Issue 145 A Postal Bank? August 19, 2013

I had previously mentioned in a previous issue (issue 132) about some countries converting their old postal services into banks designed for low income individuals. I personally think it is a fantastic idea that could help many poor individuals have access to a financial institution which they can store and save their money while saving one of the oldest governmental functions the United States government is constitutionally allowed to do. But how would it work?

Step 1: The current postal services would have to be amended. Basically, they would have to allow private companies to be able to deliver regular mail. In the U.S., letters, and magazine/advertisements are restricted to the United States Postal Service. To reduce post offices traditional work load and to make room for its new function, letting private carriers deliver any and all type of mail will go along way to making room. This would also allow businesses to have a cheaper alternative to the post office for delivering their ads and magazines. Traditional letters are slowly disappearing in the digital age especially as you can send an entire presentation digitally rather than through snail mail (this is also part of the reason the post office is failing). However, the traditional mail carrying functions will not disappear as there are still certain parts of the United States that private carriers may not go due to cost. As such the post office will be the letter carrier of last resort.

Step 2: Training in the basic functions of banking will be required. So the ladies and gentleman of the post office will also need the same basic training as a bank teller.

Step 3: A certain amount of infrastructure will be needed to alter the current post offices to handle the money such as safes, Automated teller machines (ATM) (which will reduce the number of actual tellers needed) and a bank card to access the account (which could be a State issued driver license or a non-drivers ID). Advantageously, the post office will also be able to gather old money and exchange it for newly printed currency rather than rely on private banks.

Step 4: The basic account structure will need to be created. As this system is geared toward people with low incomes who may not be able to maintain even a minimal deposit, minimal deposits and interest rates that charge people for taking out their money and even keeping it there would be prohibited. Of course a basic checking and savings account will be provided. As most low income individuals are on welfare, it becomes a lot easier to monitor when and where they buy so as to aid in preventing fraud (maybe make it a requirement to have an account in a postal bank if on welfare?). From here a modest interest rate that rewards individuals for saving their money or keeping a certain minimum in their checking account would be needed (I suggest a generous rate anywhere between 1 and 5 percent). In this system however, loans will be largely forbidden. Loans further indebt the poor and as such, either no loans or small one year loans that can be easily paid back with an individuals given income stream will be allowed under this system. I favor no loans as the temptation for the Post Office under this idea to make money off these low income earners is far too tempting.

Step 5: Alternate revenue streams need to be acquired to allow the post office to make the money needed to provide those generous interest rates mentioned in step 4. We already have the traditional role of the post office generating money, but other forms will be required. Therefore license renewals for Federal and State registered businesses and occupations can be done through the post office. Here the Federal and State governments would get their money for license renewals, with a portion going to the post office. In this idea people who are trained in navigating the complex license acquisition and renewal process will act in the same way a traditional bank agent does loans. Passports will also still be able to be acquired through the post office and any licenses or identification will also be able to be acquired through the Post Office bank (at a small fee, or kick back from the Federal or State governments). This would generate a good portion of revenue while saving money in the Federal and State levels of government as their traditional jobs in specialized institutions will be taken over by the Postal Bank. It is even possible to make it act as a small office for tax exceptions and some forms of welfare if needed.

Step 6: To ensure costs do not go too high, money can be saved where possible by hiring private companies or contracting with freelance agents who are paid per client to serve in certain portions and roles in the post office service. Namely lawyers to serve as license navigators who get paid when they help a client successfully get a license or a permit. Basically, it removes the need to provide retirement or health benefits if they are merely allowed to use the Post Office bank by paying a fee. Basically, saving money is key toward the success of this bank plan.

Step 7, the final step: This postal bank cannot be allowed to compete with private banks. If people hear how high the interests rates are (to keep your money in), and how it does not cost anything to use the bank, people will switch in droves to this Post Office bank. Therefore, if your account exceeds a certain amount of money there will be two options, you either leave the bank, or are now going to be charged fees for using the bank. This post office bank is for the poor and impoverished so that they may generate savings, not for the rich. As such, if your income exceeds 150% of the poverty level (currently around $20,000 in the U.S.), you will be charged an interest rate of around .5% to provide incentive for you to get out. In addition, the interest rate for keeping your money in your checking account will stop, and the savings account rate will be reduced to .05%. Likewise, every time you take money out of your checking for cash, spend it at a store or transfer money from your savings to your checking you will be charged .5%. Thus 5 cents of every dollar you spend will be taken out. Also, it is advisable that the higher amount of money in the account, the larger the penalties will grow. All this is to prevent private banks from loosing all their accounts which may in turn bankrupt them and put good banks out of business.

Conclusion: My one concern on this entire idea is that it may cause banks such as credit unions and even some large established banks to go out of business. Those institutions however, serve a purpose to make loans, and provide financial services that Federal and State governments are incapable of doing. If these private banks go out of business, those resources become scarcer and thus more expensive pricing more people out of the market and thus making more people poor. That cannot be allowed, and as such non-negotiable rules/penalties for depositors who achieve over a certain amount of money must be put in place if they are to keep their money in the Postal Bank and those penalties must hurt. With that thought in mind it is advisable that the penalties be actually determined by the private banks that have everything to lose (rather than my flimsy penalties suggested in step 7). Incentives are essential, and the best one is pain for keeping that money in. I am a libertarian, I want business, no matter how small to have a chance to thrive and grow, and as such financial institutions must be protected no matter what forms they come in. Yes, we can help the poor save, but at some point they may become dependant on that help. That cannot be allowed, for when that happens we no longer have poor people, but freeloaders.