Signed, Sealed, Deposited
How to save the Postal Service—and protect ordinary Americans from financial predators—in one easy step: bring back postal banking!
How bad have things gotten for America’s national mail delivery system? The US Postal Service lost $1.3 billion last quarter, and this was regarded as good news. The venerable agency has been saddled with significant financial problems since a 2006 law forced it to pre-fund 75 years of employee retirement benefits, something no other public agency or private company has to do. This cash crunch (the Postal Service gets no money from the federal government and must survive on the revenues it generates) has led to austerity measures for the nation’s second-largest employer (right behind Wal-Mart). Mass layoffs last year were followed, earlier this month, by the announcement that Saturday deliveries of first-class mail will cease come August.
As many have noted, this is a largely manufactured crisis. Simply relaxing the pre-funding requirement—as the postmaster general beseeched Congress to do this week—would wipe out virtually all of the Postal Service’s deficit. (Absent this heavy payment, the agency would have made $100 million in the last quarter.) But given the reduced use of letters in an age of digital communication, it’s nonetheless true that the Postal Service is due for some changes to its business model. Democrats from Sen. Tom Carper to Rep. Elijah Cummings have laid out various ideas. But there’s one idea they haven’t suggested that would kill two birds with one stone: make money for the Postal Service and level the financial playing field for some of the most vulnerable Americans. Namely: We should allow the Postal Service to return to the practice of offering simple banking services.
According to the FDIC’s 2011 National Survey, over 10 million US households are “unbanked,” with no access to the financial system. Another 24 million households are “underbanked,” meaning they have a bank account but they also rely on providers of “alternative financial services”: remittance or money order shops, payday lenders, check-cashing operations, pawn shops, or associated services. Many of these services are among the most unscrupulous in American society, preying on people with few other options and charging usurious interest rates or carving out large fees. These roughly 68 million unbanked or underbanked Americans represent a huge market for non-bank financial predators.
In other countries, this market is served at the post office. Almost every developed nation in Europe and East Asia operates a postal banking system. A few have been privatized, including what was the world’s largest savings bank, Japan Post. And some operate as a private-public partnership. But countries like Israel, France, Switzerland, Russia, South Korea, South Africa and more all allow their citizens to perform simple banking tasks at the local post office. New Zealand’s Kiwibank, a recent innovation, was established in 2002 specifically to protect citizens from financial predators. It has been wildly successful, according to Ellen Brown of the Public Banking Institute, with one in eight Kiwis moving their services to the postal bank in the first five years.
What’s more, we used to have a postal banking system of our own. Starting in 1911, the United States Postal Savings system (pdf) allowed Americans to deposit cash with certain branch offices of the Postal Service, at 2% interest. The system held $3.4 billion in deposits for four million people by 1947; though it lost its advantage of depository insurance in the 1930s with the advent of the FDIC, it survived until 1967. The system was primitive—it was essentially a certificate of deposit that the Postal Service subsequently re-deposited in participating local banks, earning 2.5% and keeping the extra 0.5% for administrative costs. But it aided Americans by accepting money not circulating in the economy, adding convenience to the banking system, and promoting lifetime saving. Eventually, private banks changed their rules to compete for the unbanked and offer more attractive services. Congress determined that the Postal Savings system was no longer necessary. But with the end of free checking and consolidation of the commercial banking system, the need for a public option to foster competition has returned.
The U.S. Postal Service still has a toe in the financial services business; post offices still issue money orders, including $22.4 billion worth in 2011; and the agency has a deal with American Express to sell prepaid debit cards, a popular solution for the unbanked. But if the Postal Service were allowed to take deposits, provide debit cards, and even offer checking accounts, they could capture a huge market share and reduce the level of unbanked and underbanked Americans, a key policy goal among people on the right and left alike.
This reform would also put the current vast resources of the Postal Service to good use. The agency already has almost 32,000 branches nationwide, invariably in the best real estate in town. It has a window service staff already trained to write money orders and deal with the public. And it has the trust of a large number of Americans—certainly more than the payday lender or check-cashing store.
Nobody is suggesting that the Postal Service issue mortgages or play in derivatives (Banks probably shouldn’t play in derivatives either, but that’s another story). Congress could ensure, as before, that deposits are invested conservatively. Congress could also ensure that the services are designed for small savers, with no minimum balances or heavy fees—the system of financial electric shocks that drives many Americans away from conventional banks and into the arms of shady operators. Americans should have a public option for simple banking that could shield them from the most predatory practices and extend saving options to all reaches of society.
The National Association of Letter Carriers is ready to do this; they endorsed a resolution at their annual convention in 2012 to adopt a postal banking system in the US. But the chief financial officer of the US Postal Service, Joe Corbett, has downplayed the idea of postal banking, saying it would not deliver enough positive returns to wipe out its deficit. This is a bit of a straw man. Even Corbett concedes that well-run postal banks could bring in 7-10% of total operating revenue, which would certainly help to stave off some of the worst cuts and retain workers, almost 40% of whom are people of color.
But there’s a larger issue at play here than the Postal Service’s books. The country has a real problem with people who lack access to the financial system, and who subsequently get shut out of all sorts of opportunities that increase social mobility. Postal banking could significantly increase that access, which in turn would put more money circulating in the economy. In addition, having a federal agency that would promote responsible savings makes sense in a society that’s too over-extended. Economists like Nomura’s Richard Koo believe we’re currently in the midst of a balance sheet recession, with over-leveraged Americans resigned to paying down debt instead of purchasing goods and services, reducing economic activity. Increasing the savings rate with money that’s otherwise stuffed in mattresses could restore some balance for Americans when the economy suffers a downturn.
Sheldon Garon, Professor of History and East Asian Studies at Princeton, argues that postal banks around the world have “proven effective at improving the access of lower-income individuals and youth to savings institutions,” and that bringing them back to America would have the same effect.
There’s no question that the commercial banking industry and the fly-by-night non-bank financial predators alike would fight such a proposal in Congress, just as the banks did in 1911 with the original Postal Savings system, in an effort to rid themselves of any competition. And these operators are pretty adept at getting what they want out of Washington. But the Postal Service, which has been around since before we were a country, operates as a Constitutionally mandated public service for all Americans. Extending access to financial services for all Americans—especially those who are woefully underserved in the current market—would fit well with that mandate. And it would help solve the Postal Service’s current crisis as part of the bargain.