One U.S. Senator has a proposed a radical idea that would
extend the mission of the country’s ailing
Postal Service into an alternative to payday lenders to serve low-income
citizens and sustain the agency’s finances with billions in revenue.
It might sound provincial, but many developed nations face
the same issues of rising income inequality, debt, and a scale down of
government services. The dwindling spending power of the U.S. middle class and
post office’s dire fiscal predicament motivated Senator Elizabeth Warren to
devise a multifaceted solution. Warren wants to diversify
and extend services rather than reduce them (while tackling a wealthy industry).
The Post Office would provide retail bank services for
Americans that lack bank accounts, which there are an increasing number of. One
in four households are now outside
of the financial system. The plan was estimated to raise nearly US$9 billion in
revenue annually, the agency’s Office of the Inspector General reports.
The proposal is not coming out of left field and has been
tried in other countries, Business Insider reports.
It’s won accolades from progressives and some policy experts, but others
question its feasibility and the banking industry really hates it. Payday loan lenders, which have boomed since the Great Recession, probably hate it even more.
SmartPlanet interviewed several experts on finance to take a deeper dive into the plan.
First, here are the
“That proposal is part of a growing policy trend on the
state/local/federal level in making innovation and service hubs out of physical
spaces. For example, President Obama's recently announced "Promise
Zone" initiative has a common theme throughout the first five locations he
rolled out: there all emerging tech hubs that also contain a growing number of
technology R&D programs or there's a growing concentration of STEM-oriented
professionals. The hearing in the Senate today about the USPS’ $5 billion
deficit focused some on how the post office could close that deficit by selling
off a lot of unused facility space. Warren’s proposal could not only lead to
financial service centers, but it should begin making tech hubs out of even the
most remote rural locations, thereby potentially boosting local economies,”
said Charles Ellison, a policy and legislative expert with TEKsystems.
And now the negatives:
“The use of the post office to do financial services beyond
what they currently provide (money orders) is not viable. The P.O. skill base
and resource structure is not appropriate to provide financial services. The
very simple thing of check cashing would require creating a credit analysis and
credit operating structure to be installed. Bottom-line - financial services is
a very complex operating system that looks easy from afar but in reality not
easy to do,” said Dr. Robert Rainish, a finance professor at the University of
The Consumer Bankers Association has a multitude of issues
with Senator Warren’s plan including conversion of bank branches, hiring, and
regulation, said media relation and communications director Thomas Crosson. The
association represents retail banks, including “ones the government just forced
out of offering one of the key products Sen. Warren is looking to promote,”
Crosson noted. It has a history of opposing
regulations from advocating the repeal of the Glass-Steagall Act to the many banking
and insurance reforms introduced since 2007.
Dr. Rainish suggested other alternatives:
“The Senator wants to solve a
problem that really exists (not everyone has access to basic financial services
at a reasonable cost and are at risk of dealing with individuals who do not
have any fiduciary responsibilities or at the very least required to undertake
a suitability analysis). There are better short-term alternatives. Government
could subsidize the needed transactions (e.g. pay a portion of fees, limit
firm's credit risk, subsidize low balance accounts to make them worthwhile to
offer). The longer-term solution is to provide individuals in high school and
college a personal financial management education and develop a more efficient
subsidy program e.g. Medicare was originally a higher cost system but has
evolved into a very efficient operating process).”
This post was originally published on Smartplanet.com