Bank on USPS to save 'bank deserts'
Published on -4/4/2014, 8:08 AM
Drive through the dilapidated main strip in Terry, Miss., and it's easy to see the town of 1,063 is a hardscrabble place. And last month, life there got harder when the last bank branch in town closed, leaving in the lurch residents who long have depended on it as a convenient place to manage their money.
The same thing is happening in countless other small towns and inner-city neighborhoods across the country, which have been left behind as banks adjust to new financial realities by shuttering branches by the thousands. The vast majority of the closures have hit poor areas, and residents often are left having to rely on other types of costly financial services.
But these towns and neighborhoods all still have one beloved asset: a post office. And if ideas my agency outlined in a recent report come to fruition, those post offices could offer residents basic, affordable financial services, including prepaid cards, check cashing, bill payments and perhaps even small advances.
The U.S. Postal Service has an unmatched network of more than 30,000 post offices in virtually every community in America, nearly 60 percent of which are in ZIP codes where there is only one bank branch or none at all. Many residents of these "bank deserts" are among the 68 million financially underserved adults who don't have bank accounts or who have to rely on costly services such as check cashers and payday lenders for some of their financial needs. The underserved collectively spent $89 billion in interest and fees on alternative financial services in 2012.
In the world of finance, it costs more to be poor. Walk into most gas stations, pharmacies and convenience stores and you'll find a whole rack of prepaid cards. But when you look at the fine print, the fees on many of those cards are extremely high. Users can be charged every time they add money, spend money, transfer money or even when they don't use it at all. Small financial emergencies -- car problems, sick children -- often must be covered with a payday loan, with interest fees of up to 400 percent.
It all adds up. On average, the underserved spend almost a tenth of their income on interest and fees. To put that into perspective, that's about the same portion of income the average American spends on food. The postal service could add a much-needed element of trust to that market, serving as a place where everyday people could turn to get transparent financial products that won't break the bank.
This is not a radical idea. Many foreign post offices, including those in Britain, France, Brazil, New Zealand and Italy, offer financial services. In fact, globally, an average of 17.7 percent of postal revenue comes from financial services. In that sense, our postal service is the notable exception.
And it wasn't always that way. The postal service ran a successful, popular bank for more than 50 years that needed no bailout. The service was ended ultimately because of restrictions on the interest it could pay.
Moreover, one of the postal service's founding missions was to support commerce. There are three key elements to that: communication about transactions, delivery of an item and payment for that item. Although the postal service long has led the paper money-order market, it is behind the curve in electronic payment products. Many people need affordable and convenient ways to access e-commerce, and providing those services would not only be well within the postal service's mission, it also would help unleash the power of the digital economy in places that have been largely left out of it.
Access to affordable financial services isn't just about saving money. It's also about dignity. It hurts to hand over so much of your hard-earned money to providers who take advantage of you just because you have nowhere else to turn. As banks continue to move out of small towns such as Terry, this pain only will increase.
The postal service can't solve this problem on its own, but it could be a big part of the solution. That's an opportunity the American people can't afford to pass up.
David C. Williams is the independent inspector general for the U.S. Postal Service. He wrote this for the Los Angeles Times.