Imagine you've just walked into a U.S Postal Service branch office in 2016.
Mail that package -- check.
Buy stamps – check.
Apply for a loan --- uh, check?
The Service’s independent Inspector General wants post offices to provide basic financial services, both to help low-income people who are underserved by banks and to shore up its own ailing balance sheet. If you want to meet unbanked and underbanked people, go stand outside ACE Cash Express in Arlington, Virginia. Stevenn Foster just paid off a $500 payday loan, "and interest was $136,” he says, referring to the fees. That gives his short term loan an effective APR of several hundred percent.
“If that’s what they say I have to pay, I pay, I don’t have no problem with that,” Foster says. “I mean, they been good to me.”
He can’t get a loan from his regular bank. In fact, most people here say they’re grateful to have somewhere to cash checks and pay bills.
But just a block away, there’s a post office.
David Williams is Inspector General of the U.S. Postal Service and if he gets his way, that post office would offer some of the same services as ACE Cash Express, for less. He says that would be a huge draw for the 68 million people who are underserved by banks.
“People that are currently in a pretty desperate situation,” he says. “They live in economic deserts today, they don’t have access to anyone other than these enterprises that charge 300% plus (for a loan).”
Post offices already provide money orders. Williams thinks they should expand to provide pre-paid debit-type cards (people could load cash or paychecks onto the card), savings products, and even simple loans.
He says collecting a fraction of the money now spent on interest and fees for payday lenders and other banking alternatives would bring in nine billion dollars a year. That’s the payoff for the Postal Service, which has lost about 25 billion dollars since 2011, due in part to a Congressional requirement that the Postal Service pre-fund retiree health benefits.
So, does additional revenue + helping the underbanked = win-win?
Lauren Saunders is managing attorney with the National Consumer Law Center. She likes the creative approach to reaching people underserved by traditional banking. But, “getting into loans, I think, is a little more of a tricky area,” she says.
The idea is that borrowers at post offices would arrange to have loan payments automatically withheld from their paychecks. That would lower risk and interest rates.
“A lender may feel confident they’re gonna collect on your loan if they get to take part of your paycheck before you get it,” Saunders says. “But that doesn’t mean you can afford it, and that you can make it through the month, and pay for the necessities and expenses that you have, without getting yourself into a cycle of debt.”
Even with better terms, many low-income people just can’t afford more debt.
Still, the Inspector General’s postal banking idea is gaining steam with Congressional Democrats. The Postal Service itself says it’s evaluating the recommendations.