Post Offices That Are Also Banks? Genius Idea. But Don't Hold Your Breath.
File this under Excellent Ideas That Should Definitely Happen But Probably Won't.
Last week, Sen. Kirsten Gillibrand, a New York Democrat, introduced legislation to create a Postal Bank, empowering the nation's vast network of post offices to offer checking and savings accounts, and to provide low-interest short-term loans.
There are three things to really like here:
- It would be cool having an alternative to private banks that all too often prove themselves no friend of customers (hi, Wells Fargo!).
- Banking services would be a financial lifeline for the U.S. Postal Service, which has been defenestrated by email and digital communications.
- This could spell doom for bottom-feeding payday lenders.
"I think this is such an elegant fix for complex problems," Gillibrand told me, "particularly payday lending."
She said millions of Americans become trapped every year in never-ending debt cycles by lenders charging annual interest rates of as much as 400%.
"Congress has the ability to wipe out these predatory practices right now by creating a Postal Bank that would be accessible to everyone," Gillibrand said.
One reason I embrace this idea is because I had a postal savings account when I lived in Tokyo in the 1990s. It was an eye-opening and incredibly convenient experience, allowing me to access my money nationwide and perform basic financial tasks without facing a slew of fees.
Japan, like dozens of other countries, took its cue from Great Britain, which established the first postal savings system in 1861. A Japanese version was introduced in 1875.
But Japan's postal savings system also serves as a cautionary tale. It was privatized in recent years after serving for decades as a piggy bank for politicians' pet projects.
Gillibrand isn't proposing injecting the U.S. Postal Service with steroids and making it a rival for Bank of America or Citibank. Her bill, S. 2755, envisions a modest financial component for a delivery service that's required by law to pay its own way. The Postal Service isn't funded by taxpayers.
But that doesn't mean it's solvent. Mostly because of pension and healthcare obligations to retired workers, the Postal Service lost $2.7 billion last year, its 11th straight year of losses. It borrows from the government to make up shortfalls.
President Trump recently took to Twitter to claim Amazon's bulk-rate deal with the Postal Service was "costing the United States Post Office massive amounts of money." Not surprisingly, he was wrong.
In fact, Amazon and other bulk shippers are the main source of revenue for the Postal Service, which has had to grapple with the demise of first-class mail. By law, the Postal Service can't lose money on package deliveries. It has to at least break even.
But if the Postal Service doesn't find new sources of cash, it will go bust. And don't count on FedEx and UPS taking up the slack. I've asked them. They say they're willing to take on urban mail deliveries, but they have no interest in mandatory daily visits to far-flung rural addresses.
Gillibrand's bill keeps the Postal Service relevant. It also addresses a genuine need among lower-income communities for access to affordable financial services.
Similar proposals have been made in the past by progressive-minded lawmakers, including Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.).
The problem, of course, is that this legislation is a direct assault on industries with plenty of political muscle. Payday lenders certainly won't welcome the prospect of a government-affiliated, low-cost competitor.
At this point, though, they're trying to appear accommodating.
"We welcome new entrants into the small-dollar credit market provided they will be subject to the same laws and regulations as other lenders in this space," said Dennis Shaul, chief executive of the Community Financial Services Assn. of America, a payday-lending industry group.
"Greater market competition spurs innovation and drives down costs for consumers," he said, "but to date almost all of the attempts to create small-dollar loan alternatives have been charity-based, required government subsidies, or were unprofitable and unsustainable. The private sector remains the best opportunity for serving small-dollar, short-term loans."
I take that as a veiled threat that the industry will fight the advent of a Postal Bank if it looks like the government is in any way underwriting loans to customers. Or maybe he just knows he can sound upbeat because Gillibrand's bill is such a long shot.
The banking industry is adopting a more cautious tone.
"Postal Service management has previously questioned the idea of straying from its core business of physical mail delivery and expanding into financial services, and we share those concerns," said Jeff Sigmund, a spokesman for the American Bankers Assn.
In fact, the United States has been down this road before. A postal savings system was created in 1910, largely targeting immigrants, but ended up being unable to compete with better terms offered by private banks. It was shut down in 1967.
My biggest concern is that a new-and-improved Postal Bank not fall into the same trap Japan's did: turning into a slush fund for lawmakers. At the height of its power, Japan Post held about $3 trillion in savings and insurance deposits, and was considered by some the world's largest bank.
Gillibrand's bill wisely focuses on modest goals. The Postal Bank would limit its assets — and clout — by restricting how much money people could keep in their accounts and how much they could borrow.
Loans would be limited to $500 at a time and $1,000 a year. Checking and savings accounts would be limited to $20,000. Basically, the Postal Bank would serve more as a safety net than a true competitor to private banks.
"It's all small-dollar," Gillibrand told me. "I'm sure the industries will push back. But these aren't customers they are serving right now."
High fees deter many low-income people from financial transactions, she said.
"The Postal Bank would solve this problem by putting a retail bank branch in all of the U.S. Postal Service's 30,000 locations, providing low-cost, basic financial services to all Americans, and effectively ending predatory lending nationwide."
It's a bedrock tenet of the American economic system that anyone can succeed by finding a need and filling it.
Gillibrand's bill fills several needs — for more banking resources, for a financially stable Postal Service, and for a good kick in the pants to payday lenders.
"It's an idea whose time has come," she said, adding that she's optimistic her bill will find support among lawmakers on both sides of the aisle. I wish I shared that optimism.
But I look at the more than $26 million commercial banks gave to congressional candidates in the 2016 election cycle — with Republicans receiving nearly twice as much as Democrats — and I wonder how supportive politicians will be of creating a quasi-governmental competitor to this industry.
Gillibrand is right: A Postal Bank would be an elegant solution to a variety of problems.
That's why, unfortunately, it's unlikely to happen.