Let’s revive post office banking

Senator Elizabeth Warren and others want to revive postal service banking.  It’s a good idea.  Many big banks don’t want to bother with small depositors, and poor people without bank accounts spend an estimated 10 percent of their incomes on check cashing services, payday loans and other services just to get access to their incomes.

postoffice-bank39The idea is that they would be able to deposit cash or checks at their local post offices, and then withdraw funds with a passbook or maybe a debit card, all without a charge.  Some supporters propose free or cheap checking accounts, payday loans and international money transfers (the latter very important to immigrants).

The United States had postal savings from 1911 to 1967.   In the days before federal deposit insurance, Americans trusted the post office more than private banks, and rightly so.  Many bank depositors lost their savings after the 1929 financial crash, but the postal savings accounts were safe.  Use of postal savings faded after creation of the Federal Deposit Insurance Corp. in 1933, and banks after World War Two began offering higher interest rates on savings – 3 percent instead of 2 percent.

According to Wikipedia, many other countries also have post office banking, including Britain, France, Germany, Japan, South Korea, China, India, Sri Lanka, Israel, South Africa, Kenya and Brazil.

The Inspector General of the U.S. Postal Service estimated that 68 million Americans have no savings or checking accounts.  Many of them live in ZIP Codes without banks or bank branches, or only one.  He estimated that these Americans spent $89 billion in 2012 for check cashing and similar situations, which comes to about $2,400 per family.  They might well have paid just as much or more if they had accounts in regular banks, in charges and fees for overdrafts, having bank balances fall below a certain minimum and so on.

It is tempting to see banking services as a solution to the Postal Service’s financial problems.   I think this would be a mistake.  Big banks do not provide affordable services to poor people for a reason.  It isn’t profitable.  There are few if any instances in which government made a profit providing a service where private business could not.   The only justifiable reason for government to undertake to provide a service is that we, the people, have decided it is a necessary public service.

It is also tempting to propose a long list services the postal service could provide.  I think it would be best to start with a basic, no-frills service in which people can deposit cash and checks, and access them with passbooks or maybe debit cards, and see how that works.   It is best to be sure you can walk before you try to fly.

Many people have remarked that it is expensive to be poor.  Your cost of living is higher if you’re chronically short of cash.  Post office banking wouldn’t solve all the extra problems of the working poor, but it would help.

LINKS

Why Turning Post Offices Into Banks Would Be Win-Win by Ed Mathews for TruthOut.

Postal Banking: Maybe Not So Crazy After All by Adam J. Levitin for The American Banker.  Hat tip to Mike the Mad Biologist.

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