A New York senator has proposed legislation that would make retail banking services available at all 30,000 U.S. Postal Service locations nationwide.
According to CNBC, Senator Kirsten Gillibrand, D-N.Y., has proposed the Postal Banking Act, which would include services such as small-dollar consumer loans that offer low fees and low interest rates.
This financing would compete directly with the payday loan, a short-term advance that typically comes due with the borrower’s next paycheck.
But the terms for payday loans are usually unfavorable, said Alex Horowitz, senior research officer for the consumer finance project at Pew Charitable Trusts. The average loan is around $375 for a period of five months, accumulating about $520 in fees.
“These loans are extraordinarily expensive, with annual percentage rates near 400 percent,” Horowitz said.
Earlier this year, the Consumer Financial Protection Bureau (CFPB) announced that it was reconsidering a payday loan rule introduced by the agency’s former head, which would require lenders to conduct background checks showing that borrowers can afford the loans and to limit the number of loans made to a single borrower. As the rule is reconsidered, the CFPB has said it would consider giving waivers to companies that want to avoid the earliest deadlines it set forth.
Payday and short-term lending is an approximately $6 billion-a-year industry, one that both critics and supporters of payday lending agree will take a major hit if the CFPB’s proposed rules were to go through.
As for the post office, the idea to make retail banking services available at locations was first brought up in a report from the Office of Inspector General in January 2014. The U.S. Postal Service could make $8.9 billion annually in new revenue from receiving 10 percent of the interest and fees spent on non-bank transactions.
In addition, postal banking would be able to focus on the needs of the underbanked and unbanked communities. For example, some rural areas have post offices, but no bank or credit union branches, according to Pew’s research.
Gillibrand’s legislation also includes small dollar checking and savings accounts; transactional services including debit cards, cash machines, bill payments and online services; as well as domestic and international wire transfers.