Coronavirus prompts renewed calls for postal banking, faster payments
WASHINGTON — Federal efforts to provide stimulus checks to Americans hit by the coronavirus' economic fallout have revived calls for better government-backed financial delivery systems.
Millions of households haven't received their $1,200 payments nearly a month and a half after Congress authorized them. That has led some progressives and other observers to demand reforms to improve underbanked consumers' access to the financial system, such as authorizing the U.S. Postal Service to provide financial services or creating a Federal Reserve-backed digital wallet. Some have even lamented the slow pace of the Fed's implementation of a real-time payments network.
"It’s a real shame that even when Congress kind of basically agrees about the money that we need to deploy, our systems are so broken that we can’t even get it to the people for whom it’s intended in an expedient way,” said Amanda Fischer, policy director at the Washington Center for Equitable Growth and a former Democratic congressional staffer.
Over the weekend, Sen. Kirsten Gillibrand, D-N.Y., tweeted, "Let’s put a bank in every post office," resurrecting a proposal long criticized by community bankers. Earlier, Gillibrand, who has sponsored postal banking legislation, released a statement criticizing the Trump administration's refusal to provide emergency funds to the Postal Service. “The Postal Service is in desperate need of reinforcement, and providing postal banking for the nearly 10 million American households who lack access to basic banking services is the first step," she said.
Observers said the pandemic crisis may continue to fuel such proposals, especially as many American struggle to access their stimulus checks. The postal banking idea — supported for years by other members such as Sen. Bernie Sanders, I-Vt., and Rep. Alexandria Ocasio-Cortez, D-N.Y. — has been seen as a way to give the underserved another banking option.
Defects in government delivery systems have also highlighted the pace of the Fed's implementation of FedNow, a real-time system expected to compete with the private sector's RTP network. FedNow isn't expected to be completed until 2023 or 2024.
“It’s a debacle that it takes longer in 2020 to give everybody pandemic cash than it took in the 1960s to send a man to the moon and back,” said Aaron Klein, policy director at the Brookings Institution’s Center on Regulation and Markets. “Why is it that we are unable to get people money? It’s a combination of three things. One is how fast can you move money from Account A to Account B. Two, does the U.S. Treasury Department know people’s accounts? And three, what share of the people don’t have accounts?”
Karen Petrou, managing partner at Federal Financial Analytics, said calls by progressives for new, government-operated delivery models will only continue to grow.
“All of the problems … the IRS checks not getting where they’re supposed to, the challenges of people dealing with the unbanked, this is creating a lot of progressive demand for alternative financial delivery system,” Petrou said. “Where people think the private infrastructure failed them … they want a new government infrastructure and that again is [the] Postal Service, central bank digital currency and the new Fed-dominated payment system.”
For years, Democratic lawmakers have been pushing for the U.S. Postal Service to offer basic financial services, including low-cost, small-dollar loans as well as small checking accounts, interest- bearing savings accounts and remittance services. In many instances, credit unions that serve postal workers and their families already offer banking services in or adjacent to postal facilities.
Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, has also recently introduced legislation that would offer every American a free FedAccount digital wallet available at post offices and community banks. The wallet would have no account fees or minimum balance requirements. Account holders would receive debit cards, online account access, automatic bill pay, mobile banking, and ATM access.
“At the height of this pandemic we must do more to protect the financial well-being of hardworking Americans and consumers," Brown said when he announced the legislation in March. "My legislation would allow every American to set up a free bank account so they don’t have to rely on expensive check cashers to access their hard-earned money,”
Advocates for postal banking say that it would better serve consumers who live in banking deserts.
“Part of the post office argument, the benefit of it is that in a lot of small, rural areas, where you might not have branch banking, you probably have a post office,” said a financial services lobbyist who spoke on the condition of anonymity. “It’s one of the few things that stays open in a lot of really small communities.”
Yet the idea has always failed to get enough congressional traction, in part because community bankers have always opposed it.
“It’s just an attempt to repurpose the post office, which is not doing financially well,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America. “It’s an extremely bad idea, since the Postal Service really has virtually no experience in doing financial services and lending. There’s plenty of competition in the lending space already — everything from community banks to online lenders. You don’t need to go into post office.”
Fischer, who previously served as a staffer for Brown and House Financial Services Committee Chairwoman Maxine Waters, D-Calif., said the current coronavirus pandemic is forcing policymakers to reflect on deficiencies in the U.S. financial infrastructure that were not addressed after the 2008 financial crisis.
“We didn’t do this work of building plumbing for real people and making our economy more resilient for them,” Fischer said. “I totally think postal banking is one area where we could see more scrutiny. FedAccounts is another option."
However, the ability of Congress to enact legislation would require Democratic control of the White House and both chambers of Congress after the November elections.
“The attempts to get stimulus checks out did reveal a huge gaping hole in the financial system in terms of individuals’ access to banks and bank products,” said Brandon Barford, a partner at Beacon Policy Advisors. “As we saw, the president and some Republicans were loath to include a rescue of the existing Postal Service and infrastructure in the various phases of COVID-19 relief. … I’m not sure that level of opposition is going to change unless there is a change of control in both the White House and the Senate.”
Klein said the government’s difficulty in trying to deliver stimulus checks to consumers is more an issue of its failure to implement a real-time payments network, or use the real-time payments network already operated by the biggest U.S. banks.
“Problem number one is a real-time payment problem created by the Federal Reserve’s lack of modernization … compounded by the Treasury Department’s inability to use the private real-time payments system that banks created,” Klein said.
The largest U.S. banks have largely opposed the Fed creating a faster payments network, because they already operate a real-time payments network through The Clearing House. But community bankers say it will create a more equal playing field.
“We are fully supportive of faster payments,” Merski said. “Get all banks engaged in faster payments, working with the Federal Reserve, not just a handful of large, megabanks. … You wouldn’t have a disparity on how quickly your payments would be depending on where you bank.”