USPS needs to keep an open mind on postal banking
As the nation deals with financial woes from the coronavirus pandemic, which is disproportionately impacting underserved and minority communities, it is alarming to read that JPMorgan Chase was in preliminary talks with the U.S. Postal Service about testing ATMs and other banking services at post offices as a solution.
The problem is clear. More than 22% of adults, millions of Americans, are unbanked and underbanked, according to a 2019 Federal Reserve report. Even before the pandemic, too many people relied on high-interest, high-fee loans through check-cashing services, pawn shops, payday lenders and paycheck advance shops as their primary means to manage their finances.
Consequently, this disturbing trend continues to harm low-income and minority communities as banks relocate branches in search of better margins.
But potentially allowing Wall Street megabanks free reign to solicit customers from community post offices is not the answer. Plus, any process in selecting a financial provider for this type of postal banking agreement must be open and transparent.
There are many other alternatives through regulated financial institutions that are ready and willing to serve these underserved communities.
Last year, the Defense Credit Union Council offered a senisble credit union solution in unbanked and underbanked communities via the U.S. Postal Service. The ubiquity of post offices coupled with service-oriented, member-owned credit unions is already a natural match. Both are similarly structured in that post offices and not-for-profit credit unions are designed to serve broad, diverse sectors of the U.S. population.
This is an essential characteristic that cannot be overlooked. Banks’ for-profit structure tends to be tailored for serving sectors where it is most profitable.
Second, statutory issues about leased space in federal facilities have already been resolved. Per authority granted in the Federal Credit Union Act and Department of Defense regulations, credit unions on military installations operate rent-free as a result of their not-for-profit status and service ethos.
It is well earned. The same concept could govern credit union operations in post office lobbies.
Third, credit unions have an excellent record for providing low-to-moderate income consumers increased access to mainstream financial products and services, without fleecing these same consumers with additional fees.
Plus with credit unions, there is no threat of harvesting deposits from rural and impoverished areas and migrating these funds to build and develop elsewhere for Community Reinvestment Act credit, as is structured with banks.
Finally, credit unions continue to evolve with new partnerships and investments in emerging technology to help meet the increased digital needs of consumers. Contactless kiosks in post office lobbies, backed by new payment platforms and mobile banking options are the key to financial services in a post-pandemic world. Many credit unions are already operating along these principles, and incorporating that into a post office is an easy step.
In addition, the U.S. Postal Service partnering with credit unions as a nonprofit alternative would give low-income and minority consumers a safe, affordable option away from costly payday-like loans.
There are other solutions as well that can be easily applied through regulation and policy.
For instance, as part of the overall effort to expand credit access, the National Credit Union Administration could consider expanding the field-of-membership qualification in a set radius, say five or 10 miles, around a participating post office.
The NCUA could more broadly apply the same standards currently used to approve low-income credit unions. Meaning, underserved communities and consumers who most need access to financial services can safely obtain them from a local community credit union.
In terms of credit union overlap, the NCUA could also establish a process that allows credit unions to bid to provide these services at a post office, much in the same way the Defense Department selects a defense credit union. This is both workable and necessary. Credit unions that do not want to participate don’t have to, while those that do can meet whatever legal requirements necessary to set up shop and start serving consumers.
The renewed interest in postal banking comes at a time when credit unions are continuing to expand upon their legal mandate to serve all members. In short, credit unions are ready and willing. Let’s get to work.