The U.S. Postal Service is in trouble. First-class mail volume peaked in 2001 and — thanks to texting, email, and other digital services — has dropped rapidly ever since. In recent years, the service has closed branches and mail processing facilities. It has flirted with discontinuing Saturday mail delivery. It has massive unfunded pension obligations. If these trends persist, this 240-year-old institution may not make it to the mid-21st century.
Yet on Jan. 27, the Postal Service's Inspector General issued a report urging that this venerable organization provide basic banking services like bill payments, interest bearing debit cards and small personal loans. U.S. Sen. Elizabeth Warren, D-Mass., took up this cause a few days later, claiming that it could "make a critical difference for millions of Americans" who are underbanked. It seems odd that an organization fighting to stay relevant in the digital age would seek new worlds to conquer in the financial services sector.
But this is an idea with a 150-year-old history. Postal banking began in Great Britain in 1861 and quickly spread to all European and many Asian countries. Here in the United States, the concept dates back to about 1870. President Ulysses S. Grant continually urged Congress to set up a postal savings bank during his first term (1869–1873). For the next 40 years, advocates pushed this idea as a way to promote working-class thrift and to free the poor from the clutches of the loan shark.
Finally, in 1910, thanks to the efforts of President William Howard Taft, Congress enacted a postal savings law. The banking industry opposed it, of course, as socialistic and unfair competition. However, within a few years, the postal savings system had demonstrated its worth. It proved popular with unbanked immigrants and those who would have otherwise hoarded their money rather than placing it into circulation. During the Great Depression, it provided a safe haven from bank failures. During the world wars, it facilitated the sale of war bonds and helped assure American victories.
The passage of federal deposit insurance in 1933 largely ended the postal savings system's main advantage over commercial banks — the absolute safety of its deposits. In 1967, the postal savings system wound up its affairs and shuttered its windows.
If Americans of the 1960s considered a postal bank to be unnecessary, why bring back the idea now? The short answer is that the problems of a hundred years ago — exorbitant interest rates on personal loans and low levels of personal savings — have returned with a vengeance. Payday lenders extract interest rates averaging nearly 400 percent from their customers. Many inner city neighborhoods are banking deserts. About 30 percent of American families are unbanked or underbanked. The typical underbanked household spends about $2,400 annually on interest and fees for alternatives to mainstream banking services. This is a huge tax on those least able to afford it.
Conservatives and progressives disagree on the causes of and solutions to poverty and financial insecurity. However, we can all agree that promoting saving and reducing consumer debt are good things that the federal government ought to encourage.
The U.S. Postal Service might have just found a role for itself in the 21st century — to become a key player in the quest for working-class economic security.
David Hochfelder is an associate professor of history at the University at Albany.