Kevin Horrigan: Fix the post office, help the poor and starve a vulture
To say that turning post offices into banking centers is a good idea would be wrong. No, this is a spectacular idea.
Here's the U.S. Postal Service, forever on the verge of bankruptcy. It has threatened to close post office branches and stop Saturday delivery. The price of a first-class stamp just went up 3 cents to 49 cents. And so forth.
Last year, it cut its operating losses to $5 billion; believe it or not, that's good. The USPS makes its own money, but answers to Congress anyway, and Congress says it must fund its pension liabilities 75 years into the future; last year, that cost $5.6 billion.
If post offices offered basic banking services, the postal service easily could scrape off 10 percent of the $89 billion spent on "alternative financial services" each year.
That money is spent largely by the 68 million American adults who don't have bank accounts. They pay their bills with cash or money orders. The average unbanked household spends $2,412 a year on alternative financial services, often falling prey to so-called payday lenders.
The average payday loan is for $375. It carries an average effective annual interest rate of 391 percent. Most are paid back over 4½ months, costing $520 on top of the principal. The post office could make money by charging 28 percent interest, even giving the customer an extra month to pay. The $375 loan would cost only $48 in fees and interest.
Now, it might be argued that turning the post office into banking centers would be unfair to payday lenders, title lenders, rent-to-own centers and pawnshops. The proper response to that is, "What goes around, comes around."
This spectacular idea has been kicked around by policy wonks for years; indeed, until 1967, the postal service operated a kind of savings bank. But on Jan. 27, the big idea received a ringing endorsement in a white paper issued by David C. Williams, the postal service's inspector general.
Mr. Williams' proposal was seconded quickly by Sen. Elizabeth Warren, D-Mass. In an article in the Huffington Post, she noted that underbanked households spend about the same on predatory interest rates and fees as they do on food.
"If the Postal Service offered basic banking services — nothing fancy, just basic bill paying, check cashing and small dollar loans — then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing."
Another positive: The postal service owns or leases a lot of real estate — 35,000 parcels. Thirty-eight percent of them are in ZIP codes where there are no commercial banks. An additional 21 percent are in ZIP codes with only one bank.
(Of course, in many of these ZIP codes, there are lots of payday loan outlets.)
So if this is such an obviously spectacular idea — and to repeat, it is — why hasn't it been adopted?
Part of the answer is inertia. The postal service likes being the postal service, not a bank, even if it means it has to close branches and stop Saturday mail delivery. Change is hard.
Change would require modifying offices and retraining personnel, but most business would be done electronically. The system could start by selling pre-paid cards that could be used to withdraw cash or pay bills, the IG report said.
Eventually, if a customer had his paycheck loaded onto his postal card, he could become eligible for a cash loan. The report suggests a $25 loan fee and an annual interest rate of 25 percent.
It's obviously a better deal than a payday loan, which is why the industry would fight it to the death. If we're lucky.
Big banks might hate it, too, even though unbanked customers are, by definition, not their customers. Payday lenders are. A study by the advocacy group National People's Action found that in 2009, major banks provided at least $1.5 billion in credit to payday lenders. The study found that one bank, Wells Fargo, financed 32 percent of America's 23,000 payday loan stores.
Big banks have a lot of clout in Congress, on both sides of the aisle. "They frankly own the place," Sen. Dick Durbin, D-Ill., blurted on a radio talk show in 2009.
But this may be the very best part of the spectacular idea: The postal service may not need congressional approval to get into the banking services industry.
"The 2006 Postal Accountability and Enhancement Act generally prohibits the Postal Service from offering new non-postal services," Mr. Williams' report says. "However, given that the Postal Service is already providing money orders and other types of non-bank financial services, it could explore additional options within its existing authority."
This would be bold, an adjective not usually associated with the postal service. But it could do an awful lot of good for an awful lot of people who today fall victim to vultures, which liberals will like. It might encourage thrift and savings, which conservatives will like. Spectacular.
Kevin Horrigan is a columnist for the St. Louis Post-Dispatch.