Neither Savings Nor Loans Should Prop Up the USPS
President Ronald Reagan famously said in 1986, “The nine most terrifying words in the English language are, ‘I’m from the government, and I’m here to help.’”
Look at the impact the CFPB has had on credit unions’ services, including curbing or eliminating wire transfer services from their portfolios. The CFPB was created to protect consumers in the U.S., yet it is reaching beyond those borders and holding banks and credit unions responsible when they perform more than 100 transactions in a year.
The CFPB and the Department of Defense are both working on payday lending regulations. The CFPB payday loan regulation is expected to include underwriting requirements, which is precisely what many consumers of this product were looking to avoid. Meanwhile the DoD regs would cap small-dollar loan interest rates at 36%, including fees.
Now the U.S. Postal Service is eyeing an entrance into financial services, particularly in areas such as wire transfers and payday lending. If I were a conspiracy theorist, I would suggest that the CFPB was created to drive financial institutions out of these markets to make way for the USPS. After all, the further expansion of the USPS into financial services has been endorsed by none other than Senator Elizabeth Warren (D-Mass.), the mother of the CFPB.
The USPS said it is looking to financial services to grow revenue. According to the USPS Office of Inspector General's report, it is already the top provider of money orders, the most popular alternative financial service in the U.S. The USPS sold 97 million money orders to 13 million customers in fiscal year 2014, and earned $165 million in revenue. By expanding its use of existing authorities covering wire transfers, check cashing, bill payment, prepaid cards and basic ATM space rental, the USPS estimated it could earn $1.1 billion in revenue within five years. Other approaches include partnering with one bank, working with different institutions for each business line, or creating a financial services marketplace using existing financial services’ products. The final, and most aggressive approach, would be for the USPS to gain authority to operate its own bank.
There are so many bad ways this could go and I’m not sure where to start. The USPS in first fiscal quarter of 2015 (October through December 2014), reported a $754 million net loss – in one quarter. Last year the USPS lost $5.5 billion, and yet, as stated in the OIG's white paper, touted a slight increase in revenue. Growing revenue is important, but it seems getting expenses under control would be much more critical. Additionally, in one of the releases, the CFO admits they need to invest in equipment that has been put off in recent years. The Wall Street Journal reported that first class mail declined 35% over the past decade, and high retiree benefit payments are draining the USPS. It reached its $15 billion credit limit from the Treasury in 2012, according to WSJ.
So the USPS cannot operate its primary business successfully. It has not evolved with the disruption of the Internet and more efficient, private competitors. Now it is asking to move into a similarly disrupted industry in which it has little expertise and a proven inability to contain costs while providing financial services to a sector that's proven difficult to profit from. And I must point out that nothing but the USPS has kept it from expanding further with the authorities it has. The USPS hasn't evolved, hasn't cut enough costs and hasn't raised enough revenue. It just hasn't anything and now it's panic time.
According to the New Republic, 68 million are unbanked. It refers to “needed amenities” yet many of the unbanked avoid financial services by choice. Some have had accounts and decided it's not for them. More than 11 million people in the U.S. are here illegally, according to Pew Research, and likely would decide it best not to go to a government entity for financial services. Contrary to the USPS assertions about bank branch closings, the AARP Foundation found that location is not as big a factor as once believed in consumers’ decisions to go unbanked.
NAFCU and CUNA are opposing the USPS expansion. CUNA made the point that credit unions need to increase awareness among the unbanked of affordable credit union services. Further, the trade group added that loosening field of membership restrictions would assist credit unions in serving the unbanked. The question then is whether the credit union community, as a whole, has the will.