Should the U.S. Postal Service become a retail bank?

U.S. Senator Elizabeth Warren has proposed extending the Postal Service into a retail bank for Americans who have been underserved by the financial industry or paying high rates of interest on payday loans.
Written by David Worthington, Contributor

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 positives:

“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 New Haven.

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

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