The Treasury Department recommended against getting the U.S. Postal Service (USPS) involved in the banking business in a report exploring possible methods of generating more revenue for the USPS. The financial industry long has been among those opposed to postal banking services, which once were standard, whereas some politicians have voiced support for the idea.
Responding to an executive order from President Donald Trump, Treasury commissioned a task force to “identify a path for the USPS to operate under a sustainable business model, providing necessary mail services to citizens and businesses, while competing fairly in commercial markets,” Treasury Secretary Steven Mnuchin wrote in an introductory letter included in the report.
The task force recommended that the USPS and Congress work in conjunction on ways to craft a sustainable business model for the USPS to avoid a “liquidity crisis liquidity crisis, which could disrupt mail services and require an emergency infusion of taxpayer dollars.” The task force determined that this could be accomplished through a variety actions – such as strengthening governance of USPS, adjusting its pricing model, modernizing its cost allocation practices and reducing operating costs – but that the notion of commissioning the Postal Service to offer loans and depository accounts, as has been suggested by some, is not a viable option.
“Given the USPS’s narrow expertise and capital limitations, expanding into sectors where the USPS does not have a comparative advantage or where balance sheet risk might arise, such as postal banking, should not be pursued,” the report states.
Sen. Kristen Gillibrand (D-N.Y.) introduced a proposal in April, dubbed the “Postal Banking Act” (S. 2755), in April, proposing that post offices be required to offer customers basic financial services, such as checking and savings accounts and small, short-term loans as a way to help reduce the number of unbanked and underbanked households nationwide. A 2015 report by the Federal Deposit Insurance Corp. indicated that 7 percent of households were unbanked (did not have a bank account of any kind) and 19.9 percent were underbanked (had to rely on expensive alternative options like payday lenders or check cashers).
Payday loans have been a subject of controversy, as federal regulators have cited numerous payday lenders for predatory lending activities. Also, as Alex Horowitz, senior research officer for the consumer finance project at Pew Charitable Trusts, told CNBC in April, they can cost about $375 for a period of five months, accumulating roughly $520 in fees.
“These loans are extraordinarily expensive, with annual percentage rates near 400 percent,” Horowitz said.
“This idea could wipe out the predatory practices of the payday loan industry overnight by providing an accessible and low cost alternative,” Gillibrand said on Twitter regarding her bill’s introduction.
Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) are among other congressional supporters of a postal banking system.
The USPS offered banking services from 1911 to 1967 to accommodate many European immigrants who were used to it in their home countries and suspicious of America’s financial system, according to an article by investing magazine Barron’s. As the concept of insured deposits became more accepted, fewer people turned to post offices for banking services, eventually leading to an end to the practice.
The American Bankers Association (ABA), which is listed among the organizations consulted for the report, noted its agreement with Treasury’s determination in a blog post which also referred to a joint letter submitted to the House in July in conjunction with the Credit Union National Association, the Independent Community Bankers of America and the National Association of Federally-Insured Credit Unions (NAFCU).
“Although there have been a number of proposals over the past few years to turn the U.S. Postal Service into the world’s largest shadow banking system, we are very concerned that allowing the U.S. Postal Service to provide banking services will be beyond the Postal Service’s core competencies, will raise a number of serious regulatory and consumer protection questions, and will present significant competitive issues for private sector entities,” the associations wrote. “Congress should encourage the Postal Service to focus on its core business of physical mail delivery, and not be distracted by expanding the mission to businesses outside of the Postal Service’s area of expertise.”
The letter quoted portions of a USPS response to a June 2015 whitepaper by the USPS Office of the Inspector General indicating that USPS did not believe it would be in its best interest to enter the banking business.
“The Postal Service’s mission is to provide the American public with trusted, affordable, universal mail service,” USPS said in the portions called out in the letter. “Our core function is delivery, not banking… Profit margins on these financial services businesses across the industry are very low… so even if we achieved $1 billion in revenue and executed well, our cash position would only increase by an estimated $100-$200 million, which will not materially change our financial condition — we need to focus on the core delivery business.”
NAFCU President and CEO Dan Berger noted his agreement with Treasury’s recent findings on the matter.
“The Treasury’s postal report confirms what we already know – providing banking services is well outside the U.S. postal service’s wheelhouse. Entering this space would only exasperate the agency's financial woes,” Berger said in a statement. “NAFCU has been opposed to this proposal when it first appeared in 2014 and believes the postal service should remain focused on improving its core business of mail delivery instead of expanding into areas where it has no expertise.”
“Credit unions are already highly regarded for their commitment to underserved and underbanked communities,” he added. “Moving forward, Congress should look to remove regulatory barriers and allow credit unions to serve more communities in need of affordable, consumer-centric financial services.”
Citizens Against Government Waste Vice President for Policy and Communications Leslie Paige, whose organization also was consulted for the report, expressed support for its findings that the USPS should explore other means of improving its revenue.
“The report correctly rejects any USPS foray into banking services due to the agency’s ‘narrow expertise and capital limitations,’ maintaining that the risk of such a venture would be too great,” Paige said in a statement. “The report recommends that the USPS downsize its old brick-and-mortar infrastructure by converting stores into contract locations or co-locating and renting with similar private-sector retailers.”
Paige pointed out that, according to the report, labor accounts for 76 percent of operating costs at the USPS, and that the task force has recommended it work to “align compensation for both its career and non-career workers with peers in the broader labor market.”
“Reforms in this area would dramatically reduce costs and put the USPS on a level playing field with its private sector counterparts,” she added.