US Postal Service Inspector General Proposes Launching Low-Fee Public Bank
Mike Konczal: A public option for banks will dramatically improve and help regulate the financial services industry.
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.
The inspector general of the U.S. Postal Service released a white paper in January that proposes the post office provide basic banking services. The proposal gained widespread attention after it was endorsed by Senator Elizabeth Warren.
Now joining us to discuss all of this is our guest, Mike Konczal. Mike is a fellow with the Roosevelt Institute, where he works on financial reform, unemployment, inequality, and a progressive vision of the economy.
Thanks for joining us, Mike.
MIKE KONCZAL, FELLOW, ROOSEVELT INSTITUTE: Thanks for having me.
DESVARIEUX: So, Mike, can you just provide for us an outline of how the Postal Service can offer basic banking services? And who would it serve, really?
KONCZAL: Absolutely. So right now there’s roughly 10 million Americans who have no formal banking account, checking or savings account, and there’s about–a huge number, I mean, about 50 or 60 million, which is, to put it in context, about one in four households who are under-banked, which have a very precarious situation with banks. And, you know, you need banks to get, you know, checks cashed, to get new checks, to, you know, engage in basic financial services.
Now, historically, the post offices, you know, for much of the 20th century offered basic banking services. Also, many countries internationally, especially OECD countries, countries in Europe, tend to have banks in their country. The postal services offer basic banking services.
So what the post office proposed is it could do one of a couple of different things. One is that could it offer something called a postal card, which is, you know, like, a nice little joke, but the actual consequences would not be funny. They would be, actually, very serious. You know, the post office could offer people a basic debit card, which could be topped off with money, which would have low fees and good consumer protections, and that you could use to, you know, cash checks to purchase things, to pay bills. They also offer proposals where they could perhaps engage in short-term loans like a credit card and so on and so forth. So it’s a very interesting proposal which I think could do a lot of good work as a public policy mechanism.
DESVARIEUX: Alright. And the government already has sort of a program already like that with debit cards to recipients of Social Security and federal disability, and it’s called Direct Express. Mike, can you just speak to how does Direct Express work, and how does it differ from similar services provided by private banks? Has the program at all been successful?
KONCZAL: Sure. So I wrote a piece for Al Jazeera America just recently about the Direct Express program, which tried to argue that, you know, there’s often been public options like this in banking, where the government, you know, instead of just the free market determining what kind of services people get, or even a weird system of regulations that often don’t work very well, the government goes out and directly ensures that people have access to safe and affordable banking products. And the biggest case of this is a program that started in 2008 called Direct Express, which is essentially a debit card. It’s issued by a private bank called Comerica.
But the Treasury went to Comerica and they had an open bidding process, which Comerica won, and said, you know, we want to offer debit cards for people who are on Social Security, who are on disability, and who are on certain other federal benefit programs, and we want to make sure that they can get their money without having to go through check cashing or payday loans or other places that offer really high predatory fees and have very unstable banking practices. You know, we want to make sure people essentially have access to decent banking services.
So Comerica came up with a schedule that was a fee schedule, or, essentially, a fee structure, that was very strong. They were able to do this because Treasury was–instead of each person going out in the market and trying to get their own best offer, Treasury essentially bargained for 5 million people and said, we have this, you know, 5 million people who really need banking services, and we will work hard, you know, we will make sure that these payments go through.
So, you know, the program has very high favorable rates. Like, 90, 95 percent of people on the program enjoy it or recommend it to other people, which is sort of unheard of. And it’s miles beyond what many of these people who are, you know, poor or have, you know, very, very precarious economic situations were able to get on their own on the private market.
DESVARIEUX: So if I’m Bank of America or, I don’t know, Chase Bank and I’m hearing this and this option of having debit cards through the government, I’d be a little concerned, ’cause this is competition, isn’t it?
KONCZAL: Absolutely. And, you know, a lot of the major banks, a lot of the big-name banks that have really nice buildings and very, you know, solid reputations are often the same corporate structure as a lot of the payday lenders, a lot of the check-cashing places, a lot of the places that have kind of sprout up in very poor communities. So even if not necessarily the fancy part of the corporate structure that does all the high-end banking or investment banking might not be directly affected, there’s some part of it that would actually–you know, that profits off all this poverty.
You know, there’s a really high cost of being poor in this country, and doing things like–and as the post office pointed out, you know, a lot of people getting by on $15,000 or $20,000 a year will spend 10 percent of their income accessing financial services, which is outrageous, given the precarity and the lack of savings that a lot of these households have. So there’s a very useful and positive role.
Also, with the government kind of setting a lower standard by saying, here is a debit card we will ensure people get, it moves businesses from having a business model where their goal is to kind of see what they can suck out of people, like, and see what they can kind of rip people off or be very predatory, towards a better business model where they’re like, so how do we actually deliver real goods and services, customer service, good values, as opposed to this kind of low-road, predatory model.
DESVARIEUX: Alright. Mike Konczal, fellow at Roosevelt Institute, thank you so much for joining us.
KONCZAL: Thank you for your time.
DESVARIEUX: And, of course, as you know, you can get the latest at The Real News. Follow us on Twitter @therealnews. And you can also send me questions and comments @Jessica_Reports.
Thank you so much for joining us on The Real News Network.
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