Elizabeth Warren: The post office could become a bank, replace payday lenders

Senator Elizabeth Warren has another brilliant and truly progressive proposal. It would help the more than 68 million Americans (25% of all households) who use payday loan services because they have no checking or savings account, and also help shore up the struggling U.S. Postal Service.

It’s not Warren’s idea, but one that she and others—even within the Obama administration—have championed for a long time. This past week, she penned an op-ed on Huffington Post on the heels of a new report by the Office of the Inspector General (OIG) of the U.S. Postal Service. The report explores the possibility of the USPS offering basic banking services—bill paying, check cashing, savings accounts, debit cards and even simple loans—to its customers. The Inspector General weighing in on postal banking moves it from a good idea being tossed around and going nowhere to a significant policy proposal.

Warren writes:

With post offices and postal workers already on the ground, USPS could partner with banks to make a critical difference for millions of Americans who don’t have basic banking services because there are almost no banks or bank branches in their neighborhoods.

Families rely on financial services more than ever, but those who need them most—who struggle to make ends meet—too often must contend with sky-high interest rates and tricks and traps buried in the fine print of their loan products.

In a more lengthy article in the New Republic, David Dayen writes that post offices could deliver the same services as payday loan operations at a 90 percent discount, saving the average household over $2,000 a year in interest and fees and provide the struggling USPS with $8.9 billion in annual profits.

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. As the report says, “the Postal Service could greatly complement banks’ offerings,” and in turn help drive out of business some of the most crooked companies in America, while promoting savings and expanding credit for the poor.

The Post office is well positioned to deliver simple financial services. After all, it once was a bank. Dayen explains:

The postal service, with public trust earned over generations and 35,000 outlets in the best real estate in practically every city in America (in fact, the report notes, 59 percent of all post offices are in “bank deserts” with only one bank branch or less), is well-positioned to deliver simple financial services. In fact, it did for over 50 years. Begun in 1911, the Postal Savings System allowed Americans to deposit cash with certain branch post offices, at 2 percent interest. By 1947, the system held deposits for over four million customers. Though dismantled in 1967 (after banks offered higher interest rates and eroded its market share), the post office continues to issue domestic and international money orders, including $22.4 billion worth in 2011, as well as prepaid debit cards through a deal with American Express.

The OIG proposal is an amazing win-win proposition. It would shore up the postal service under attack by corporations and politicians who want to privatize postal services and it would save hundreds of thousands of jobs by stabilizing one of the biggest employers in the country. It would provide financial services to the poor and working poor giving them a better chance to get ahead. As Dayen says, “it’s classic inequality reducer.”

In his very thorough report, “Providing Non-Bank Financial Services for the Underserved” Inspector General David C. Williams makes the case that the USPS could potentially start providing banking services immediately without congressional approval. But there are significant political problems and hurdles to clear to make this happen, not the least of which is the current Postmaster General, Patrick Donahoe who, according Dayen, has not been open to innovative ideas that would save the post office and expand its services. Rather, he has concentrated on things like closing facilities, cutting staff, and raising rates. To get an idea of how bad Donahoe’s leadership is, read Ralph Nader’s 2012 “Letter to Postmaster General Patrick Donahoe—It’s Time to Resign.” The letter is co-signed by Robert Weissman, president of Public Citizen, Judy Lear acting director of Gray Panthers, and other activists.

So far, no post office official has endorsed the IG report. Dayen thinks it’s time for President Obama to step in:

He’s been looking for something to show he can help improve the lives of ordinary Americans, regardless of Congress’ inaction. Here’s a perfect opening on an issue of equal access, of affordability, of saving an American institution. Sure, the banks will squawk: the chief counsel of the American Bankers Association has already pronounced himself “deeply concerned”—but as the IG report shows, they have no interest in serving this community. So surely that won’t stop the President from urging the USPS to take advantage of this lucrative and worthwhile option. Unless he values payday lenders and greedy middlemen more than the financial security of the Postal Service and millions of poor Americans.

Given Obama’s less than stellar record on helping the working poor, and given he owes his presidency to big banks, I will be surprised if he provides the leadership necessary to make this happen. I hope I’m wrong. Meanwhile, I’m betting on Elizabeth Warren. She ends her op ed with this:

The Postal Service is huge—employing more than a half million people—and its history is long and complicated. Any change will take time. But this is an issue I am going to spend a lot of time working on—and I hope my colleagues join me. We need innovative ways to create pathways for struggling families to build economic security, and this is an idea that falls in that category.