Banking & Financial Institutions

Democrats say struggling post office branches could dabble in banking

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Congressional Democrats are coalescing behind the idea of allowing local post offices to fill gaps in the banking business.

They say the move would be a victory for both the cash-strapped U.S. Postal Service and for low-income communities that are often underserved by the major banks.

{mosads}The idea gained steam after the Postal Service’s inspector general said in a report last week that the USPS could likely add billions of dollars a year to its coffers by offering prepaid cards or loans to the 68 millions adults who currently get little or no services from banks.

If the Postal Service partnered with banks to offer more services, those customers would then have an alternative to the often hefty fees charged by payday lenders and other banking alternatives, the inspector general said.

Rep. Elijah Cummings (Md.), the top Democrat on the House Oversight Committee, had released legislation to give the USPS more authority to open new revenue streams like check cashing even before the inspector general’s recommendations.

In recent days, Sen. Elizabeth Warren (D-Mass.), the populist champion embraced by progressive groups, endorsed the idea in a Huffington Post op-ed.

“There’s a lot of low-income people who no longer have banking access, who need the opportunity to cash a check or do modest kinds of banking,” Sen. Bernie Sanders (I-Vt.), another backer of the idea, told The Hill. “So I think there is an opportunity there.”

But to the banking industry and congressional Republicans, the idea is far from the win-win that Democrats and the inspector general claim.

GOP lawmakers argue that local post offices shouldn’t be given more leeway to compete with private-sector companies because of a host of inherent advantages it would have — including generally being exempt from a host of taxes. 

“There are unique things that the Postal Service can offer. But being your local loan shark is not one of them,” said Rep. Jason Chaffetz (R-Utah).

“To try to sell T-shirts, coffee and give you a bridge loan — I don’t think is going to solve the problem the post office has,” Chaffetz added.

Advocates for the banking industry dismiss the idea that they’re afraid of the competition and argue that an agency bleeding cash should hardly be allowed to wade into financial services.

“This is the worst idea since the introduction of the Edsel,” said Camden Fine, the chief executive of the Independent Community Bankers of America.

“They can’t even deliver your mail on time. The track record speaks for itself,” Fine added. “If this was about competition, give me all the sloppy competitors I can get.”

The debate is part of a broader argument among lawmakers and stakeholders about how to best put the agency — which has racked up more than $25 billion in losses over the last three years — on more solid financial footing.

Lawmakers and outside groups have for years sought to craft postal reform proposals that would strike a balance between making cuts to an agency that has seen plunging mail volume in recent years, and giving the USPS access to new revenue streams.

Top Republican lawmakers have generally been more willing to let the Postal Service roll back its Saturday delivery. But liberals and postal unions have pushed back on those and other cost-cutting ideas, and sought to give the agency the opportunity to expand its business portfolio.

The last major postal reform bill, which was enacted in 2006, bars the Postal Service from offering new products that aren’t mail-related in most cases.

But the inspector general report issued last week suggests that the USPS — which already sells money orders — could explore new financial services options within its existing authority.

In all, the Postal Service inspector general says that customers underserved by banks spent about $89 billion on interest and fees on alternative services in 2012, or roughly $2,400 per underserved household. The USPS could bring in close to $9 billion — far more than its 2013 losses of $5 billion — if it got just a tenth of the interest and fees now going elsewhere.

The options raised by the inspector general include partnering with banks to offer prepaid cards that consumers could use to pay bills or take out cash, and to offer products that encourage consumers in low-income areas to boost their savings.

Customers with the prepaid postal cards could also have access to smaller loans, instead of having to seek out a payday lender.

The inspector general argued that the Postal Service is well suited for banking, given that it has more than 35,000 locations around the country.

At the same time, roughly 2,300 banks closed in 2012, the inspector general noted — with the vast majority of closures since the fiscal crisis coming in areas below the median household income level.

Rep. Stephen Lynch (D-Mass.), a senior member of the House Oversight Committee, said he sympathized with the concerns voiced by banks and the GOP.

“I understand the skepticism. I share it,” Lynch said. “But I think there might be a way to address the needs of some of those under banked communities.”

Leading postal reform proposals also weigh in on the idea.

A House GOP measure, crafted by Oversight Committee Chairman Darrell Issa (R-Calif.), would require that Congress approve any new non-postal products offered by the USPS.

On the other side of the Capitol, a bipartisan Senate measure, to be considered by the Homeland Security panel this week, would give the USPS wide latitude to explore non-postal offerings.

But the bill from Sens. Tom Carper (D-Del.) and Tom Coburn (R-Okla.) would also allow the agency’s regulator to weigh in on whether the USPS has the authority to offer certain products.

Either way, banking officials said they will continue their efforts to limit the Postal Service’s work on financial services.

Advocates for the industry say there are plenty of banking options for customers in low-income areas, and that there’s no guarantee the sorts of services the Postal Service might offer would be profitable.

Plus, Richard Hunt of the Consumer Bankers Association noted that federal regulators had effectively forced some banks to not offer a sort of advance loan that he said could be similar to what the Postal Service offers. Consumer groups have slammed that advance loan, which would be tied to a customer’s paycheck.

“We’re not monolithic. We have 7,000 competitors, and credit unions,” Hunt told The Hill. “There’s nobody in the Postal Service right now that’s experienced in the banking sector.”

Tags Bank Business Economics Elijah Cummings Finance Financial services Jason Chaffetz Payday loan United States Postal Service

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