08/01/2013 09:33 am ET Updated Oct 01, 2013

One More Way Banks Screw Regular People (And Why We Need to Bring Back Postal Banking)

I believe in personal responsibility. Personal responsibility is at the core of progressive philosophy. Progressives believe that everyone deserves an equal opportunity to succeed, and that people should have to work for their success. What separates us from the Ayn Rand Republicans in our midst is our recognition that, sometimes, people work hard and still don't succeed. It happens. Such people don't deserve to be cast aside on to the scrap heap, condemned as a loser or a taker, and left to rot. Liberals also believe in second chances (no, this post isn't about Anthony Weiner), and we believe in putting resources toward providing people with those second and, yes, even third chances to succeed through their hard work. The problem is, the banks just don't agree with us.

One small bounced check or an overdraft of a few dollars is enough to get you blacklisted, barred from being able to open a bank account. Sounds absurd, right? Well, over one million lower-income Americans are in exactly this situation. There are companies whose business it is to gather information on the various financial transgressions people commit. The banks pay a fee to subscribe to this information -- which was originally being collected to help banks identify serial fraudsters -- and if your name comes up, too many banks will simply tell you, thanks, but no thanks, and turn your business away. A negative report can remain in the database for up to seven years. At this point, the Consumer Financial Protection Bureau is investigating these practices and determining what, if any, action to take.

Overall, there are about ten million American households without access to banking, something that makes it far more difficult to get by, let alone to move up a rung or two on the economic ladder. Lower income people, the article explains, are far more likely to commit the kinds of transgressions that get one blacklisted, as they live paycheck to paycheck and have far less room for error when balancing their checkbooks.

Without a bank account, one has to pay a fee to cash one's paycheck, or to use the money on the prepaid bank cards too many low-income employees receive (often their employers do not give them a meaningful alternative option) on payday. This is just one more way that banks are screwing over regular people, a Randian rather than Rooseveltian vision of a society and an economy.

Of course the banks say they aren't doing this, they aren't blacklisting people over a small error. JP Morgan, Wells Fargo, Bank of America, and Citibank made such claims. Jonathan Mintz, the commissioner of the New York City Department of Consumer Affairs, begs to differ:

"Hundreds of thousands of Americans are being shut out for relatively small mistakes."

One is Tiffany Murrell, a secretary and on-time payer of all her bills. However, in June 2010 she had a $40 overdraft. Oops. Happens to the best of us. After being notified, she paid back the money, the fees, and interest, and thought she was OK. Nope. She was denied by a credit union as well as by numerous other banks when she applied to open a checking account, and found the experience of trying to open a new account "insulting and frustrating."

David Korzeniowski had an overdrawn account a few years ago, and was recently informed by a bank employee that he'd be very unlikely to be able to open a checking until 2016. David explained that having no checking account means that he must pay a fee every time he cashes a check, pays a bill, or wires money. As he said, "everything is more expensive."

And even if an employee at a given bank was feeling generous and wanted to allow someone like David or Tiffany to open an account, rules from on high often tie that employee's hands.

(snip) "We have had too many experiences where even banks that have offered to be flexible with us find their own internal risk management systems mean that their hands are tied," said Mr. Mintz.

In other words, if you screw up -- and we all screw up at times -- you're screwed (unless you can just ask your parents to lend you $20,000). Those who don't have that kind of safety net just end up falling further and further behind, one more reason why our level of economic inequality is so high, in particular when compared to other industrialized economies. As Eduardo Porter summarized (I highly recommend Porter's columns. They are found in the NYT's Business section, and almost always focus on economic inequality or related themes):

Infant and maternal mortality are the highest among advanced nations. So is the mortality rate of children under the age of 20. Life expectancy -- at birth and at age 60 -- is among the lowest.

Teenage pregnancy rates are not only higher than in other rich nations, they are higher than in Kazakhstan and Burundi. The United States has the highest rate of children living with a single parent among the industrialized nations in the Organization for Economic Cooperation and Development. Within the organization, only in Turkey, Mexico and Poland do more children live in poor homes.

Now, it's important to point out these kinds of injustices, but it's also important to offer solutions. And there is a good solution to the problem described above. In the United States of America, we once had something called the United States Postal Savings System. It operated from January 1, 1911 until July 1, 1967. Other countries have more extensive postal banking systems that still exist. Israel"s postal bank offers checking and saving accounts as well as bill-paying services for utility bills. Why can't we do the same in this country?

In fact, the National Association of Letter Carriers is asking the same question:

"On July 27, 2012, the National Association of Letter Carriers adopted a resolution at their National Convention in Minneapolis to investigate the establishment of a postal banking system. The resolution noted that expanding postal services and developing new sources of revenue are important components of any effort to save the public Post Office and preserve living-wage jobs; that many countries have a long and successful history of postal banking, including Germany, France, Italy, Japan, and the United States itself; and that postal banks could serve the 9 million people who don't have a bank account and the 21 million who use usurious check cashers, giving low-income people access to a safe banking system. "A USPS bank would offer a 'public option' for banking," concluded the resolution, "providing basic checking and savings - and no complex financial wheeling and dealing."

(snip) Serving the unbanked and underbanked may sound like a losing proposition, but numerous precedents show that postal savings banks serving low-income and rural populations can be quite profitable. (See below.) In many countries, according to the UN Paper, banking revenues are actually crucial to maintaining the profitability of their postal network. Letter delivery generates losses and often requires cross-subsidies from the post's other activities in order to maintain its network. One effective solution has been to create or expand the role of postal financial services.

One reason public postal banks are profitable is that their costs are low: the infrastructure is already built and available, advertising costs are minimal, and government-owned banks do not award their management extravagant bonuses or commissions that drain profits away. Rather, profits return to the government and the people."

Imagine that. Offering a service to those who can't get it, providing more good, union jobs at the postal service, and shoring up the USPS's finances to boot. All while doing something the commercial, for-profit banking industry doesn't seem to want to do.

All it would take is a commitment, as a society, to do something, ahem, collectively (!) instead of simply telling our fellow Americans to sink or swim as atomized individuals.

Are we ready to do it? Are you ready to fight for it? Those are the real questions.