According to a report put out this week by the Office of the Inspector General (OIG) of the U.S. Postal Service, about 68 million Americans — more than a quarter of all households — have no checking or savings account and are underserved by the banking system. Collectively, these households spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing, which works out to an average of $2,412 per household. That means the 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.
But it doesn’t have to be this way. In the same remarkable report this week, the OIG explored the possibility of the USPS offering basic banking services — bill paying, check cashing, small loans — to its customers. With post offices and postal workers already on the ground, USPS could partner with banks to make a critical difference for millions of Americans who don’t have basic banking services because there are almost no banks or bank branches in their neighborhoods.
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.
This is not a new problem, and policymakers in Washington have long sounded the alarm. Michael Barr — an assistant secretary of the Treasury under President Obama and law professor at University of Michigan — has pushed on this issue for years. As Chair of the FDIC, Sheila Bair put in place a Committee on Economic Inclusion to generate ideas for expanding access to lower-cost banking services. (I had the honor of serving as a committee member.) And we’ve taken some important steps forward. The new Consumer Financial Protection Bureau (CFPB), for example, is a cop on the beat that is putting in place commonsense rules to protect consumers and ensure that payday lenders are held accountable when they break the law.
There has been momentum in the right direction, but there is so much more work to do to make sure that families have access to affordable and fair financial services.
That is why the OIG report is so interesting. If the Postal Service offered basic banking services — nothing fancy, just basic bill paying, check cashing and small dollar loans — then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing. (The postal services in many other countries, it turns out, have taken steps in this direction and seen their earnings increase dramatically.) The report has provoked a great deal of discussion, and it is worth reading David Dayen’s article about it at the New Republic — “The Post Office Should Just Become a Bank: How Obama can save USPS and ding check-cashing joints.”
The Postal Service is huge — employing more than a half million people — and its history is long and complicated. Any change will take time. But this is an issue I am going to spend a lot of time working on — and I hope my colleagues join me. We need innovative ways to create pathways for struggling families to build economic security, and this is an idea that falls in that category.