FAQ: The Road Ahead for Postal Banking
Japan, Germany, the United Kingdom and New Zealand are among the countries where local post offices provide a wide range of banking services.
Bankers and their representatives harshly criticized a call for the U.S. Postal Service to offer financial products like debit cards and remittances to underbanked consumers, saying it was a dangerous and foolhardy idea.
It's rare for a novel policy idea to suddenly capture broad attention in hidebound Washington. Rare, but not unheard of, as the last three weeks have shown.
The suggestion that the U.S. Postal Service might start offering banking services to Americans who currently rely on check cashers and payday lenders caught almost everyone off guard. Even the post office itself.
"It was definitely something that took us by surprise," Postal Service spokeswoman Toni DeLancey said in an interview. "It just kind of spread like wildfire."
The concept was floated in a report from an obscure agency, the Postal Service's Office of Inspector General, which normally plays no role at all in financial policy. The report listed two reasons for the post office to look at the banking business: to shore up its own finances, and to serve the needs of tens of millions of people, many of them poor, who currently pay sky-high prices for basic financial services.
Banking trade groups quickly ridiculed the idea. But some progressives, including influential Democratic Sen. Elizabeth Warren, embraced it. The debate is not likely to end anytime soon.
What follows is a guide to frequently asked questions about the road ahead for postal banking.
Does the Postal Service like the idea of offering banking services?
The inspector general's suggestion surprised the financially strapped Postal Service. But now that post office banking is on the table, the agency plans to consider it, DeLancey says.
"All that we're able to say is that we're open to any innovative ideas," DeLancey said. "And so it is something that we'll evaluate."
That evaluation process could take some time. At the moment, the Postal Service doesn't have a financial-services expert on its staff, according to DeLancey. "We don't even have an office that's studying that," she said.
If the agency decides that it makes sense to expand its role in consumer finance the postal agency already offers money orders and international money transfers it would have to seek approval from the U.S. Postal Regulatory Commission.
Under that process, the Postal Service would submit a proposal for either a pilot program or a permanent change in the list of services it can offer. A public comment period would follow. Eventually, the commission would make a ruling, based on its interpretation of current law.
Could the Postal Service enter banking under current law?
Congress has tied the post office's hands to a large degree. Under a 2006 law, the Postal Service is barred from selling "non-postal services" unless they were already being offered before the law's enactment.
Yet the agency may have just a little wiggle room.
The Postal Regulatory Commission has classified money orders and international money transfers as "postal services." It seems at least possible that reloadable prepaid cards linked, as the inspector general's report suggests, to direct deposit and online bill pay would be viewed in a similar light.
However, if the Postal Service tries to go further by seeking regulatory approval for a small-dollar loan product, it seems unlikely to succeed.
Ruth Goldway, the chairman of the Postal Regulatory Commission, declined to comment on the likelihood that any specific financial products would be approved. "It would really depend on the nature of the products that the Postal Service presented to us," she said in an interview.
"It's fair to say that the law with respect to financial services is not clearly defined," Goldway added. "The Postal Service has not tried to develop a record for that under the current law."
Goldway likes the idea of the Postal Service offering unbanked consumers a more affordable alternative to payday loans. She said so in 2010 Senate testimony.
But she stresses that the Postal Regulatory Commission's job is to interpret the law, not to implement its own policy preferences.
Will Congress change the law?
Congress has been debating postal reform legislation for several years, and progress has been slow.
Last week a Senate committee adopted a bipartisan postal bill, but the measure is still a long way from enactment. It joins a Republican-sponsored House bill that has also passed through the committee stage.
The House bill would tighten existing legal restrictions on "non-postal services." The legislation's sponsor, Rep. Darrell Issa (R-Calif.), was quoted recently saying that a move by the Postal Service into financial services would be "unacceptable."
Alternatively, the Senate bill would give the Postal Service more room to experiment. It would allow for the introduction of new non-postal services, as long as they do not create unfair competition with the private sector and meet certain other criteria.
If the full House and Senate manage to pass bills before the end of the year, their differences would then have to be reconciled, and the combined bill would have to be signed by President Obama.
Given all the hurdles, is this much ado about nothing?
The inspector general's proposal will likely get more consideration on Capitol Hill now, because of the Postal Service's financial problems, than it would in flusher times.
What's more, the concept of postal banking is easy for the public to understand. Among progressives there is talk of a "public option" for banking, which harkens back to a liberal rallying cry during the 2009 health care debate.
Sen. Warren plays a key role in this discussion. She has said that she's not running for president in 2016, but Warren's popular appeal and fundraising prowess give her significant sway over the Democratic Party's agenda, particularly in the financial services realm.
"Any change will take time," Warren says in a recent Huffington Post op-ed in which she sings the praises of post office banking. "But this is an issue I am going to spend a lot of time working on and I hope my colleagues join me."
If Hillary Clinton enters the presidential race, it's easy to imagine her adopting parts of Warren's economic policy agenda in an effort to shore up her left flank. Banking at the post office could fit the bill.
If the post office gets into lending, won't politics interfere?
The long shadows cast by Fannie Mae and Freddie Mac may end up being the most effective weapon in the banking industry's fight against postal lending.
The government-sponsored housing giants exploited their clout on Capitol Hill to take big taxpayer-backed risks, which eventually went bad and were a major contributor to the financial meltdown. Much of the political support for Fannie and Freddie was an outgrowth of their efforts to expand access to homeownership.
It's possible that a similar dynamic will emerge if the Postal Service gets assigned the job of providing affordable credit to unbanked households. In fact, bank lobbyists are already sketching out that scenario.
"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," several financial industry trade groups wrote in a Jan. 28 letter to the sponsors of the Senate postal legislation.
Even observers who see some merit in postal banking also acknowledge a potential danger.
"There are legitimate concerns about offering government-backed, small-dollar loans or other forms of consumer credit through a postal bank," Georgetown law professor Adam Levitin writes in a recent op-ed. "The taxpayer would bear the risk of losses, and underwriting might be politicized."
That concern might be mitigated if the Postal Service partnered with a private financial institution that assumed the credit risk, as the inspector general's report suggests. And many other countries that have post office banking have navigated these worries successfully.
Still, there is a tension between adding new revenue for the post office and providing low-cost financial services to consumers.
"Is the mission of a postal bank profit or financial inclusion?" Levitin asks. "Perhaps both can be achieved at the same time, but that is the challenge."
Who Wants to Wait in an Endless Line at the Post Office to Get a Loan?
The Postal Service has a bad reputation in many parts of the country.
"My sense is that the customer service of the Postal Service is less of a liability than it was in the past, but it's really a stretch to say that it's an asset," says James Gattuso, a senior fellow at the conservative Heritage Foundation.
"The last thing that any business wants to be compared to is the Postal Service."
Organizational cultures can be resistant to change. But at least in theory, there are ways to address the problem.
The post office could provide special training to employees who handle consumer financial transactions. It could pay incentives to postal staffers who promote its banking products. If it partners with a private-sector bank, it could bring that bank's employees into post office branches to interact with customers.
Other countries offer a variety of models for cooperation between the postal service and private-sector financial firms including exclusive partnerships and industry-wide arrangements in which postal employees act as agents for private-sector banks.
So far, the U.S. financial industry has dug in its heels in opposition to postal banking. But depending on how the debate evolves, that calculus could eventually change.
Recall that during the health care debate, the insurance industry eventually reached the conclusion if you can't beat the government, you might as well join it.