WASHINGTON – The U.S. Postal Service quietly began offering paycheck-cashing services at several East Coast post offices last month, testing a plan that financial experts say has the potential to transform how low-wage and underserved Americans access their money.

Postal customers can now redeem paychecks in Washington, D.C.; Baltimore, Falls Church, Va., and the Bronx, N.Y., for Visa gift cards topping out at $500, an agency spokesperson said. Postal officials expect to expand the pilot into a fuller study with more locations and financial products, such as bill-paying services and ATMs, according to three people involved with the program who spoke on the condition of anonymity to discuss sensitive business strategy.

Postal banking has become a Democratic hobby horse in recent years, with activists and politicians saying it solves two problems: the Postal Service’s precarious financial condition and the barriers many U.S. households face to building wealth and accessing their money.

For the nation’s 14.1 million unbanked and underbanked adults, the plan presents a government-backed alternative to paycheck cashing stores and payday lenders, which target vulnerable populations with outsized fees and interest rates. Democrats embraced the idea years ago: Sen. Bernie Sanders, I-Vt., made postal banking part of his 2016 and 2020 presidential platforms, and it was adopted by the Biden-Sanders Unity Task Force as part of President Biden’s 2020 campaign agenda.

The pilot program, while limited in scale, represents the mail agency’s most ambitious push into financial services in decades. Though it sells money orders, it dropped most other banking services in 1966. It also signals that top leadership is open to the concept, a senior postal official involved with the program said, despite having some reticence about diving into a new line of business that would require significant technological and personnel upgrades.

“To be honest, these are pretty modest steps,” the official said. “It’s a small toe in the water. I think [the Postal Service] is just trying to see what kind of bite they’re going to get. It’s the symbolism that matters.”

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Union officials said they expect the program to reach other post offices nationwide after the holiday season. The Postal Service will soon begin advertising the paycheck cashing service, and will use the increased foot traffic during the agency’s peak season to gauge consumer interest and effective price points.

“The well being of the Postal Service — that the people in the country so overwhelmingly support — in the future is partly going to rest on these kind of expanded services,” APWU President Mark Dimondstein said in an interview. “New services will not just have the post office doing well by the people, but will bring in needed revenue.”

The push also puts Postmaster General Louis DeJoy — who has given millions to Republican causes, including Donald Trump’s 2020 presidential campaign — in league with some of his strongest Democratic critics. Sen. Kirsten Gillibrand, D-N.Y., introduced legislation in 2020 to reauthorize a larger suite of postal financial services. She also has called for DeJoy’s firing because of declines in agency performance.

Service standards have fallen sharply since DeJoy took the helm in June 2020 with an eye toward cutting costs and finding new revenue; the mail service has $188.4 billion in liabilities and is projected to lose $160 billion in the next decade.

“The reason why they’re having difficulty delivering mail is because they are severely underfunded and under Postmaster DeJoy, he’s tried to slash funding even further and slash delivery days and slash availability and slash routes, close different centers around New York. I mean, he’s been a straight up disaster,” Gillibrand said in an interview. Her bill would generate $9 billion in postal revenue from financial services, she said.

“[Postal banking] creates the revenue stream, and with that kind of revenue stream, they can hire the right number of employees,” Gillibrand said. “They can have the right number of delivery days. They can create a service that is more commensurate with their charter and what they’re asked to do. And I think once we get rid of DeJoy, you’ll also have a better leader to lead the Postal Service in a better direction.”

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But even postal advocates express some skepticism the agency has the bandwidth for such an expansive line of business — which likely would come with significant upfront costs – in the midst of a pandemic that has hammered the agency’s workforce.

“The Postal Service processes and delivers billions of pieces of mail and packages. It is not a financial services firm,” said Paul Steidler, who studies the agency at the right-leaning Lexington Institute. “It comes down to introducing a new business line at probably the worst time imaginable, when they’re struggling with profitability and struggling to get through the pandemic.”

The Postal Service began the pilot on Sept. 13 in collaboration with the American Postal Workers Union, agency spokesman David Partenheimer said. The two groups discussed paycheck cashing service during collective bargaining negotiations this spring, according to APWU officials.

Partenheimer said the pilot “is an example of how the Postal Service is leveraging its vast retail footprint and resources to innovate. Offering new products and services that are affordable, convenient and secure aligns with the Postal Service’s Delivering for America 10-year plan to achieve financial sustainability and service excellence.”

Nearly 1 in 5 U.S. adults are unbanked or underbanked, according to the Federal Deposit Insurance Corporation, meaning they do not have a bank account or the banking services available are insufficient to meet their needs. A 2019 FDIC survey found that unbanked adults cite the inability to meet minimum balance requirements as the most common reason for not participating in mainstream financial institutions. Others cited unpredictable or exorbitant fee structures, or a lack of overall trust in banks.

Those issues, economists and civil rights activists say, drive households to riskier financial establishments, where interest rates and fees are significantly higher. That means those individuals end up paying more to access their own money. The problems are more pronounced for communities of color: the FDIC found that 27 percent of Black adults and 21 percent of Hispanic adults were underbanked.

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“We really think that the post office can save poor and working class people a lot of money,” said Causten Rodriguez-Wollerman, the deputy campaigns director at the American Civil Liberties Union. “The post office and the federal government have an obligation to play their role where they have an opportunity to address the racial wealth gap. And this is an opportunity where they can do that.”

But a large-scale expansion of financial services — postal insiders are loath to use the word “banking” for fear of inciting finance industry lobbyists or tripping legal red flags about the kind of nonmailing products it can legally offer — would put the Postal Service in direct competition with smaller community banks. Those institutions hold tremendous amounts of civic good will and political cachet, and are frequently the first entry point for households new to the banking system or struggling to maintain a balance.

Community bankers say their institutions, along with credit unions, already fill the void of reaching unbanked and underbanked communities. They contend a government agency entering the industry, even in small increments, would disrupt both their business and local credit markets.

“I just don’t think the Postal Service is even equipped to compete with the complexity of delivering financial services right now,” said Paul Merski, executive vice president for congressional relations at the Independent Community Bankers Association. “I just don’t see how you’d hire and purchase the computer equipment and do training.

“Money orders are fine. That’s something that’s very simple to provide. But things like underwriting loans, things like checking and savings accounts, that’s a whole different animal. Post offices are in no shape to do those kind of financial transactions.”