ICBA opposes the provisioning of retail deposit accounts and the allocation of consumer credit by the United States Postal Service (USPS), Federal Reserve, or any other federal, state, or quasi-federal or state instrumentality.
The financially challenged USPS has virtually no expertise in providing financial services to consumers in a cost-effective manner. Greater entry by the USPS into financial services introduces another tax advantaged and lightly regulated entity with limited expertise into the marketplace, akin to credit unions and the Farm Credit System.
Accounts offered by the Federal Reserve (FedAccounts) would directly compete with community banks, diverting deposits from local communities and create undue taxpayer risk. Requirements for cost recovery under the Monetary Control Act call into question the legality and feasibility of FedAccounts.
Financial services are best provided in a competitive, private, and free marketplace that openly and efficiently benefits customers.
Postal Banking. There has been a resurgence in interest among certain lawmakers in allowing the United States Postal Service (USPS) to offer retail banking services at their locations. This proposal was included in then-President-elect Biden’s “Unity Task Force Recommendations” document written with Senator Bernie Sanders.
The reported purpose of postal banking is to provide a “consumer-friendly” alternative to payday lending and check-cashing services for those without a bank account and to turn a profit to support the moribund finances of the USPS. In September of 2021, the USPS quietly launched an ICBA-opposed pilot in Washington, D.C.; Falls Church, Virginia; Baltimore, Maryland; and the Bronx, New York.
As of January 2022, the pilot had only six customers brought in fee revenue of just $35.70, indicating almost non-existent demand and a failure to generate revenue to cover expenses. Any attempt to scale up this pilot would only jeopardize the core mission of United States Postal Service (USPS) – the timely delivery of letters and parcels on which American commerce and consumers depend. Improving delivery times must take priority over all other initiatives.
The argument for postal banking relies on the supposed omnipresence of postal facilities. USPS’s “universal service obligation” requires it to maintain postal facilities and personnel in every ZIP code in the country. However, proponents fail to recognize that commercial bank branch locations outnumber post office locations 3 to 1.
Moreover, fewer than 10 percent of unbanked individuals have cited “inconvenient locations” as a reason for being unbanked. An ICBA issue brief projected the postal service would lose nearly $500 million per year as a competitor against private institutions in the financial services sector.
ICBA adamantly opposes allowing the USPS to offer financial products and services. The encroachment into these activities by a major federal agency would represent a significant, government-sponsored, competitive threat to the ongoing viability of the nation’s thousands of private sector, tax-paying community banks which do an excellent job of serving consumers, small businesses, and farmers and ranchers across America. Financial services are best provided in a competitive, private and free marketplace so they can openly and efficiently benefit customers. Community banks and other financial institutions already offer low-cost financial services to underserved communities to help them break away from the debt cycle of payday lenders. According to the FDIC, 88 percent of banks offer small-dollar loans and 81 percent offer free counseling to underserved consumers.
It would be a serious mistake for the USPS to enter a highly competitive, complex new industry with the potential to compromise its core function and its finances and put American taxpayers at further risk. Effective banking management requires years if not decades to master. In the era of systems hacking, managing financial data has become that much more challenging. This is why commercial banks are subject to the Gramm-Leach-Bliley Act’s data-security standards. The stakes are simply too high to allow a backdoor attempt to spend taxpayer dollars on a misguided experiment in postal banking.
FedAccounts. ICBA adamantly opposes the direct provisioning of retail deposit accounts by the Federal Reserve known as “FedAccounts.” Fed Accounts would be made available to all citizens, residents, and nonfinancial businesses at taxpayers’ expense. These accounts would offer the same services as commercial bank accounts including the issuance of debit cards, ATM access, direct deposit and online bill pay services. They would also support internet and mobile banking. These features put FedAccounts in direct competition with checking and savings accounts offered by community banks and raise serious privacy concerns, as they could potentially be used by the government to track consumer financial transactions.
While advocates propose hosting these accounts at the Federal Reserve, the Fed has repeatedly said it is not suited to offer direct accounts to consumers and is not legally permitted to do so. The Fed is required to meet certain requirements under the Monetary Control Act, including recovering its costs. Adequate cost recovery is likely impossible without charges and fees, which wouldn’t be permitted for FedAccounts. Community banks offer affordable accounts for unbanked and underbanked consumers. Consumers are best served by thousands of competing private institutions, which have a duty to ensure their needs are met.
Staff Contacts: Aaron Stetter and Chris Cole
Feb. 15, 2022
Washington, D.C. (Feb. 15, 2022) — The Independent Community Bankers of America (ICBA) called on senators to oppose amendments to the Postal Service Reform Act of 2022 (H.R. 3076) that would authorize the U.S. Postal Service to offer additional banking services. ICBA also called on the Senate to amend Section 3703 of the act, which would allow USPS to partner with state and local governments on non-postal services, to explicitly prohibit postal banking.
In a letter to Senate leaders, ICBA President and CEO Rebeca Romero Rainey said postal banking would lead to significant revenue losses for taxpayers that would divert resources from the USPS’s core mission of delivering mail on time. She noted the lackluster results of a postal banking pilot program launched in September that had only six customers as of January, indicating almost nonexistent demand and a failure to generate revenue to cover expenses.
“Congress should focus on shoring up the finances of a critical government agency and explore better and proven alternatives for expanding access to low-cost financial services such as empowering minority depository institutions and promoting the use of financial technology in partnership with established community banks,” Romero Rainey said.
ICBA detailed postal banking flaws in a three-part series of policy briefs to Congress last year, which said:
The Independent Community Bankers of America® creates and promotes an environment where community banks flourish. ICBA is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education, and high-quality products and services.
With nearly 50,000 locations nationwide, community banks constitute roughly 99 percent of all banks, employ nearly 700,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding nearly $5.9 trillion in assets, over $4.9 trillion in deposits, and more than $3.5 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers’ dreams in communities throughout America. For more information, visit ICBA’s website at www.icba.org.