Is Postal Banking Already Legal?

Moneybox
A blog about business and economics.
Jan. 29 2014 3:28 PM

Is Postal Banking Already Legal?

73195280-beijing-china-a-man-walks-out-of-a-bank-at-the-post
It's good enough for China.

Photo by Frederic J. Brown/AFP/Getty Images

Many countries (including at one point the United States of America) do something called "postal banking" where, essentially, the local postal service offers some simple and basic financial services to the population.

Bringing a postal bank to the United States would basically address two issues. One is that it would create a kind of "public option" for simple banking services and perhaps drive check-cashing and payday-lending joints out of business. The other is that it would create an additional revenue stream for the USPS and specifically a revenue stream that would justify holding on to all its real-estate assets so they could serve as branches.

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To me the public option part of the argument has always made more sense than the "Save the Postal Service" part of it. But a new white paper from the USPS inspector general alters that calculus in my view by arguing that the USPS already has statutory authority to do postal banking.

Though dismantled in 1967 (after banks offered higher interest rates and eroded its market share), the post office continues to issue domestic and international money orders, including $22.4 billion worth in 2011, as well as prepaid debit cards through a deal with American Express.

It’s this point which, the Inspector General contends, would allow the USPS to potentially dispense banking services immediately, without Congressional approval. The Postal Accountability and Enhancement Act (PAEA) of 2006 put restrictions on offering new “non-postal” services. However, the report points out, “given that the Postal Service is already providing money orders and other types of non-bank financial services, it could explore options within its existing authority.”

This argument, if it withstands further legal scrutiny, would be a very good reason to make the USPS the public option for banking. The legislative process is very tilted in favor of not changing things, so the odds that USPS could fight off a bank-led effort to ban postal banking are much better than the odds that public banking advocates could pass a whole new law creating one.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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