If Sen. Kirsten Gillibrand (D – N.Y.) has her way, post offices may start offering a lot more than stamps and mailing options to the patrons walking through the door. Gillibrand introduced a bill this month that would mandate every U.S. post office to offer certain banking services as well.
The move might have some potential. The proposed Postal Bank might be able to help the ailing postal service and also people who are struggling with their finances. A key focus in the legislation is end predatory payday lending.
What the Legislation Calls For
The legislation introduced by Gillibrand would give people who are living paycheck to paycheck a place to get affordable short-term loans.
Right now, many economically-challenged citizens are known to turn to payday loans during financial emergencies. The problem with payday loans is their high interest rates and unforgiving penalties.
Due to these high interest rates and often harsh terms, many payday borrowers can get looped into a cycle of mounting late payment fees. Sometimes, the payday lender offers them a way out – with another loan. Such practices have been under scrutiny as they can leave consumers trapped.
Under the new legislation, consumers would be able to cash paychecks, make deposits, and pay bills with the proposed Postal Bank. Consumers would have access to low-fee checking and interest-bearing savings accounts.
Additionally, Borrowers could ask for “low-fee and low-interest” loans of up to $1,000. The interest rate would be presumably much lower than a payday counterpart according to Gillibrand’s press release.
Why Proponents Like the Idea
There are several interesting takeaways for proponents to emphasize.
For starters, this move would presumably increase access to banking services for low-income consumers. At the same time, it would establish a widely available alternative to payday lenders.
There are over 30,000 post offices in the country which are accessible by basically any U.S. citizen. They are located all over the county by federal mandate, while some rural areas are neglected by private banks according to the St. Louis Fed.
On top of all this, the press release asserts several promising statistics for consumers. Assuming low-income consumers take out Postal Bank loans, the Senator’s press release states that consumers could save $100 billion collectively if the Postal Bank were established. This is $100 billion spent on payday loan interest and fees.
Gearing up for New Controversy and Remembering the Old Arguments
Of course, starting a bank is no easy task. You need capital after all. For many startup banks, one of the biggest initial challenges is finding that capital. The federal government would supposedly be funding this initiative, so naturally, it’s easy to assume the taxpayer would subsidize the Postal Bank in some way.
Sure, the loans made to consumers could be sustained by deposits. However, the Postal Bank is targeting low-income consumers, so having a large deposit volume to utilize may not be as plausible, especially in the early phases. With that being said, you can bet that taxes will play some part.
The idea of using taxes to fund the Postal Bank is a major point of contention all by itself. There’s general opposition to increasing taxes whether it’s for the infrastructure, the military, or just about anything. It’s very easy to assume that the idea of subsidizing a national bank that targets low-income consumers would bring up an enormous debate in politics as well as general opposition from groups of consumers.
However, there are still counter arguments to made in this regard. Theoretically, the Postal Bank could become profitable which would reduce the need for subsidization. The federal government could also find private investors instead of relying on American citizens. One thing that is certain: taxes will be brought up, and it’ll be a debate.
Furthermore, there’s a whole other debate on whether a Federal bank should exist in the first place. It’s a historic controversy. Arguments over a national bank stem back to the 1790s and 1830s. Many old politicians thought the federal bank would stymie economic growth with unnecessary oversight into the banking industry. One key sticking point was federal intervention in both consumer, private, and state affairs.
It’ll be interesting to see where this Postal Bank debate takes Congress. Will it gain any traction? Would the public support it? Would the state governments support it? Only time will tell.