Could new products save Postal Service?

WASHINGTON — Lawmakers and government officials looking for a way to save the cash-strapped U.S. Postal Service are considering a proposal that would make check cashing, small loans, prepaid cards and other financial services available at your local post office.

The plan, which was floated earlier this year in a special report by the Postal Service’s Office of Inspector General, would use the far-flung network of post offices across the country to reach consumers who are under-served by banks.

In the report, the inspector general suggested that post offices could fill a gap left by the dwindling number of bank branches in low-income rural areas and inner cities, generating an estimated $8.9 billion in additional revenue.

As the Postal Service struggles to remake itself in the Internet age, this proposal to solve the agency’s budgetary woes is generating buzz – and vigorous debate – in Washington’s policymaking circles.

Without a new source of funding, the Postal Service might soon be forced to end Saturday delivery and shutter rural post offices after hemorrhaging more than $20 billion over the past two years.

Perhaps the most high-profile proponent of the inspector general’s proposal is Sen. Elizabeth Warren, a liberal Democrat from Massachusetts, who laid out her case for “postal banking” last week at a conference hosted by the Pew Charitable Trusts, a Washington research center.

Warren said the post office was an ideal venue to provide affordable financial products for families of moderate means whose needs weren’t met by the traditional banking system.

In 2012, the senator noted, a quarter of U.S. households — 68 million people — spent an average of 10 percent of their incomes on interest and fees for check cashing and payday lending, about the same amount they spent on food.

If post offices teamed up with nearby credit unions or community banks, Warren said, they could provide similar services for less, potentially funneling millions more people into the traditional banking system.

“That’s a win-win,” she said.

For example, a hypothetical “Postal Loan” of $375 with a $25 upfront fee and 25 percent interest rate would cost $48 in interest and fees over the life of the loan, less than a tenth of what the typical payday loan would cost a consumer to borrow the same amount, according to the inspector general’s report.

“That single loan from the Postal Service could effectively put $472 back into a consumer’s pocket,” the report said.

Critics of the proposal say postal employees don’t have the experience or training necessary to offer financial products and the Postal Service doesn’t have the capacity to take on new lines of business when it’s been operating at a loss for years.

Republican Congressman Darrell Issa has condemned the plan as an irresponsible power grab by the federal government. The Californian is the chairman of the House Committee on Oversight and Government Reform, which oversees the Postal Service.

Issa says the already-oversized agency should focus on breaking even instead of branching out into new ventures that its employees aren’t trained to handle.

“Do the postal employees have the skills to be involved in financial activities beyond the exchange of dollars for money orders? The answer, of course, is no,” he said last week at the Pew conference.

Most banks aren’t fans of the idea either. They see it as government-sponsored competition, and they worry that the Postal Service won’t be subject to the same level of regulation that banks are.

“This new entity could be perceived by many as a government-endorsed and preferred provider of financial products,” Kenneth Clayton, the chief counsel for the American Bankers Association, said in a written statement to McClatchy. “The impact on banks — particularly rural community banks — would be substantial.”

The Credit Union National Association also is on the record opposing the expansion of the Postal Service into the financial services industry.

But a spokeswoman for the association said it might make sense for some credit unions to partner with the Postal Service at a local level.

More than 140 credit unions in 47 states are or have been affiliated with post offices, and this might be a good place to start, the spokeswoman, Vicki Christner, said in an email. “We would be willing to engage the Postal Service in this conversation,” Christner said.

For the greeting card company Hallmark, which is headquartered in Kansas City, Mo., any idea that could bring additional revenue to the Postal Service would be a better option than cutting services or raising rates above inflation, Hallmark spokeswoman Linda Odell said.

“That said, for this or any other new product or service to be helpful to the USPS’s long-term financial health, strict oversight from the Postal Regulatory Commission would be required to ensure that the anticipated revenue materializes and that the product covers its costs,” Odell said in a statement.

But there’s no guarantee that postal banking would make money rather than lose money.

“The cost is really where the rub would be, and a lot of this is going to depend on what the services provided are,” Adam Levitin, a professor at Georgetown University Law Center.

“If the postal bank is just providing some safekeeping and payments, it can probably be done at a very low cost,” Levitin said. “If it starts getting into credit services, I think it’s going to be a much more complicated conversation… . The devil’s going to be in the details.”

A survey released this month by the Pew Charitable Trusts found little interest in postal banking among the general population. Just 27 percent said they’d favor it, while 63 percent didn’t care.

But among people who already use alternative financial services such as check cashing and payday loans, 81 percent said that if a nearby post office offered such services at a lower price, they’d be likely to use them.

Madalyn Wetzel, a 53-year-old hairstylist from Kansas City, Kan., said she might consider buying a prepaid card from the post office, but she’d be wary of taking out any loans.

“I would be one of those people that asked to use a magnifying glass before I signed anything,” said Wetzel, who had a bad experience paying back a high-interest payday loan after she lost her job several years ago.

“Would a government-run office do any better than the people running them (payday loans) now? I don’t know,” she said.

A brief history of postal finance

Offering basic financial services through the post office isn’t a new business model. It’s commonplace in Europe and Asia and once was popular in the United States too.

Starting in 1911, the Postal Savings System allowed Americans to deposit money at post offices nationwide. Competition with banks was minimized by limiting deposits to $500 and capping interest rates at 2 percent. Deposit limits were raised to $2,500 in 1918.

At its peak in 1947, more than 4 million Americans had $3.4 billion in savings in the Postal Savings System, which was considered a safe place to keep money before the government introduced bank deposit insurance.

When banks raised interest rates after World War II, deposits in the Postal Savings System dropped. The program was discontinued in 1967.

Today, the Postal Service sells money orders, processes remittance payments and cashes U.S. Treasury checks in addition to delivering mail and packages.

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