The Postal Crisis Part 2 – The Banking Solution

As you will remember, I wrote an article last week describing how the Post Office’s financial situation is largely self-imposed and reversible. However, just getting rid of the constraint that I described would provide a temporary reprieve since it’s fairly clear that electronic communication will increasingly cut into postal profits in the future. Senator Bernie Sanders (I-VT) put out a list of potential new services the USPS could provide including granting hunting or fishing licenses, notarization services, and better online integration. However, beyond even these ideas lies an even more innovative proposition: the Postal Bank, an idea put forward by Senator Elizabeth Warren (D-MA).

A Postal Savings System (PSS) is not a new idea. The United States utilized such a service between 1910 and 1966 whereby the USPS accepted deposits and then redeposited them back into local banks; the scheme was then financed through interest income. Savings peaked around World War II and their subsequent decline resulted in Congress repealing the PSS in 1966; unclaimed deposits were then held in trust and claims were honored till about 1985.

However, there is reason to believe that there would be demand for an idea today. A white paper published by the USPS’ Inspector General found that 68 million Americans don’t have accessed to even the most basic of banking services and are forced to spend nearly ten percent of their income for cash services from things like payday lenders thereby resulting in a $89 billion drain from the economy. To give you an idea of the differences in interest that the average person would pay, the payday lenders and other immediate cash services charge interest rates approaching 100% and over but the PSS back in the day actually paid back 2% interest on deposits.

In terms of hard numbers, this would save those Americans almost $2000 a year through at least three basic services: savings, debit cards, and simple loans. The Post Office would also stand to gain $8.9 billion in much needed profits.

What are the downsides then? Well the National Journal put out a critique of the proposal which basically rested on two basic premises: quality of service and competition for banks. For competition, it’s a non-argument. If banks wanted to provide services to those 68 million, they could easily start now but they aren’t. In fact, their failure to do so only made the 2008 financial crisis even harder on the working poor since many of them had already been in the clutches of predatory lenders for much of the previous decade. It’s a niche that the private banking industry has refused to dirty it’s hands with. If they refuse to fix the problem, then it opens up an obvious market share for the Post Office to capitalize on especially considering that it has 56 years of experience in such things even before the start of the digital age. The second argument against the idea is the service quality.Nearly every argument against the USPS’ service quality is based on anecdotal tales and horror stories. While certainly true individually speaking, do you ever hear about the countless cases the USPS gets right every single day? Of course you don’t; they’re not news worthy. Let’s also not forget that Congress has been useless in appropriating the resources necessary for the USPS to even begin addressing the holes in its system.

At the end of the day, if we want a functioning Postal Service that’s financially independent, then we have to give it the tools and resources to do the job. Either that, or we absorb the USPS back into the government as an agency or we privatize it completely. One thing’s absolutely clear: leaving it in financial limbo does our economy, postal workers, and our credibility absolutely no good. 

Chirag

Sources:

History of the PSS:

http://about.usps.com/who-we-are/postal-history/postal-savings-system.pdf

Office of the Inspector General (USPS) White Paper:

http://www.uspsoig.gov/sites/default/files/document-library-files/2014/rarc-wp-14-007.pdf

Think Progress Article:

http://thinkprogress.org/economy/2014/02/03/3239261/elizabeth-warren-post-office-financial-services/ 

New Republic Article:

http://www.newrepublic.com/article/116374/postal-service-banking-how-usps-can-save-itself-and-help-poor 

National Journal Article: 

http://www.nationaljournal.com/congress/your-post-office-now-wants-to-be-your-bank-20140209 

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