What Is a Postal Bank?
Most Americans can rely on direct deposit, debit cards, and online bill payment to keep things running smoothly in their daily lives. Of course, there may be fees , and most of us could use a few more dollars in our accounts, but the mechanisms of the financial system work so well that we don’t even think about them.
But that is not the case for the roughly 9 million households in America that do not have bank accounts or credit cards to use and cannot operate within the normal banking system. Some do not trust banks with their money, while others cannot afford the fees and account minimums that most national banks charge. There is no pressure on banks to offer these clients financial products because they will not receive money from them (after all, there is a reason why your checking account is charged).
More people rely on payday loans with astronomical interest rates to last another week because they have no other alternative. Jones’ mother notes that “unbanked households spend an average of $ 2,412 a year, or about 10 percent of their average annual income , on interest on financial services, which most bank customers receive free of charge.” As Time said , being poor is expensive.
New York Senator Kirsten Gillibrand promulgated legislation that offers one solution to the problem: requiring US post offices to offer customers basic financial services, including checking accounts, interest-bearing savings accounts, and short-term loans.
“For millions of families who do not have or have limited access to a traditional bank, the simple act of cashing in a salary or taking out a small loan to repair a car or paying a gas bill could end up costing thousands of dollars in interest and fees. which is almost impossible to recoup, ”Gillibrand said in a press release.
Checking account offerings would be enough to allow many Americans without bank accounts to enter the financial system, but Gillibrand’s plan goes much further than that, according to Slate : it targets the predatory payday loan industry:
The bill says postal banks can make loans of up to $ 500 at a time at an interest rate that matches the yield on monthly Treasury bills, which is now a modest 1.65 percent. This interest rate is probably too low given how many of these loans are likely to default. The Postal Service’s inspector general reports the interest rate is approaching 25 percent, saving customers hundreds of dollars over payday loans, which are usually issued at an annual interest rate of about 400 percent.
This won’t be an easy win for Gillibrand – payday lenders are strong in Washington (just ask Micah Mulvaney , director of the Consumer Financial Protection Bureau). But this is one solution to a serious financial problem that is worth considering.
(If you’re interested in learning more on this topic, check out Lisa Servon’s book, Banking America Out: How A New Middle Class Survives .)