ObamaCare comes to banking

The United States Postal Service—the federal agency known for lost mail, long lines, and disgruntled employees—could soon bring its special brand of incompetence into the banking sector. After all, what could possibly go wrong with giving the postal service direct access to your paycheck?

The USPS is losing billions of dollars every year and lost $5 billion in the last fiscal year alone. While the agency keeps raising the price of stamps (the price just rose to 49 cents last week), the increases barely put a dent in the agency’s mounting financial problems.

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Since Congress hasn’t moved on legislation allowing the agency to cut Saturday deliveries and alter pension payments, USPS has been forced to look at other ways to raise revenue. A new report from the USPS inspector general suggests that the USPS could raise nearly $9 billion annually (though that estimate is based on many “what ifs” and fuzzy accounting) and drastically improve its financial footing by providing financial services for individuals who don’t have access to traditional bank accounts or loans.

But as Ronald Reagan put it, “The nine most terrifying words in the English language are: I'm from the government and I'm here to help.” Offering government-approved banking services that directly compete with the private sector is a terrible idea.

Because the USPS is a federal agency, the financial services it could potentially provide would have the implied endorsement of the federal government—a fact that would make it more difficult for private sector financial providers to compete with the government for customers.

Though the report insists that the postal service wouldn’t compete with banks, and may even partner with banks to “lend expertise,” the inspector general suggested the creation of a “Postal Card” on which users could load cash or paychecks and use it to withdraw cash, pay bills, etc.—an option already available to consumers from a variety of private sector providers that could be undercut by the USPS’s involvement.

The inspector general also points out that traditional banks don’t currently provide small loans and explains why: “small loans cost about as much to underwrite and service as larger loans, but bring in a fraction of the revenue.” This is why payday loans have become popular—they lend amounts to individuals who wouldn’t qualify for traditional loans from banks.

And while the report criticizes payday loans for charging higher interest rates than banks at the same time that it acknowledges that lenders are forced to charge higher rates “in part to compensate for the riskiness of their borrowers, who are more likely to default on their loans.”

But here’s where USPS has an advantage over the private sector: the federal agency could utilize the Treasury Department’s offset program to collect debts from the tax refunds of individuals who don’t pay back loans to the USPS. By seizing tax rebates of those who don’t pay, USPS would minimize risk and could then undercut others to provide loans at lower rates. In fact, USPS could provide loans so cheaply that on a per day basis, a $100 Post Office loan would actually cost customers less in interest than the cost of a first class stamp.

This isn’t a boon for consumers, however. As we’ve seen with the government’s involvement with health care, just because the government says it can provide services at a lower cost and more efficiently doesn’t mean it will happen.

After the botched creation of healthcare.gov and unfortunate incidents of the government mailing private information—including social security numbers, dates of birth, etc.—to the wrong customers, why should individuals turn over their paychecks and private information to government-sponsored banking services?

In order to actually institute most of these changes, the USPS needs Congressional approval—a prospect that seems nearly impossible given the current gridlock on the Hill, which in this case may be a blessing.

Bowers is the managing director of Econ4U, an educational project of the Employment Policies Institute.

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