Postal Banking Could Help Close Racial Wealth Gap
More than 60 million Americans are either “unbanked” or “underbanked” and local bank branches are closing across the country, particularly in communities of color. The U.S Postal Service has begun a postal banking pilot program that allows customers to cash payroll and business checks up to $500 in four locations: Washington, D.C., Baltimore, the Bronx borough of New York City and Falls Church, Va. Nicole Ndumele, senior vice president for Rights and Justice at the Center for American Progress, wrote recently about the potential benefits of postal banking and she discussed the issue recently with Spotlight. The transcript of the conversation has been lightly edited for clarity and length.
We saw your op-ed piece on postal banking, so why don’t we just start by defining postal banking for those who don’t know?
Sure. Postal banking is the opportunity to provide financial services at local post offices. The goal is to provide accessible and affordable banking services for millions of Americans who currently don’t have access to mainstream banking institutions in their communities.
And how did you get interested in this?
I became interested in this because I lead our racial equity and justice work at the Center for American Progress and postal banking is one of many policy solutions that have been put forward as a way to help close the racial wealth gap.
And there is a current pilot, right? Can you tell us a little bit about that?
There is a current pilot. It is occurring right now in four cities: Washington, D.C.; Baltimore, Md.; Falls Church, Va.; and Bronx, N.Y. The pilot allows individuals to cash payroll and business checks of up to $500.
And how long has that been going on and is there any data from that to give a sense of how it’s going?
It has only been in existence for the past few months. I’m not aware of any current public data evaluating the usage of these pilot programs.
Are there any other state or local pilot projects?
I’m not aware of any additional pilot projects. The current pilot is being coordinated by the federal government.
What do we know about post offices and, and why that’s a good place to offer service like this?
That is a very good question. The reason that post offices are such a great place to offer these banking services is that they are accessible to all Americans. We already have a federal system worked out for making sure every American can access their mail. We know that there are currently about 34,000 postal facilities and they reach every single zip code in the country. We also know that about two thirds of the census tracks that have a post office do not have a bank branch. Posting banking would help reach many people who otherwise would not have access to a local bank.
And it’s potentially also good for the postal service as well, given its revenue gap, right?
That’s right. This will also lead to additional revenue for the post office, but it would do so in a way that’s transparent and fair and equitable for all customers. So, for example, the current pilot allows for check cashing services and they do that at a flat rate of $5.95. Whereas in the private sector, customers are at the whim of individual banks, which can charge various amounts and not transparent amounts for these services.
What would a post office need to be able to do this? Is, is there additional security or infrastructure or anything like that?
The initial pilot is underway. Whether additional security or infrastructure is required would probably depend on if, and how, the pilot is expanded.
And this would help with some of those who are unbanked being able to access benefits like the expanded Child Tax Credit
The current pilot makes it easier to cash checks, which is a very important and under-recognized service. Most people who receive their income through paychecks have access to a banking account but there are close to 60 million Americans who are either unbanked—meaning they don’t have a traditional bank account—or underbanked, meaning they have access to some mainstream banking services, but they still rely on other non-traditional, and often predatory, banking services. And many people who do not have a checking account and do not have an opportunity to cash their paychecks in a reliable way often face excessive fees and other inconveniences just to be able to access their basic income.
What about interest in this idea in Congress?
There has been some legislation proposed around postal banking. Sens. (Kirsten) Gillibrand (D-N.Y.), and Bernie Sanders (I-VT), and Reps. Alexandria Ocasio-Cortez (D-NY), Bill Pascrell (D-NJ), and Marcy Kaptur (D-OH) have been leading the charge on this and has some pending legislative language surrounding postal banking.
How do people hear about this service?
The postal service put out information about this and there’s also been a fair amount of media attention about it as well.
Is there anything you’d like to add Nicole?
I think it might be helpful to expand a little bit more on the dynamics of why communities of color tend to be underbanked and the degree to which there are banking deserts in many majority Black communities which postal banking helps to address. We know that there are many Black and rural communities that lack access to local bank branches in their communities. The closures of local bank branches have been occurring for a significant period of time but increasing rapidly over the past decade and many communities of color are the first and worst hit. We also know that majority Black communities specifically have lost more bank branches than any other community, even lower-income non-majority Black communities.
Another point which I think is very important to consider is, what is the alternative without postal banking? Currently that’s high cost and low value fringe, financial institutions—predatory lenders, payday lenders check cashing lenders—which often take advantage of individuals who for a variety of reasons may not be able to access traditional banking and then are spending significant amounts of their income, approximately 10% of their annual income, on fees just to be able to access their paychecks. This means that those who can least afford it are spending a significant amount of their overall income on fees rather than other essential things like rent, food, medication.
And would the idea be that at least eventually the full suite of banking services would be offered through a post office?
That is the hope, that postal banking would expand to include many additional services. This is a limited pilot, both in services provided and locations, but earlier in American history, there was a much more robust postal banking system that provided many additional services. The goal would be to continue to expand the pilot and provide an array of financial services for communities who are in need of banking services that are accessible, equitable, and transparent.