Postal banking is back on the table. Here's why that matters

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Whether you like the idea or hate it, expect to hear a lot more about postal banking over the next two and a half years.

That’s because the concept of offering retail banking services at all 30,000 U.S. Postal Service locations will almost certainly be part of the Democratic Party’s economic agenda during the 2020 presidential campaign.

The latest sign of what’s ahead came on Wednesday, when Sen. Kirsten Gillibrand unveiled new legislation to create a postal bank.

Gillibrand, D-N.Y., frequently appears on lists of potential presidential candidates, and her endorsement of postal banking comes after two other would-be Democratic presidential contenders, Sens. Bernie Sanders and Elizabeth Warren, staked out the same position.

Add to the mix the fact that economic populism is ascendant in the Democratic Party, and it seems likely that postal banking will quickly congeal into party orthodoxy.

Maybe it has already.

While postal banking did not get much attention on the 2016 campaign trail, the proposal nonetheless made its way into the Democratic Party’s platform. Hillary Clinton, whose candidacy was hurt by her paid speeches to Goldman Sachs, was undoubtedly a poor vessel for the idea.

Clinton is not going to be on the ballot again in 2020, in part because the Democrats are trying to build a message that can appeal to white working-class voters who previously embraced Donald Trump’s brand of populism. Postal banking is an idea tailor-made for the political environment.

Under Gillibrand’s proposal, the Postal Service would offer not only low-cost small-dollar loans, but also remittance services and checking and savings accounts that would come with debit cards and online services.

The deposit accounts could be as large as $20,000 per account, according to the legislative text. They might be offered by the Postal Service alone or in partnership with banks and credit unions.

Gillibrand’s legislation embraces a far more expansive vision of postal banking than has ever been adopted in the United States.

Between 1911 and 1967, the U.S. Postal Service offered savings accounts, but a drop in deposits led to their discontinuation. Today, Americans can go to the post office for money orders, but they must look elsewhere for almost every other financial product.

Gillibrand’s messaging this week suggests that she sees postal banking both as a way to help struggling households and as a vehicle for tapping into popular resentment with Washington.

“For millions of families who have no access or limited access to a traditional bank, the simple act of cashing a paycheck or taking out a small loan to fix a car or pay the gas bill can end up costing thousands of dollars in interest and fees that are nearly impossible to pay off,” the New York senator said in a press release.

“Politicians in Washington have taken millions of dollars from payday lenders to help protect this industry’s predatory behavior on hardworking families, and it has to stop,” she added.

The long-dormant debate over postal banking was revived in 2014 when the Postal Service’s Office of Inspector General suggested that the USPS could make profitable loans at much lower interest rates than payday lenders do.

The idea elicited a mostly negative response from lenders with which the post office would have competed. It also hit resistance inside the Postal Service, which has little expertise in the financial services realm.

“People can very quickly say things like, ‘Well, there’s a lot of money to be made on service fees,’” Patrick Donahoe, then the postmaster general, told American Banker in a 2014 interview. “But a lot of the service fees in that world are based on high risk levels.”

Today, Gillibrand and her fellow Democrats are less focused on the Postal Service’s ability to earn a profit from banking than they are on the potential benefits for consumers.

Soon the Democrats will begin selling their vision to primary voters who are likely to be receptive. And in a scenario where Democrats sweep the House, the Senate and the presidency in 2020, they would be well positioned to act.

“That would then give them the power to enact Postal Service banking,” Jaret Seiberg, an analyst at Cowen Washington Research Group, wrote Thursday in a research note.

Bankshot is American Banker’s column for real-time analysis of today's news.

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