Pascrell, Ocasio-Cortez Call for Postal Banking Expansion

October 30, 2019, 11:38 am | in

Pascrell, Ocasio-Cortez Call for Postal Banking Expansion

Letter to Fed Chair and Postmaster General urges increased banking options for low-income and rural Americans

WASHINGTON, DC – U.S. Reps. Bill Pascrell, Jr. (D-NJ-09) and Alexandria Ocasio-Cortez (D-NY-14) today wrote to Jerome Powell, the chairman of the Federal Reserve, and Megan Brennan, the Postmaster General of the United States Postal Service (USPS), in reaction to the announcement that the Federal Reserve is working to expand fast-payment U.S. infrastructure. In their letter, the members call on the Federal Reserve and USPS to expand postal banking services across the United States.

“Unfortunately, many Americans live outside the mainstream financial system. To ensure all Americans have access to FedNow, we urge the Federal Reserve and United States Postal Service to partner together to help reach Americans without means or access to mainstream financial services,” Reps. Pascrell and Ocasio-Cortez write.

A whoppingly diverse 63 million adults are underbanked. Ninety percent of zip codes lacking a bank or credit union are in rural areas. Bank branches are also sparse in low income urban areas, with approximate 46 percent of Latino and 49 percent of African American households underbanked. Many of these Americans are often forced to turn to predatory lenders who routinely charge customers obscene interest rates, shackling Americans into a cycle of poverty. Often, it is the most vulnerable Americans that take out these loans, including those without a college degree, home renters, African Americans, those earning below $40,000 annually, and those who are separated or divorced. A recent explosive report in the Washington Post detailed the negative reach of payday lenders in America today.

The USPS Office of the Inspector General has posited that the USPS “is well-positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector.” Furthermore, postal banking and banking pilot programs could commence without statutory authorization and solely at the discretion of the Postmaster General.

A node-to-node partnership between USPS and FedNow could enable real-time electronic money transfer services between any USPS branch any FedNow partner across the country. Indeed, the USPS is afforded wide latitude by statute to partner with executive branch agencies in furtherance of its services and products.

“A partnership between the Federal Reserve and the USPS could facilitate the FedNow service achieving universal access throughout the country. Our underbanked, underserved communities deserve nothing less than our best efforts to make affordable financial services accessible to all Americans,” the letter concludes.

One of America’s most vibrant postal workers’ unions praised the Pascrell/Ocasio-Cortez letter. “Postal workers proudly fulfil our mission to “bind the Nation together” every day, in every community across the country,” said American Postal Workers Union President Mark Dimondstein. “The Postal Service is among the most trusted institutions in the country. We welcome any opportunity to better serve the public, especially through expanded postal financial services.”

Rep. Pascrell is one of the strongest supporters of the United States Postal Service in Congress and has loudly called for protecting the post office from attacks. In a well-received April 2019 essay in Washington Monthly, Pascrell outlined the history of the post, the origins of its decay, and his remedies to undue decades of institutional damage. Foremost among them is the creation of postal banking across the nation. Pascrell is also an early cosponsor of H.R. 2382, the USPS Fairness Act, which would finally repeal the crippling health care prefunding requirement that is bankrupting the post. In June 2019, the House of Representatives passed Pascrell’s bipartisan amendment allocating $1 million to begin funding a postal banking system.

A copy of Reps. Pascrell and Ocasio-Cortez’s letter is available here, the text of which is provided below.

October 30, 2019

Jerome Powell Megan Brennan

Chair Postmaster General

Federal Reserve United States Postal Service

20th Street and Constitution Avenue N.W. 475 L’Enfant Plaza S.W.

Washington, D.C. 20551 Washington, D.C. 20260

We write with interest in the announcement of the Federal Reserve’s program, FedNow, which aims to expand the fast-payment infrastructure in this country by 2023. The goal of the program “to permit banks of every size in every community across the country to provide real-time payments to their customers”^[i] is admirable. Unfortunately, many Americans live outside the mainstream financial system. To ensure all Americans have access to FedNow, we urge the Federal Reserve and United States Postal Service (USPS) to partner together to help reach Americans without means or access to mainstream financial services.

The Federal Deposit Insurance Corporation found in 2017 that some 63 million adults are considered ‘underbanked’.^[ii] Underbanked Americans are geographically, economically, and demographically diverse. Ninety percent of zip codes lacking a bank or credit union are in rural areas. Bank branches are also sparse in low income urban communities, with approximately 46 percent of Latino and 49 percent of African American households underbanked.

Americans lacking access to a mainstream financial service are often ineligible for banking options due to poor credit or are unable to afford fees associated with bank accounts and maintain bank account minimums. These consumers are often forced to turn to nontraditional financial providers to address regular or emergency financial needs. These predatory lenders routinely charge customers obscene interest rates – sometimes as high as 20 times more in interest than the average credit card – and can push borrowers into a cycle of poverty.^[iii] Every year, 12 million borrowers spend more than $7 billion on fees associated with payday loans.^[iv] Often, it is the most vulnerable Americans that take out these loans, including those without a college degree, home renters, African Americans, those earning below $40,000 annually, and those who are separated or divorced.^[v]

As the Federal Reserve notes, making time-sensitive payments is important to households on a tight budget because this helps American families avoid relying on expensive check-cashing services, payday loan services, or incurring overdraft or late fees. This makes FedNow, a low-cost real-time payment option, critical for underbanked Americans.^[vi]

In two reports over the past five years the USPS Office of the Inspector General (OIG) found that the USPS is well-suited to help bring financial services products to underbanked communities. In 2014, the USPS OIG determined that the USPS “is well-positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector”.^[vii] The report found there is significant demand for these services from underbanked populations that the USPS could fill because of its vast network of 35,000 locations across every zip code.

In 2015, the USPS OIG concluded that expanding the current financial services offerings at USPS facilities is permissible under current statutory authority and could generate $1.1 billion in additional revenue for USPS annually after five years.^[viii] This same report highlighted that the USPS could enact node-to-node electronic money transfers, akin to digital money orders, under its current statutory authority. A node-to-node partnership between USPS and FedNow could enable real-time electronic money transfer services between any USPS branch and any FedNow partner across the country.

The USPS OIG specifically noted that online transfers “can take several business days to complete, thanks to the antiquated bank-to-bank transfer system in the United States”, a problem Governor Lael Brainard of the Board of Governors of the Federal Reserve System acknowledged as the impetus for developing FedNow program.^[ix] Finally, the USPS OIG notes that USPS’s electronically linked internal infrastructure does not require a complex network of agents to process transactions. More control over the entire transaction process could enable FedNow to operate smoother and at a lower cost for consumers.

The USPS is afforded wide latitude by statute^[x] to partner with executive branch agencies in furtherance of its services and products. Given that the USPS is not a chartered bank, it partners with the United States Department of the Treasury to make use of the Treasury’s General Account within the Federal Reserve to process roughly 95 million money orders each year.^[xi] Expanding its partnership with the Treasury to include electronic money transfers processed through FedNow could help underbanked Americans.

A partnership between the Federal Reserve and the USPS could facilitate the FedNow service achieving universal access throughout the country. Our underbanked, underserved communities deserve nothing less than our best efforts to make affordable financial services accessible to all Americans.

Thank you very much for your attention to our request and we look forward to your response.

Sincerely,

Bill Pascrell, Jr. Alexandria Ocasio-Cortez

Member of Congress Member of Congress

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[i] https://www.federalreserve.gov/newsevents/speech/brainard20190805a.htm

[ii] https://www.fdic.gov/householdsurvey/2017/2017execsumm.pdf

[iii] https://www.fdic.gov/householdsurvey/2017/2017execsumm.pdf

[iv] https://www.pewtrusts.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why

[v] https://www.pewtrusts.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why

[vi] https://www.federalreserve.gov/paymentsystems/fednow_faq.htm

[vii] https://www.uspsoig.gov/sites/default/files/document-library-files/2015/rarc-wp-14-007_0.pdf