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Your Post Office Now Wants to Be Your Bank

USPS is thinking about financial services—debit cards and small loans. But first, America's banks would have to get on board, or at least out of the way.

The post office isn't known as the most efficient or reliable business in America. It can't run its operations at a profit, it's got serious financial troubles, and just try mailing a package on a Saturday without waiting in line for 30 minutes.

Now imagine relying on this institution for your banking needs, everything from loading up a debit card to taking out a small personal loan. It's a hard sell, but one that progressives and congressional Democrats are making as they search for a way to keep this American institution running.

The idea, most recently floated in a white paper by the U.S. Postal Service's inspector general and supported in theory by Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt.,estimates that the money-losing agency could make $8.9 billion a year by offering limited banking services to the tens of millions of people who are not served by traditional banks. (These are people locked out of the current banking system due to geography or relative poverty and who often rely on payday lenders, pawnshops, and title loans for their cash.)

Theoretically, the USPS could partner with banks, who would help it offer branded, reloadable prepaid cards; set up and manage Web and mobile access to financial services; service accounts and loans; and maybe even fund and hold the loans on their own balance sheets. In return for the banks' participation, the USPS would offer its massive network of post offices, 38 percent of which are in ZIP codes that don't have a bank, and its trustworthy name. The banks could reap "substantial revenue" through the arrangement, the white paper predicts.

A marriage made in heaven? Hardly. The banks are not quite on board with the idea of allowing the Postal Service to expand into their realm.

Their stated concern is competition, although Camden Fine, president of the Independent Community Bankers of America, says that might not be the deal breaker. "Have you ever stood in the lines at Christmastime at a post office?" he asked.

He instead points to the Postal Service's dismal financial situation. Since 2007, the USPS has struggled mightily to stay afloat financially. Congress is at least partly to blame for the agency's financial woes; legislation passed in 2006 required the organization to rapidly set aside money to "pre-fund" its retiree health plans. Also at fault is the financial crisis, which hastened the country's shift to cheaper or free digital communication. The USPS has had a net loss for the past seven fiscal years, most recently $5 billion in 2013. Insolvency constantly threatens.

So Fine worries members of his trade group might lose money, either as taxpayers or bankers, if they paired up with the struggling Postal Service.

"Let's say they went down that same dismal road of non-success they have had with the delivery of mail, then when they start racking up losses. Who's on the hook for those losses? It's either going to be the bank, or the taxpayers, or both," Fine said.

Now, banks certainly have their own reputational trouble and some recent history with owing their very existence to the U.S. taxpayer. Still, they say their squeamishness comes from their concern about giving an entity somehow related to the U.S. government access to a piece of the financial market. (The Postal Service has been self-supported for decades, although it has borrowed money from taxpayers to make ends meet in recent years.) Think Fannie Mae and Freddie Mac, the mortgage giants the government had to save by taking into conservatorship.

"Given the Postal Service's unique governmental status, its entry into the financial services market would raise serious unfair competition concerns with the potential to allow it to become the next Government Sponsored Enterprise (GSE) in the broad based financial services arena," four industry groups said, referring to Fannie and Freddie, in a recent letter to Sens. Tom Carper, D-Del., and Tom Coburn, R-Okla., the authors of a postal reform bill. A government-backed postal bank would be just as unfair, they say.

The industry is fighting to kill the Carper-Coburn proposal that would give USPS's expansion the best chance for legal survival. If the industry succeeds, the Postal Service might still be able to go it alone, to a certain extent, by using its current authority to provide money orders and international money transfers. Ruth Goldway, who acts as the Postal Service's chief regulator as head of the Postal Regulatory Commission, said she would be "delighted" if the USPS came to her with a proposal for postal banking.

More complicated may be establishing banking services without industry help. The Universal Postal Union, the United Nations' postal branch, surveyed countries around the world that have postal banking and found the business models—the degree of involvement of the financial services sector—vary quite a bit.

Although banking trade groups say they haven't yet ruled out the possibility of future partnerships, here, with the banking lobby still as powerful as it is, the USPS might be on its own.

This article appears in the February 10, 2014, edition of NJ Daily.                          

(Image via Flickr user mempix)

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