USPS Defends Banking Pilot, While Opponents Call It Illegal

Program has faced opposition from the outset, including from credit union groups, and has struggled to gain real traction.

The U.S. Postal Service (USPS) argued this week that the controversial pilot program it is operating is not a test of postal banking and therefore, it is not illegal.

Currently being carried out in four locations, the pilot program allows a consumer to cash a paycheck up to $500 in exchange for a gift card. However, few people have taken advantage of the service.

“For more than a decade, the Postal Service has been authorized to sell Gift Cards as a competitive postal service, [similar] to its sale of greeting cards and stationery that are often mailed along with gift cards,” USPS said in documents filed with the Postal Regulatory Commission (PRC).

The commission has been soliciting opinion on the legality of the program, with the deadline for comments coming this past Thursday. In requesting the comments, the PRC is asking whether the program is a non-postal product. If it is, it must be ended, the commission stated.

The USPS contends that whether customers pay in cash or in some other way, they still are purchasing a gift card that is permitted under federal law.

Political Reaction to the Pilot

House Republicans have told the commission they believe the project is an unauthorized new program that violates federal law. House Democratic appropriators, on the other hand, want the program to be expanded and for the USPS to test other products such as surcharge-free automated teller machines and check-cashing services.

The American Postal Workers Union, which represents postal employees, is supporting the program and is ensuring that its employees are properly trained in selling the gift cards.

The union also is a supporter of postal banking in general and is a member of the Campaign for Postal Banking, a coalition of postal banking advocates. In its comments, the union said the project the USPS is testing is not postal banking and therefore, it should not be terminated.

Credit Union and Banking Groups in Opposition

Not everyone agrees. While no credit union groups are listed as having submitted comments, they are opposed to the pilot and have said that it is not legal.

A comment from the American Bankers Association (ABA) told the commission that it agrees the pilot is not a postal product and that it should be terminated.

“The Postal Service has not offered any evidence to suggest that the Postal Service’s entry into this market is necessary to satisfy unmet consumer demand,” the ABA commented.

The trade group said there are other avenues for consumers to access banking services, including from traditional depository institutions, adding that many financial institutions offer checking accounts with low or no monthly maintenance fees.

“This creates a more sustainable pathway to inclusion than encouraging consumers to find piecemeal solutions outside of the security of an insured depository institution,” the ABA stated.

Further Questions About Legality

Two groups that represent companies that use the USPS for business told the commission the pilot violates federal law.

“It is clear that the Postal Service is trying to have it both ways; cultivating an impression that a new service is available, while relying on a technicality to avoid necessary Commission oversight,” the Association for Postal Commerce commented.

A company that provides services for commercial mailers also called on the commission to end the project.

“A folksy aphorism holds that ‘if it walks like a duck, quacks like a duck, and looks like a duck, then it’s a duck,’” said Leo Raymond of Mailers Hub LLC. “Accordingly, what the Postal Service offered in its pilot operated like a check cashing service, was presented to customers as a check cashing service, and served the purpose of a check cashing service; therefore, it was a check cashing service.”