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
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.
Letter: 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.
The lackluster results of a postal banking pilot program indicate almost nonexistent demand and a failure to generate revenue to cover expenses.
The Senate should amend Section 3703 of the reform act, which would allow the USPS to partner with state and local governments on non-postal services, to explicitly prohibit postal banking.
Background: The legislation to overhaul and modernize the USPS passed the House 342-92 last week and is expected to come to a Senate vote this week.
Pilot Update: The Postal Regulatory Commission is pressing USPS on why it didn’t seek approval before launching the postal banking pilot program, as required by federal law. The USPS previously reported that the pilot resulted in just six sales between Sept. 13 and Jan. 12.
More from ICBA: A three-part series of ICBA issue briefs delivered to policymakers last year explores the policy’s flaws and offers alternatives for reaching the unbanked.