Tuesday, February 4, 2014

Delamaide: Can post offices fill banks' gaps?

WASHINGTON — An idea is bubbling to the surface that is so sensible, it is likely to flummox Washington: letting the U.S. Postal Service offer basic financial services to millions of underbanked households through its 35,000 outlets.





We're talking check-cashing, bill paying, reloadable prepaid cards, savings products, small loans and other basic services for 68 million adult Americans who have no bank account or such tenuous connections to their bank that they pay thousands of dollars each year in excessive fees to check-cashing services, payday lenders and other financial predators.

Postal agencies in other countries have long been engaged in financial services. The USPS already offers money orders and international money transfers, and for decades, from 1911 to 1967, the U.S. Post Office offered savings accounts.

The idea to employ this extensive branch network for financial services has been kicking around for some time, but new momentum is coming from a report released last week by no less an authority than the Office of the Inspector General for the U.S. Postal Service.

"The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector," the Inspector General's report says.

The USPS would not compete with banks but would partner with them by reaching markets underserved by current bank branch networks and using the Postal Service's credibility to back products.

The Inspector General describes the plan as a "win-win" for the banks and the Postal Service, which he reckons could deliver financial services to underbanked individuals for just 10% of the $89 billion a year they currently spend, giving USPS a much-needed $8.9 billion boost in revenue.

Predictably, the banks — which largely ignore this market or are content to cream off some of the fat fees from financial predators — rejected the idea out of hand.

The industry! newspaper, American Banker, last week cited an alphabet soup of professional organizations — Consumer Bankers of America, Independent Community Bankers of America and the American Bankers Association — deriding the plan, with one of them calling it "the worst idea since the Ford Edsel" (a putdown probably lost on anyone under 60).

These trade associations joined with the Financial Services Roundtable last week to send a letter to Senate lawmakers objecting to current legislation that might widen the loophole for the USPS to offer financial services.

"Given the Postal Service's unique governmental status, its entry into the financial services market would raise serious unfair competition concerns with the potential to allow it to become the next Government Sponsored Enterprise (GSE) in the broad-based financial services arena," the industry groups said, comparing it with mortgage giants Fannie Mae and Freddie Mac, two GSEs now in government conservatorship.

All this in spite of the fact, as noted in the Inspector General's report, that nearly three-fifths of Post Offices are in bank "deserts" — ZIP codes with no or only one bank branch — "illustrating that the Postal Service is geographically well-positioned to reach people with little-to-no access to retail banking services."

Equally unsurprising, Sen. Elizabeth Warren, D-Mass., who has launched her meteoric political career as an advocate for fairer consumer finance, was intrigued by the report.

"We need innovative ways to create pathways for struggling families to build economic security," she wrote in a blog post, "and this is an idea that falls in that category."

She pledged to work on the idea in the hope other lawmakers would join her.

The Inspector General believes there's an argument for the Postal Service to expand its current financial services under the agency's existing authority, without additional legislation.

But the Postal Service, battered by budget woes and a favorite whipping ! boy of Co! ngress, is not likely to set aside its siege mentality to embrace this kind of innovation without outside stimulus.

The plan would seem to fit in well with President Obama's new push to combat inequality and to use his executive authority where possible to deploy government resources to do so. It could even be a great launching pad for the new myRA retirement accounts Obama announced in his State of the Union address last week.

However, the USPS has never been a high priority for this president. While Obama's budget proposals have provided some relief for the punitive congressional requirement to prefund its retirement benefits, he has also backed elimination of Saturday deliveries and postal rate increases above the rate of inflation.

So it's likely — absent vocal champions such as Warren or other high-profile lawmakers — that a good idea whose time may have come will be denied a fair hearing by a Congress in the grip of financial lobbyists and a White House grown more cautious than ever.

Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron's, Institutional Investor and Bloomberg News service, among others. He is the author of four books, including the financial thriller Gold.

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