: “It’s easier than ever to open a bank account in this country and the solution is not a government-subsidized service through the post office.” In American Banker, Sen. Pat Toomey, ranking member of the Senate Banking Committee, argued that “the idea that the government is going to do a better job at providing banking services than financial institutions is just laughable. You would have to work very hard to come up with a worse idea than having the government become a national bank executed through the post office,” he said.
Also, and importantly, it’s not like the industry has been simply sitting on its collective hands while millions go without banking services. According to an August article in bankdirector.com: “To close that gap, (between the banked and un/underbanked) more than 100 financial institutions have certified one of their checking accounts as safe, affordable and transparent” through the Bank On program, which aims to leverage banks as a community partner. The goal? To make it easier and cheaper to bring unbanked and underbanked individuals into the community bank world. The Bank On program pairs certified checking accounts issued by local banks to community programs that support financial empowerment and wellbeing. The account standards were created by the Cities for Financial Empowerment Fund, with input from financial institutions, trade associations, consumer groups, nonprofits and government parties. The accounts must be “safe, affordable and fully transactional,” says David Rothstein, who leads the national Bank On initiative. “These accounts don’t carry overdraft fees or high monthly fees. They have a low minimum opening deposit and the account holder must be a full bank customer, with access to other services.” Is the program working? Millions of Bank On accounts have been opened in recent years. “The Federal Reserve Bank of St. Louis maintains a data hub of account activity submitted by 10 participating banks, ranging from Bank of America Corp. and JPMorgan Chase to $2.9 billion Carrollton Bank, the bank unit of Carrollton, Illinois-based CBX Corp. More than 5.8 million accounts have been opened at these banks to date; 2.6 million accounts were open and active in 2019.”
Isn’t this the way a problem like this should be addressed? By those who are qualified to be involved in the discussion, such as “financial institutions, trade associations, and consumer groups. Not politicians.
Could the USPS use an additional $9 billion per year? Could those 32 million Americans who are either unbanked or underbanked benefit from convenient, affordable access to bank and credit union services? Absolutely. And there is nothing wrong with the federal government looking to find a solution.
But once again, the Fed seems to be looking in the wrong place.
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