Dive Brief:

• Sen. Kirsten Gillibrand, D-NY, wants Congress to pass legislation that would bring back postal banking, the senator wrote in a New York Times op-ed published Sunday.

• The former presidential candidate said a postal banking system would "provide basic banking services to the millions of Americans without a bank account or those forced to use predatory financial products like payday lenders."

• The op-ed follows comments from President Donald Trump who said Friday he would not approve a $10 billion bailout of the U.S. Postal Service unless it raised prices.

Dive Insight:

Gillibrand has advocated for the U.S. Postal Service to offer retail banking services in the past, saying the agency has the ability to offer low-cost financial services to poor and rural communities that lack bank branches. 

The senator introduced the Postal Banking Act in 2008. Gillibrand said the legislation would leverage the Postal Service’s more than 30,000 locations to create access to a nonprofit bank in every community in the country.

"Nearly 10 million American households have no bank account, forced to use costly, fringe financial products," Gillibrand wrote Sunday. "Even before the pandemic, these households spent a combined $100 billion a year to cash checks, send money to relatives and take out payday loans for their bills. It’s expensive to be poor in America."

Postal banking was available in the U.S. from 1911 to 1967, according to the Campaign For Postal Banking. 

A return to the system would also aid in the delivery of the coronavirus stimulus checks, said Mehrsa Baradaran, a law professor specializing in banking law at the University of California, Irvine. 

The Internal Revenue Service (IRS) so far has paid out $157.9 billion in 88 million stimulus checks, representing more than half of the money due to be sent out, MarketWatch reported Tuesday.

Most of the stimulus checks, part of the $2.2 trillion CARES Act, which Trump signed into law last month, have been deposited into individual bank accounts using account information that the IRS has on file for taxpayers.

While many Americans began receiving their first stimulus checks April 15 through direct deposit, unbanked households face a longer wait for paper checks.

"If you don't have a bank account, you could wait five weeks or five months, for some people, and then you have to go pay someone to cash it for you," Baradaran told Banking Dive. 

About 6.5% of U.S. households were unbanked in 2017, according to a Federal Deposit Insurance Corp. (FDIC) study.

The agency said that proportion represents approximately 8.4 million households, composed of 14.1 million adults and 6.4 million children.

A postal banking system would be "simple, cost free and direct, and would not have identity issues," Baradaran said.

"That's the post office innovation of hundreds of years ago — everyone has an address, everyone has an identity," she said. "And you could link that up to any of the services that the government already needs identity for, like Social Security and tax ID, and just send it directly. You don't need the middleman."

But calls to reestablish a postal banking system haven't been met with universal support.

The Independent Community Bankers of America President and CEO Rebeca Romero Rainey called the idea "ill-advised” and "fraught with unintended consequences," in a letter to the House of Representatives last year.

Allowing the post office to handle sensitive financial information poses risks to consumer security, Rainey told Newsweek.

Rainey also questioned why the post office, which lost $3.9 billion in 2018, should be tasked with providing banking services, saying community banks are a more logical choice to fill gaps left by large banks.

Outfitting all of the Postal Service's locations with the ability to distribute banking products would be costly, Ben Jackson, a senior analyst at Mercator Advisory Group, told American Banker in 2012. But a financial services partner could help shoulder some of the startup cost, he said.