The U.S. Postal Service recently launched a Postal Banking Pilot Program that allows customers to cash paychecks and business checks up to $ 500 in four cities: Washington, Baltimore, the Bronx and Falls Church, Va. .
This modest pilot project is the foundation for envisioned more extensive postal banking services that could include bill payment services, access to ATMs, and money order and wire transfer capabilities, all of which would provide essential financial services to millions of people. people excluded from banking services. that promote the economic security and well-being of many Americans.
Local bank branches are closing in all communities across our country, and traditional banks are failing to deliver financial services that meet the needs of many communities, especially low-income, rural, black, and Latino communities. As a result, too many people are forced to turn to exploitative payday loan services that charge outrageous fees and interest rates for the most basic financial services, including cashing a paycheck.
Robust postal banking services, which should eventually include checking and savings accounts as well as lending options, could step in and provide fair, accessible and affordable financial services to people who do not have access to traditional banking services and otherwise would have to turn to high banking services. low-cost, low-value fringe financial institutions.
An alarming number of Americans – over 60 million people – are either “unbanked” (meaning no current account or savings) or “underbanked” (i.e. say using products and services outside of traditional banks like check cashing stores and payday lenders). One in five Americans who are underbanked are the least able to afford financial service fees, but pay the highest costs to access their money. Underbanked households have an average annual income of $ 25,000 and typically spend around 10% of their income on fees and interest from fringe financial institutions just to access their money – an amount equal to what the average household spends. every year in food.
People of color are disproportionately underbanked. The reasons are complex, ranging from inaccessible bank branches and onerous bank account requirements, to credit problems, discrimination and mistrust of traditional banks. The result is sobering. Almost half of black households and a third of Latino households are unbanked or underbanked and lack access to affordable basic financial services to use and save their money. This both stems from the racial wealth gap in America and exacerbates it.
A recent trend has made banking even less accessible: For at least a decade, banks have systematically closed branches, including a record 3,324 branches nationwide in 2020 alone. These bank closures are creating “deserts”. banking ”in many low-income, black and rural communities. More than 90 percent of bank branches closed since 2008 were located in communities with household incomes below the national median. Rural communities are particularly vulnerable to banking deserts, and majority Black communities have lost more bank branches than any other community, including low-income non-majority Black communities.
Postal banking provides an economic lifeline for countless Americans living in banking deserts. The 34,000 postal service facilities serve all postal codes across the country. Over two-thirds of census tracts that have a post office do not have a bank branch.
The postal bank also provides transparent and fair services and costs. Traditional banking fees and requirements, such as minimum balance requirements, activity fees, and overdraft fees, exclude low-income and low-balance customers. These high fees and requirements are compounded by the racialized current account costs and fees which are $ 190.09 higher for blacks, $ 262.09 higher for Latinos, and $ 25.53 higher for Americans. Asian origin than for whites for entry-level current accounts. Even worse is the exploitation by payday lenders who charge high fees for check cashing services and interest rates of up to 589% for payday loans. In contrast, the Postal Banking Pilot Project allows customers to cash checks up to $ 500 at a fixed price of $ 5.95.
The Postal Service is ideally located to provide accessible and affordable financial services to every family and community in America. Postal banking offers a viable and fair path forward for American families who have been left behind or left behind by our banking institutions and forced to rely on often unscrupulous payday lenders who often trap those who can. the least afford it in a cycle of debt. Postal banking is a key route from poverty to economic mobility for millions of Americans and also generates significant revenue and opportunities for the Postal Service to thrive and expand its business model.
Nicole Ndumele is the senior vice president for rights and justice at the Center for American Progress.