What if USPS offered the same services as check-cashing stores and payday lenders, only cheaper? A novel idea in a new white paper.
The financially troubled U.S. Postal Service is short on revenue, short on political good will, even short on mail to deliver in an online age. But for everything else it lacks as officials try to figure out how to keep the service afloat, it does have physical infrastructure: thousands of post offices in neighborhoods of all kinds, where people who interact with (and trust) few other institutions regularly pick up stamps and drop off their mail.
With that infrastructure, the Postal Service could reinvent itself to become, of all things, the neighborhood bank in neighborhoods with no bank presence at all. The idea, recently floated in a white paper from the Postal Service inspector general, could be a "win-win" for its flailing bottom line and for the unbanked and underserved. As for the parties that would decidedly not win: payday lenders and check-cashing stores that have found massive profit in charging steep interest rates and fees to consumers with few other options to pay bills, wire money, or cash paychecks.
These underserved households – which make up about a quarter of the population – collectively paid $89 billion in interest and fees for alternative financial services in 2012. That's $2,412 per household, or nearly 10 percent of the average underserved family's income. In contrast, the paper points out, people who filed for bankruptcy in 2012 were on average just $26 shy of meeting their monthly expenses.
If the neighborhood post office could attract just a tenth of these people with more affordable services – with reloadable prepaid debit cards, electronic bill payments, even small personal loans – the report figures families would save billions, and the Postal Service would redirect some of that payday-lender money as new revenue.
The people we're talking about either currently use no bank at all, or have an account they seldom use. They're disproportionately minorities, low-income families, people younger than 25, and households in inner cities. Maybe their credit isn't good enough, or they don't want a bank account, or they don't feel they have enough money to open one. Or they're simply uncomfortable walking into a bank and interacting with the people who work there.
Banks, for their part, have been entirely willing to close branches in many neighborhoods. The inspector general figures that 59 percent of its internally managed post offices sit within zip codes that have no bank branch or just one (yes, the white paper calls these "bank deserts").
The inspector general envisions partnering with banks to offer these services, rather than having the USPS become a literal bank itself. The idea is not as radical as it sounds. Foreign postal services are already way ahead of the USPS in offering financial services. And America used to do this, too, as law professor Mehrsa Baradaran explains in some useful context in the New York Times:
It wasn’t always this way. In 1910, President William Howard Taft established the government-backed postal savings system for recent immigrants and the poor. It lasted until 1967. The government also supported and insured credit unions and savings-and-loans specifically created to provide credit to low-income earners.
But by the 1990s, there were essentially two forms of banking: regulated and insured mainstream banks to serve the needs of the wealthy and middle class, and a Wild West of unregulated payday lenders and check-cashing joints that answer the needs of the poor — at a price.
More often than not, payday loans ostensibly intended to help people bridge rough patches instead drag them even further into debt. Imagine, the inspector general suggests at right, a more reasonable product from your neighborhood post office, which has the dual founding mission to "support commerce and serve citizens." Sure, the Postal Service is looking for new revenue. But the federal government has equally vested interests in encouraging people to support themselves and save money.
And as Baradaran points out, the government already provides interest-free financial services to large banks. So it's hard to argue that a government agency shouldn't get into the business of serving the poor, too, especially when those banks the government already supports aren't doing that very well. Not only does the neighborhood post office have the infrastructure to do this precisely in the neighborhoods that need banking most; it's the kind of already-familiar institution that someone wary of banks might enter.
"There is, of course," Baradaran writes, "a certain irony in the post office, cash-strapped and maxed out on credit, looking to elbow in on the business of check-cashing and payday-loan storefronts."
But, with careful plans – and a whole lot of transparency – it's possible to see how this idea could work. And, in the meantime, it's intriguing to imagine what a lobbying counter-offensive would look like from the payday-loan industry.