Rural, poor, minority people lack access to banks
The U.S. Postal Service recently launched a postal banking pilot program that allows customers to cash payroll and business checks up to $500 in four cities: Washington, Baltimore, the Bronx and Falls Church, Virginia. This modest pilot is the foundation for more expansive contemplated postal banking services that could include bill-paying services, ATM access, and money order and wire transfer capabilities, all of which would provide critical financial services for millions of people shut out of the banking services that foster economic security and wellbeing for many Americans.
Local bank branches are shuttering in communities all across our country and mainstream banks are failing to offer financial services that meet the needs of many communities, particularly low-income, rural, and Black and Latino communities. As a result, too many people are forced to turn to exploitative payday lending services that charge exorbitant fees and interest rates for the most basic financial services, including cashing a paycheck.
Robust postal banking, which should ultimately include checking and savings accounts, as well as loan options, could step into the breach and provide equitable, accessible and affordable financial services to people who lack access to traditional bank services, and would otherwise have to turn to high-cost, low-value fringe financial institutions.
An alarmingly high number of Americans — more than 60 million — are either “unbanked,” meaning without a checking or savings account, or “underbanked,” meaning using such products and services outside of mainstream banks as check-cashing stores and payday lenders. The one in five Americans who are underbanked are least able to afford fees for financial services, yet pay the most to access their money. Underbanked households have an average annual income of $25,000 and typically spend approximately 10% of their income on fees and interest to fringe financial institutions simply to access their money — an amount equal to what the average household spends on food annually.
People of color are disproportionately underbanked. The reasons are complex, ranging from inaccessible bank branches and onerous bank account requirements to credit issues, and discrimination by and mistrust of mainstream banks. The result is sobering. Almost half of Black households and one-third of Latino households are unbanked or underbanked, and lack access to basic, affordable financial services to use and save their money. This both stems from and exacerbates the racial wealth gap in America.
A recent trend has made banking even less accessible: For at least a decade, banks have been systematically closing branches, including a record 3,324 branches nationwide in 2020 alone. These closures create “banking deserts” in many low-income, Black and rural communities. More than 90% of the bank branches closed since 2008 were located in communities with household incomes below the national median. Rural communities are particularly vulnerable to banking deserts and majority-Black communities have lost more bank branches than all other communities, including lower-income non-majority Black communities.
Postal banking provides an economic lifeline to countless Americans living in banking deserts. The Postal Service’s 34,000 facilities service every ZIP code in the country. More than twothirds of the census tracts that have a post office do not have a bank branch.
Postal banking also provides transparent and equitable services and costs. Traditional bank fees and requirements — such as minimum balance requirements, activity fees and overdraft charges — exclude low-income and small-balance customers. These hefty fees and requirements are compounded by racialized checking account costs and fees that are $190.09 higher for Blacks, $262.09 higher for Latinos and $25.53 higher for Asian Americans than for whites for entry-level checking accounts. Worse still is exploitation by payday lenders charging steep fees for check-cashing services and interest rates as high as 589% for payday loans. In contrast, the postal banking pilot allows customers to cash checks up to $500 for a set price of $5.95.
The Postal Service is uniquely situated to provide accessible and affordable financial services to every family and community in America. Postal banking provides a viable and equitable path forward for American families who have been left out, or left behind, by our banking institutions and forced to rely on often unscrupulous payday lenders that frequently trap those who can least afford it into a cycle of debt. Postal banking is a key pathway from poverty to economic mobility for millions of Americans, and also produces significant revenue and opportunities for the Postal Service to flourish and expand its business model.