A public option for banking

by Mike Konczal

We already have one, it’s a major success, and we can use the post office to expand it rapidly

Trying to get basic banking services to cash Social Security and disability checks was a persistent source of anxiety for Patricia Geary, A 65-year-old Philadelphia resident. She receives her payments in paper form, but since she didn’t have a checking account...Commercial banks have too many hidden fees and minimum balances that are too high to help her. The check-cashing places she relied on require large fees for her to get cash and even more fees to convert some of that cash into money orders to pay bills. Keeping her money entirely in cash made it hard to budget well and left her vulnerable to theft.

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There has been great interest in the idea of postal banking ever since the inspector general of the U.S. Postal Service released a white paper in January that went viral after Elizabeth Warren endorsed the idea. According to the proposal, the USPS would offer financial services, including a debit card much like Direct Express...This idea is not new. In fact, the USPS used to run postal banks throughout much of the 20th century, and they are still popular internationally. Although these facts are widely reported, what often goes missing is that a version of the postal banking strategy is in play right now — Direct Express, run by the Treasury Department in partnership with Comerica bank. It currently benefits Geary and more than 5 million other people, and it’s an overwhelming success. To expand the program, either through the USPS or without it, is both sensible and crucial to providing economic security for all Americans.

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This is a public option at work. Though the public option has been mentioned in debates about health care reform — the idea that the government could offer its own health insurance program as a competitor to private health insurance — it can be extended to many other contexts. In fact, government’s ability to offer a public option is one the easiest and most powerful ways of regulating an industry. Rather than using a confusing and ineffective array of sticks and carrots to encourage banks to offer decent services to the poor, the government can take steps to ensure that such services are made available. Even better, the government here has used its size, authority and resources to secure a better deal than these unbanked consumers would normally get...Direct Express...isn’t perfect. As Rebecca Vallas of the National Organization of Social Security Claimants’ Representatives told me, “Customer service has often been a problem, particularly in the early days, which is an extra-important problem when dealing with economically vulnerable groups.” As Saunders emphasized, the effort by Treasury to push everyone to debit cards has left many elderly people, who often are not used to electronic banking and may prefer paper checks, confused about their benefits and how to access them.

However, compared with the predatory nightmare of the financial services market, it represents a major step forward. And it captures the promise of postal banking.

The idea that the USPS should offer debit cards with basic financial capabilities is simply a logical extension of the Direct Express program — a proven way of preventing banking services from skimming off the retirement security we provide as a society. The USPS’s size and coverage across the entire country would give it extensive leverage.

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http://america.aljazeera.com/opinions/2014/3/public-option-bankingfinancepostofficedirectexpress.html