February 13, 2014

Turning Post Offices into Credit Unions and Banks

By Mark Wachtler

February 13, 2014. Arlington, VA. The US Postal Service released a proposal two weeks ago that summarizes something many government officials and postal executives have quietly suggested for some time. They want to turn the nation’s 31,000 post offices into banks, or more accurately, credit unions. They would still process mail, but the facilities would also provide certain desperately needed banking services to the one-quarter of American households currently struggling without them.

To put the size of this proposal into perspective, it’s worth noting that the US Postal Service is already one of the largest entities in the world. If it were a corporation, it would rank 29th on the world’s list of Fortune 500 companies. The USPS brings in $67.3 billion in annual revenue, has 522,144 employees and operates 31,135 publicly accessible retail post offices.

US Postal Credit Unions

When the USPS released its proposal to turn itself into a ‘non-bank’ two weeks ago, most compared the future post office to a payday lender. More accurate would be to compare the business model to a credit union. Serving poor and working class local residents and their humble penny-anti financial needs is a current demand in America that isn’t being supplied by anyone but predatory lenders and the life-saving neighborhood Currency Exchanges.

According to government officials, 68 million American adults plus their children – one in four US homes – can’t open a bank account for one reason or another. The most common barrier is simply being too poor. So instead of sending a simple free check to pay each monthly bill, they must purchase a money order at a cost of up to $5.00 per payment. Instead of obtaining a small, short-term loan at an interest rate of say 5% like other Americans; the poor, working poor, and working class must pay 200% interest for the same loan using a payday loan, title lender or pawn shop. That’s currently costing the people who can least afford it $89 billion annually in fees that their more affluent counterparts in American society never have to pay.

The US Postal Service is one of the biggest success stories in American history and is one of the prime reasons many observers believe this idea could work. While it’s no secret that the USPS has horrible customer service, it’s just as true that the American people trust the Post Office not to rip them off. The tradition began in 1775 when Benjamin Franklin was named by the Continental Congress as America’s first Postmaster General. The Post Office is America’s second oldest institution after the army.

The proposed services

If readers are wondering just what kind of services the US Postal Service would like to provide to community residents, the report just released by the agency details each proposal. They include (from the USPS Report):

• E Commerce payments

• Bill payments

• Government-to-citizen payments

• Single-retailer gift cards

• Pre-paid credit cards

• Mobile payment processing

• Check cashing

• Savings

• Identity authentication

• Financial counseling

• Money orders

Currently, Wall Street banks have a government protected monopoly on banking services. That’s why the Postal Service goes so far out of its way to make it clear it is not proposing that it be transformed into a ‘bank’. Instead, the report specifically calls it, ‘Non-Bank Financial Services.’ But make no mistake, it’s a bank in every sense of the word except the legal-ease. Or more specifically, the idea suggests more of a neighborhood credit union.

Banks exist to take your money and keep as much of it as possible for themselves. Credit Unions are just the opposite. They’re co-ops, or unions, of local neighbors pooling their resources and purchasing power in order to have enough capital to maintain an honest, non-profit financial services outlet. In other words, it’s a bank that exists to enrich you and you alone, not a bunch of wealthy shareholders and stock market speculators.

It’s interesting to see how the Postal Service suggests getting around Washington and Wall Street’s monopolistic banking laws. Readers will notice that the USPS doesn’t propose offering credit cards. But it does want to offer pre-loaded debit cards under the typical brands like Visa and Master Charge. Instead of providing ‘savings accounts’, the USPS wants to offer ‘savings cards’. To skirt the law, the Post Office wouldn’t keep your deposits in an ‘account’. They would instead keep the funds on a debit card that works exactly like a traditional savings account only without the passbook.

Powerful and popular supporters

The idea isn’t without its influential supporters. None is more well-known and trusted by the American people when it comes to banking than Sen. Elizabeth Warren (D-MA). With swarms of excited supporters from around the country urging the freshman Senator to run for President in 2016, any new or unusual endorsement Warren makes gets national attention. And she’s endorsed the idea of turning post offices into trustable community financial centers.

Just last week, TIME quoted Sen. Warren reiterating her support for the proposal. The account points out that 90% of all the banks closed since the 2008 economic collapse were in low-income communities. It also reveals that the average working class individual pays an average of $2,412 in yearly unnecessary financial fees just to participate in society from day to day. The report indicates that is 10% of a poor person’s income. But in reality, that amounts to roughly 15% of a minimum wage earners gross income, or as much as 30% of a person’s net income after taxes. That’s one large ‘poor tax’.

“If the Postal Service offered basic banking services, nothing fancy, just basic bill paying, check cashing and small dollar loans,” Sen. Warren was quoted saying, “then it could provide affordable financial services for underserved families, and at the same time, shore up its own financial footing.”

While the political left overwhelmingly supports the proposal, it seems the political right doesn’t mind either. TIME quotes an editorial from the New Republic that all but gives their seal of approval to the idea, ‘Banks don’t want these customers; if they did, they would actually make a play for their business. Instead of partnering with predatory lenders, banks could partner with the USPS on a public option, not beholden to shareholder demands, which would treat customers more fairly.’

Not surprisingly, Wall Street banks don’t want poor people or the working class as customers. But they don’t want anyone else to have them either. The account details a statement from the American Bankers Association to the Washington Post criticizing the proposal. ‘We’re deeply concerned that the US Postal Service is trying to drive the creation of a new government-sponsored entity engaged in banking services, which is not subject to the same level of regulation,’ they complain, ‘This new entity could be perceived by many as a government-endorsed and preferred provider of financial products.’

With Wall Street throwing up roadblocks, supporters of the idea point to decades-long examples of similar successful experiments. They insist there are plenty of non-bank institutions functioning as banks these days. Corporations like General Motors and General Electric have been banks for decades. Newer entrants like Wal-Mart, T-Mobile and the rest of the large retailers and cell companies have also been offering banking services to their customers.

The biggest red flag comes from those so supportive of the idea that they want Wall Street’s banks to fund, manage and facilitate the new postal credit unions. Not surprisingly, that would defeat the whole purpose of offering legitimate, ethical and honest banking services to the 25% of American households that have been denied it by those very same Wall Street banks.

For more information, read the full 33-page US Postal Service proposal.

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