Inside Financial Services

No, The Post Office Shouldn’t Start Lending To Consumers

Anatomy of a crazy proposal

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The year is still young, but it’s hard to see how the Postal Service inspector general’s recommendation that the post office start lending to the underbanked won’t count as the dumbest idea of 2014. On the one hand, no one will likely object to the notion of the post office taking deposits or issuing prepaid debit cards. Postal agencies in other countries offer those sorts of products, and have for years.But lending? The IG thinks the post office should start making low-cost, small-dollar (i.e., payday-ish) loans to underbanked consumers. It argues that the post office has a built-in advantage over banks, since something like 38% of post offices are in ZIP codes with no bank branches. Presto! An open field-and an opportunity to help stanch the huge losses the post office is running up in its core business of delivering the mail.I’m assuming you see this suggestion for the nonsense that it is, but humor me for a moment while I say out loud why. To begin with, there’s a reason all those ZIP codes have post offices but no bank branches: banks have looked at those places (every one of them!) and have concluded that opening branches there would be unprofitable. Consumer banking is a highly competitive enterprise; if anything, banks have spent the last ten years opening more branches than they should have, not fewer. By now there are 90,000 of them around the country! So, no, the post office wouldn’t be entering hitherto unknown, competition-free lending markets.What’s more, banks are usually pretty darn good at underwriting credit risk. You may object to the interest rates payday lenders charge. Fine. But if a competitor could figure out a way to write profitable payday loans for less than the going market rate, that competitor would have appeared by now and flattened all those high-priced incumbents. It’s hard to imagine the Postal Service-the Postal Service-is capable of coming up with some new magic winning formula.You’ll get no argument here that the Postal Service is in dire financial straits and needs a major overhaul. It lost $354 million in its first fiscal quarter, following losses of $5 billion in 2013 and $16 billion in 2012. But the people running the USPS ought to be looking more at cutting costs than fishing around for new revenues in businesses they know nothing about. They might, for instance, consider shutting post offices in ZIP codes so economically moribund that they can’t support a single bank branch. In the meantime, we’ve seen what happens when quasi-governmental entities get into the business of allocating credit. Let’s just say that the profit motive isn’t the only thing that drives them. If the post office starts doling out payday loans, soon enough pressure from Congress (the same Congress that funds all those postal losses, remember) would build for it to start offering other forms of credit. Home mortgages, say. Or auto loans. Then the push would come to start easing lending standards. Does any of this ring a bell?I thought the job of the federal government’s inspector generals was to recognize dumb ideas before they got out of hand and ran up huge losses for taxpayers, not come up with costly dumb ideas of their own. The Postal Service is having enough trouble managing its own, core business. There’s no need for it to diversify and make a hash of another one.What do you think? Let me know!

11 Responses to “No, The Post Office Shouldn’t Start Lending To Consumers”

  1. lejak

    You are right. Anything flowing through the hands of government is inefficient and wasteful. The postal service ranks at the bottom of the US governments dysfunctional system. Can you imagine the crack team of underwriters at the PO? What a mess it would be.

  2. Mark

    Haven’t the poor and disadvantage been beaten up enough in life? Apparently not, so let’s let those wonderfully grumpy postal employees finish the job.

  3. Jim Wells

    Tom, I agree 100%. No way an organization that proves over and over again it cannot manage its own finances should be allowed to hold itself out as a credit resource to consumers experiencing their own trouble making ends meet. The only thing the USPS brings to the effort to expand access to basic financial services to consumers and small businesses un-served, under-served or ill-served by banks and credit unions is its ubiquitous network of locations.

  4. Low Country

    At my local Post Office, the staff can not consistently put the mail in the correct PO Box. And try this for customer service: Buy the wrong denomination of stamp, then try to return or exchange – no go.

  5. JohnACritic

    The Post Office is having financial problems because of the stupid law which says they have to fund a pension for employees who have not even been hired yet. This was passed by congress some years ago and cost the Post Office billions of dollars a year. I use the Post Office for my small business and have shipped all over the US and internationally have the service has been perfectly fine and the cost is very reasonable.

  6. Low Country

    At my local Post Office, the staff can not consistently put the mail in the correct PO Box. And try this for customer service: Buy the wrong denomination of stamp, then try to return or exchange – no go.

  7. roanoke

    seems like that is what the credit unions are suposed to do!

  8. John Tschohl

    The Post Office cannot manage what they have. If they got into loans they would lose even more money. They need to be cut lose from Congress and let them survive on their own.

  9. DCam

    The USPS, is a typical government operation, incompetent and till using forms designed by Ben Franklin.

    My deliveries of waste paper come daily.

    My bills and payments are online and my purchase of stamps is nil.

    Would they be missed? Just about as much as the Dept of Eduication, EPA, Agriculture and other buckets of waste, corruption and bureaucracy.

  10. Anonymous

    You are wrong. The PO is not driven by the same banksters as commercial banks. It would be good to give the banksters some competition.
    PS. A few years ago you were flogging First Marblehead to your readers. How did that come out. Did you get out in time?

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