by Stephen Reynolds
The views expressed in this post are those of the author, and do not necessarily reflect views of the Journal, the William H. Bowen School of Law, or UA Little Rock.
Can you imagine living without a debit or credit card? It sounds unbelievable to me, although I’m a white man from a solidly middle-class family. As I’ve grown into an adult, and, more recently, moved into a city, I’ve seen just how poor, poor can get. When I was younger and still lived in my rural hometown and I would drive into our state capital, I would think to myself, ‘Why do people still ask passersby for money? Don’t they know that no one carries cash anymore?’ I’ve realized that, for a number of people, even a simple checking account is a luxury. They rely on cash transactions because they either don’t make enough to open a traditional checking account or they don’t make enough to justify paying the fees that come along with it. So then, if they’re lucky enough to have a traditional pay check, they have to go to a check-cashing service, which, usually, ends up costing them more money than a traditional bank would if the bank would let them open an account. [1] When life’s inevitable surprises are thrown at them, they either suffer through whatever hardships come with the surprises, or resort to getting cash advances from independent payday lenders (my grandfather still called them loan sharks until he died) or actual loan sharks (yes, they still exist). Even struggling college students, single parents, or the “working poor” resort to dealing with risky loans with high interest rates and severe penalties for late payments from payday lenders. You get the picture. It sucks.
The Arkansas Supreme Court struck down the state’s Check-Casher’s Act, Ark. Code Ann. § 23-52-101 et. seq., in McGhee v. Ark. State Bd. of Collection Agencies, 375 Ark. 52 (Ark. 2008). [2] The Court found that the interest rates being charged by payday lenders at that time were unconstitutional pursuant to then-article 19, section 13 of the Arkansas Constitution, and amounted to usury. For all intents and purposes, payday loans are illegal in Arkansas. [3] Arguably, this leaves people here worse off than before because some money is better than no money, at least when you need it. Community banks and credit unions are useful and we should not discount them (full disclosure, I bank at both a both a local credit union and a community bank) but these banks struggle to compete with the big five banks (JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and U.S. Bancorp) who, unbelievably, own nearly half the entire banking industry. [4] They also charge fees for services and account maintenance, and require approved credit even for small loans.
Enter postal banking. Postal banking is a one-size-fits-all solution to the problems described above. While it was once a fixture in American society (during the early to mid-20th century when, for reasons that should be obvious, we didn’t trust traditional banks), deposits dropped once traditional banks gained the public trust, and the postal banking system was extinguished by the mid-1960s. [5] But, what was old is new again. Spearheaded by (at least) three key figures in the U.S. Senate, the idea of using post offices as banks is back on the rise. Sen. Kirsten Gillibrand of New York introduced legislation earlier this summer that would require post offices to offer basic financial services like checking and savings accounts, and well as low-interest, small, short-term loans. [6] Sen. Bernie Sanders of Vermont already thinks the United States Postal Service has the authority to become a bank. He has also called on the Trump Administration to both stop the privatization of the USPS, and to allow it to expand its basic services, introducing benign services like gift-wrapping and notarizing documents, as well as more controversial services like allowing alcohol shipping. [7] Sen. Elizabeth Warren of Massachusetts, the creator of the Consumer Financial Protection Bureau, has been vocal on this issue for some time. [8]
So, why do it? Well for one, there’s already a post office in pretty much every community. There won’t be a need to build new facilities in places where there are no banks. The post was designed to reach everyone, and for the most part still does. Second, the revenue from the new customers would ease the USPS’s financial woes. Third, consumers who, for whatever reason, can’t get a loan or open a bank account at a traditional bank or even a community bank or credit union, will have a safe place to put their money. An ancillary benefit here is that (since the post was also designed to be self-sustaining but not profit-oriented) low interest rates at postal banks would drive down absurdly high interest rates at traditional and other banks as more consumers flock to postal banks (see, liberals still believe in market forces). Finally, if unbanked consumers have a reliable place to deposit their money, there will be no market left for the predatory payday lenders and check cashers that are left. [9] [10]