Postal Banking?

One of the great things about competitive presidential campaigns — as opposed to simple coronations of the front-runner — is that different ideas about how to solve the nation’s problems can be raised, and discussed, by the different candidates.  Sometimes the ideas are good; sometimes they are bad.

Although most of the attention this year has been focused on the scrum of Republican candidates vying for attention, on the Democratic side socialist Bernie Sanders is holding up his end of the bargain, too.  One of his more interesting proposals is to allow the U.S. Postal Service to provide limited banking services.

The rationale for the proposal is that, in many poor neighborhoods, banking services are in chronically short supply.  Sanders says that traditional banks don’t want poor people as customers, which means people must resort to “payday” lenders or check-cashing outfits that charge much higher interest rates and higher fees than traditional banks would charge their standard customers.  Why not allow the Postal Service to offer savings and checking accounts, check-cashing services, personal loans, and other modest banking options?  It turns out that, in many countries, postal services already offer such services, and for a time postal-savings options were available to new immigrants to the United States, too.  And, Sanders notes, the U.S. Postal Services has offices just about everywhere.

I applaud Sanders for focusing on the plight of the poor in America and for shining a light on a problem that many people don’t even perceive.  If you live in a suburb where bank branch offices are found at just about every intersection, and those banks are pathetically eager to sign you up for every conceivable banking service, you can’t imagine there is a banking shortage.  But if you are poor, and you live in a neighborhood where the traditional banks are absent, imagine how it affects your ability to pull yourself up by your bootstraps.  Even if you’ve got a job, you’ve got no checking account into which your paycheck funds can be electronically deposited by your employer.  You cash your paycheck with an outfit that takes a chunk of your hard-earned wages and you carry around cash, hoping you can make it stretch until the next payday.  You’ve got no credit rating to fall back on, and if you run short on funds your only option is a lender whose interest rates will make it difficult to ever fully repay the loan — and suddenly you’re trapped in a web of debt with few options.

It’s an issue that deserves attention, to be sure, but the idea of allowing the U.S. Postal Service to offer banking services gives me the willies.  The Postal Service is supposed to be the expert on delivering the mail, but it can’t even make that important function a going concern.  It’s getting creamed by the competition and running up billion-dollar shortfalls.  It’s also highly politicized, with Congress interfering with sensible cost-cutting measures like closing tiny post office outlets.  I don’t care how things work in other countries:  in the United States, there is nothing in the performance of the U.S. Postal Service that suggests that we should trust it to perform banking services, no matter how modest.

And here’s another key consideration:  the whole idea of the U.S. Postal Service banking proposal, as outlined in the Atlantic article linked above, is that the banking services “would remain affordable because of economies of scale and because of the existing postal infrastructure in the U.S. Plus, in the absence of shareholders, they would not be driven to seek profits and could sell services at cost.”  And therein lies the rub, eh?  The U.S. Postal Service already has “economies of scale” and an “existing postal infrastructure and still runs billion-dollar deficits doing what they are supposed to do well.  Now we’re going to have post offices that have no banking experience offer banking services “at cost” — whatever that means — and make loans and handle people’s money?

Gee, what could go wrong with that?

The lack of banking services in poor neighborhoods is a problem, but having the broke, and broken, U.S. Postal Service assume the responsibility of providing banking services in those neighborhood isn’t a solution — it’s just a way to make the Postal Service’s financial problems and constant deficits even worse.  I give Mr. Sanders credit for highlighting a problem, but I put his postal banking proposal into the “bad ideas” category.