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Table of Contents

The way Postal Banking Works

Postal Banking and the Unbanked

Current Situation of Postal Banking Proposals

Frequently asked questions

The Bottom Line

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What is postal banking?

Making financial services available at the post offices could assist many Americans

By Kat Tretina

Updated April 28, 2022

Reviewed by JeFreda R. Brown

The factual information is verified by Skylar Clarine

In postal banking, the post office in your area offers the basic financial services similar to a commercial bank. Postal banking is widespread throughout the world and was once available in the United States. There are some who believe that returning it could be a cost-effective solution for the country’s large people who are not banked.

Key Takeaways

Postal banking is common in other countries but isn’t seen in the United States for decades.

Many believe that returning it can make low-cost banking accessible to people with lower incomes Americans.

About 7.1 millions American households do not have checking or savings accounts.1

Account minimums and high fees frequently prevent individuals from opening accounts.

Customers who aren’t banked depend on merchants for financial services such as checking cash or making payments on bills that can be costly.

How Postal Banking Works

With postal banking, the post office at your local location functions as a bank branch. For instance, it could offer cash for checks processing for bill payments, and even small loans.

Today, U.S. post offices do not typically provide the services mentioned above, but they may offer postal money orders, an option for those who have to pay a bill or to make a secure transfer of money to someone but who don’t have accounts with a checking account. Recipients can also cash money orders at a post office location.

In the past, post offices weren’t that limited. From 1911 until 1967 until 1967, the U.S. had a Postal Savings System, where Americans could save their money in savings accounts that were backed by the government and earn interest. However, as commercial banks increased the interest rates for savings accounts, the demand to use the Postal Savings System declined, and the program was shut down in 1967.2

Postal Banking and the Unbanked

In the U.S. in 2019, the most recent year for which figures were available, more than 5% in households (about 7.1 million total) were not banked, which means that nobody in the household has a savings or checking account at a bank or credit union.1 For those who live in these households, banking services such as cashing the check could be prohibitively costly.

According to a 2019 survey by the Federal Deposit Insurance Corp. (FDIC) the majority of households without a bank account are poor and don’t have access to a credit or bank union for reasons that include:

Minimum balance requirements for accounts are high. The most often reported reason was that the household didn’t have enough money to meet banks the minimum balance requirements.

Insufficient trust. Many people said they didn’t trust banks with their money.

Fees. Unpredictable (and often excessive) charges, such as overdraft charges, monthly account fees, and withdrawal fees—block some individuals from opening or maintaining accounts.3

In the absence of a checking or savings account, households that are not banked turn to services like check-cashing shops and payday loan centers to conduct financial transactions, such as cashing checks or paying for utility bill. At one check-cashing chain in California for instance fees can be as high as 1.79 percent to 14.99% of the face amount dependent on the kind of check.4

Postal banking advocates claim that a postal banking system would not only permit low-income people to cash checks at cheaper rates but also keep them away from predatory lenders. The ability to visit an office in the post for small loans could end their reliance on costly alternatives, such as payday lenders.5

Current Status of Postal Banking Proposals

In 2014, banking on postal mail was a hot topic due to a white paper released by the U.S. Postal Service Office of Inspector General. The report stated that the underserved households spend more than $2400 per year on interest and fees from alternative financial sources, and that postal banking could cut that dramatically.6

The white paper opened up discussions about alternatives for underserved Americans. In 2020 the senator. Kirsten Gillibrand (D-N.Y.) was the sponsor of a bill, the Postal Banking Act, which would allow the Postal Service to provide basic financial services. She was joined by co-sponsors senators. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.).7

In October 2021 The Postal Service, in partnership with the American Postal Workers Union, launched a small pilot post-banking program for four towns. In select areas, postal offices will provide services like cash checking, bill payments, as well as ATM withdrawals.

The Postal Banking Act and the postal banking pilot program have faced significant opposition from both Republican the leadership of Congress as well as the banking industry. In a statement, the American Bankers Association (ABA) issued a statement saying, «The American Bankers Association has been an active opposition to postal banking and has previously commented that it could be viewed as a government-backed service competing with tax-paying banks, and would pose risk that USPS isn’t suited to handle.»

The ABA claims that, rather as using the Postal Service, the answer to the issue of people who aren’t banked should be found in its branches. «It’s much easier than ever before to create a bank account in this country, including Bank On-certified accounts, which are now in operation in more than half of all U.S. bank branches, and feature low costs and no fees for overdrafts, robust transaction capabilities such as a debit or prepaid card, and online bill payment,» the ABA says.8

How do you define postal banking?

Postal banking refers to the provision of basic banking services at the local postal offices. It could be items like cashing checks or bill pay as well as small loans.

What is the advantage of banking by post?

Advocates argue that postal banking can provide financial services for the millions Americans who are currently unbanked, giving them a low-cost alternative to costly check-cashing outlets as well as payday loan providers.

What’s the reason to oppose postal banking?

A large portion of the U.S. private banking industry claims it is that the U.S. Postal Service is ill-equipped to add banking to its other services and that many banks now have low-cost programs that could better serve the currently unbanked population.

The Bottom Line

Postal banking is increasingly cited as a potential solution for people with low incomes who do not have access to traditional credit unions or banks. While postal banking has seen some progress in Congress in recent years, it faces significant opposition from the banking industry. If postal banking is not made widely available the majority of people will still rely on credit unions and banks (or check-cashing shops and payday loan purveyors) for banking services.

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