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The U.S. Postal Service's financial woes largely stem from a 2006 law that required it to prefund retiree health benefits 75 years into the future — and do it within 10 years.

As it bleeds money, US Postal Service mulls getting into banking

by Matt McKinney
Mar 18, 2014

For more than four decades, United States Postal Service workers have dropped off paychecks, bank statements and cash-stuffed holiday cards.

But as Americans increasingly skirt traditional mail delivery, the post office hopes to soon offer a different type of financial service.

In a January report, the Postal Service’s Office of Inspector General suggested that banking might put the cash-strapped USPS on a path toward financial viability.

The postal service, which has lost money 19 of the last 21 quarters, reported a $354 million net loss last quarter despite increased revenue and lower operating costs.

But if it was allowed to offer banking and other consumer services, the post office believes it may have found a way out of its downward financial spiral. The USPS, which has more than 35,000 retail branches across the country, would like to provide savings accounts, check cashing and bill payment services.

“Postal financial services are the single best opportunity for new revenue,” the USPS inspector general’s office wrote in the 28-page proposal.

The report estimates the beleaguered mail deliverer could generate up to $8.9 billion per year in new revenue if Congress adopts the plan, which would target areas abandoned or neglected by traditional banks.

Rep. Elijah E. Cummings (D-Md.) introduced legislation last summer to expand the role of the post office. The idea has since gained backing from other lawmakers.

Sen. Elizabeth Warren (D-Mass.) lent support to the proposal, which was designed in part to put pressure on the $60-billion-a-year payday loan industry. “The poor pay more, and that's one of the reasons people get trapped at the bottom of the economic ladder,” she said in a February statement.

The plan would focus on rural and inner-city areas, where there are few banks left.

Approximately 93 percent of banks closures since 2008 have been in below-national median household income levels, according to the report.

“We think a lot of positive things could come out of this,” said Dedrick Muhammad, senior director of the NAACP Economic Department. He said the plan would “advance economic equality and thereby racial equality.”

“Offering brick-and-mortar financial services and institutions is an important part of empowering a community and that’s something we want to get behind,” he said.

The proposal also hinted at offering small-dollar loans, similar to payday lending, but with lower interest rates.

It suggested if borrowers loaded their paychecks onto a postal prepaid card, they could borrow up to 50 percent of their paycheck, then pay at least 5 percent of each paycheck until the loan is paid off.

The letter carrier's financial woes largely stem from a 2006 law that required it to prefund retiree health benefits 75 years into the future — and do it within 10 years.

But not everyone is on board with the latest proposal.

The proposal--especially the part about small-dollar loans--is "unfeasible," said Lisa Servon, professor of urban policy at the New School in New York City. "A lot of people have tried to come up with an alternative to payday lending but it has been really tough."

Joi Cosby, 43, a clerk from Evanston, worries the plan will give the federal government too much insight into the financial activities of consumers. “Like there isn’t enough of that already. I think it’s a bad idea,” she said.

Not surprisingly, the nation’s banks aren’t keen on the plan either.

Aleis Stokes, spokeswoman for the Independent Community Bankers of America, called the USPS “ill-equipped” to handle provide credit and lending.

“The last thing taxpayers need is to be back on the hook yet again for bailing out a too-big-to-fail company,” she said via email.

The plan also would undercut lenders who already are taking risks in low-income areas, according to Andrew Langer, president of the conservative nonprofit group Institute for Liberty.

“You’re destroying a marketplace to create a government-run system in its place,” he said. “We’re not here to fund the post office’s Hail Mary.”

Beyond banks and conservative groups, the plan also faces friction in Congress.

A 2006 law eliminated the Postal Service's ability to offer “non-postal services” unless they were previously available. Rep. Darrell Issa (R-Calif.) sponsored legislation last month to tighten the definition of “non-postal services” to block the plan.

But idea of banking at the post office isn’t revolutionary. The Japan postal service boasts one of the largest banks in the world with 24,000 locations and nearly $3 trillion in assets.

Letter carriers in Brazil, India, Switzerland, Russia and Japan also offer financial services.

And as controversial as the USPS plan may be, it’s not unheard of in the U.S. either.

The U.S. Postal Savings System opened in 1911 and offered banking services largely catered toward immigrants and people distrustful of private banks.

By 1947, it held nearly $3.4 billion in deposits. The system closed in 1967 as private banks ate away at its market share by offering higher interest rates on deposits.

Jane Peterson, 65, a retiree in Evanston, supports the post office but said the issue is “simple.” “There are already too many overlays between business and government,” she said. “We don’t need another one.”