This is an idea that actually has intriguing possibilities. The Inspector General of the USPS issued a White Paper suggesting that the Post Office offer some simple banking services for the 68 million people who don’t have access to a bank or don’t have a banking account.
Those 68 million people pay $89 billion in interest and sucker fees to the payday loan industry, as well as more reputable businesses who cash checks, and allow customers to pay utility bills and the like. That works out to an astonishing $2400 per household per year — about 10% of a poor household’s income.
Usurious rates charged by payday loan companies might come down if they had a little competition — from the Post Office. Two stubborn problems would be addressed with one solution; Americans who are underserved by the banking industry would have access to inexpensive and reliable services while the crumbling finances of the Post Office would be shored up to the tune of about $9 billion a year.
The Post Office would not be competing with banks. They would act as an adjunct to financial institutions.
David Dayen writing at The New Republic:
As America becomes more of a cashless society, more reliant on some level of financial services (try renting a car without a credit card), the 68 million under-banked are essentially forced into working with predatory businesses, without the kind of low-cost alternative the post office could provide. Banks don’t want these customers; if they did, they would actually make a play for their business. Large banks have closed branches in the very low-income communities with the largest percentages of unbanked Americans. In fact, banks find it more profitable to fund payday lenders that charge junk fees and outrageous interest—currently the subject of a Justice Department investigation—than actually take market share away from them.
Instead of partnering with predatory lenders, banks could partner with the USPS on a public option, not beholden to shareholder demands, which would treat customers more fairly. As the report says, “the Postal Service could greatly complement banks’ offerings,” and in turn help drive out of business some of the most crooked companies in America, while promoting savings and expanding credit for the poor.
The report suggests three types of potential products. First, it proposes a “Postal Card” that could make in-store purchases, access cash at ATMs, pay bills online, or transfer money internationally. Customers with paper checks could cash them at the post office or deposit them through their cell phones, loading them onto their Postal Card. Second, the USPS could offer an interest-bearing savings account, again through the Postal Card, encouraging savings from communities with little in the way of a personal safety net. Finally, the Postal Service could offer small-dollar loans, effectively an alternative to costly payday lending. The fees on all these services would be drastically lower than anything in the marketplace today.
The postal service, with public trust earned over generations and 35,000 outlets in the best real estate in practically every city in America (in fact, the report notes, 59 percent of all post offices are in “bank deserts” with only one bank branch or less), is well-positioned to deliver simple financial services.
So what’s not to like? While the USPS is an independent agency, it is still part of the federal government. The notion of a government agency competing with private businesses — even if those businesses are run by a bunch of schmucks — should give us pause. But really, how sorry are you going to feel if a payday loan company charging customers 126% interest on a $200 loan goes belly up? If the USPS can offer these same people a low cost alternative, why not? A little competition might force the predators to lower their fees — a win, win situation.
Millions of older Americans still depend on the Post Office for delivery of their Social Security checks, medicine, and letters from their grand kids. This means the USPS isn’t going anywhere anytime soon. Rather than the Post Office being forced into the untenable position of asking for a taxpayer bailout, Congress should approve some pilot financial services programs around the country to see how these services would go over, as well as how they’d work in practice.