Another aspect of the Senator Sanders/Representative Ocasio-Cortez Bill (see recent post) that rings alarm bells for all those interested in sound public policy, is its inclusion of yet another plan to move the U.S. Postal Service (USPS) into “postal banking”.
The bill contains a proposal “to build and expand basic post office banking services as an accessible, affordable alternative to check-cashing and payday-lending businesses”. Representative Ocasio-Cortez has said, “We should have a not-for-profit public option for basic banking services, and we should be piloting these projects through the US Postal Service….”. This would include the provision of small dollar loans.
Post office banking is not a new idea. In fact, it has been considered in various forms for decades. In 2014, the idea became more closely related to the provision of financial services to the unbanked when the Postal Service’s Office of Inspector General floated the idea. This proposal drew instant criticism from both within the USPS itself and from banks and financial services providers. The then-CEO of the Independent Community Bankers of America memorably defined it as “…the worst idea since the Ford Edsel”.
Tax Funded Bank to compete with Tax Paying Banks?
The banking community is, predictably, united in opposition to the latest proposal too. The American Bankers Association has long opposed granting banking powers to USPS, and has noted that postal banking could be perceived as a government-endorsed, taxpayer funded provider competing with taxpaying banks, and that it would create risks that USPS is ill-suited to manage.
In April 2018, President Trump established a task force within the Treasury Department focused on Postal Reform. Its report, issued in December, was clear on the issue, saying:
“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 rightly focused on areas where USPS could grow revenue without taking on balance sheet risk, such as processing hunting and fishing licenses or renting space to complementary retail establishments.
Installment Lenders Can Help Solve the Problem “Postal Banking” Seeks to Address
The frustration for NILA members is that, despite great strides in understanding in recent years, policymakers are still looking for novel small-dollar loan solutions without closely considering the merits of traditional installment loans.
We believe that NILA members can be part of the policy solution for lawmakers who are seeking a non-bank credit source with lenders originating affordable loans from within borrowers’ communities, operating under strict regulations. Installment lenders have been doing this for decades and surely represent a more realistic option than giving the job to the post office?
We believe any effort to mandate post offices provide this service is doomed to failure. The challenge is, perhaps, best summed up in NILA’s FAQs:
“When is the busiest time for consumer loans? The holidays. Have you seen the lines at a Post Office in December?”