Postal bank

Seems like a good idea (which will obviously face huge opposition by the payday lenders and other folks). I say we do it. What say the masses? Is there a downside that I am not seeing (other than reduced shareholder value for some banks and financial institutions)

Before offering my own opinion, I’d want to know why this part of the market isn’t already being served by existing financial institutions.

“The average underserved household spends $2,412 each year just on interest and fees for alternative financial services.”
http://www.uspsoig.gov/sites/default/files/document-library-files/2014/rarc-wp-14-007.pdf

This looks like garbage to me. I think virtually any bank in the country would be interested in people spending this much money on interest and fees. I don’t spend a dime on interest and fees and don’t have any trouble at all opening up accounts.

If I read the article right it says that banks are staying out of poorer communities and backs companies that offer payday advances. I believe this to be a majority of the fees.

I’m not sure how this would work. Would the USPS invest money as banks do? Loan out money as well? Would the USPS bank earn enough money off of fees to cover interest rates?

What would stop banks from moving in if an area proves profitable?

I am interested to see the info others bring to the thread in favor of this.

The main gist of the white paper (which I admittedly skimmed) is that USPS has two (maybe three) advantages over traditional banks (and payday lenders) that would allow them to serve the underbanked community and still be profitable.

The first is that they have offices in nearly every municipality, including 38% in ZIP codes with no bank branches at all and another 21% in ZIPs with only one branch. That’s a large capital and overhead expenditure savings.

The second is that they, by virtue of being part of the FedGov, have a bit of a buffer against non-payment that is not available to other financial institutions. Namely, they can garnish tax refunds payments directly through the IRS if necessary.

The third, somewhat nebulous one, is that USPS has generally very high approval and trustworthiness ratings. One reason why some people go unbanked is that they (correctly?) view banks as only being interested in screwing them with fees of various types. They might trust USPS with a simple savings account more than they would BofA.

At one time the United States of America operated a postal savings system. Google “postal savings” and read all about it.

Your evidence indicates that there is some sort of market failure going on. A postal bank might be one way to rectify that failure.

If I were king of the universe, I’d only let a postal bank invest in US Treasuries or stick money up at the Fed. I’d also require them to give all US citizens a basic no-fee bank account which provides only limited services (check deposits, online banking, debit cards and the like). They could charge fees for non-basic services. I’d also allow them to put one-day holds on transactions and use the float to generate further revenue.

As for whether or not they could give out loans, I’m not inclined to support that, but I’m willing to be convinced.

I didn’t see any specifics in the article, just “more banking services.” So I’m doubting that the USPS wants to get into the buisness of cashing checks, especially for people who don’t have an account with them, or into loans, especially payday loans. If the head of the USPS is looking into possibilities, I’m willing to listen. But the need for a bank in every city has been eased a bit by debit cards and ATMs. That leaves us with people who want to save, but don’t trust banks, and people in small towns who don’t trust cards.

According to the end of the article, the old postal savings program ended when banks started offering a higher percentage. Can they reverse that now? Can they get a market share by having fewer fees?

There was a time in my life when it was typical to bounce 3 or 4 checks per month, with fees running about $30 each. My banks made a lot of money off me. I really did try to be careful, and when I wasn’t so careful it could be 6 or 7 checks in a month. And I was a person who DID have a bank account - I shudder to think what it’s like for people who don’t have them. I paid fees only when I screwed up and spent too much - these people have to pay fees just to cash their paycheck!

Jas09’s post amazes me, but not so much that I can’t believe it. So many communities have no bank at all. :eek: I feel so sorry for them! :frowning: Having the post offices already in those towns is an excellent way to save on start-up costs. And the idea of withholding tax refunds from deadbeats won’t work for everyone, but it is certainly the sort of edge that could push them ahead of the competition.

Also, note that now you have auto-payments and debit cards, banks will auto-charge you $36 or so everytime your car insurance comes out on Wednesday for going negative, even if you have enough direct-deposited money available on Friday.

I am not of that average number, though. At $36 per pop, that’s 67 overdrafts or 5-6 per month and I can easily see that being a reality, especially in the last several years of unemployment issues.

Its market failure. How many citibank branches do you think there are in south central LA? Its just not worth the investment for banks to move into the area, you don’t move into those sort of low income, high crime areas because the perceived risk (in the risk reawards anhalysis) is so high. But the post office already has a branch there and people go there to get money orders all the time, they even issue debit cards. The real service that payday lenders and check cashers provide that a normal bank does not provide is taking credit risk on someone who has no credit. The post office should at least be able to engage in a little bit of this stuff, especially for federally issued checks, payday loans for military personnel (and other government employees.

In its previous incarnation, the post office only invested in federal debt. but it seems to me that they could do payday loans for military personnel (where the default rate is negligible because you can just go to the CO and garnish the soldier’s wages), cash federal checks (e.g. tax refunds and federal employee paychecks). They could probably engage in secured lending such as home mortgages (Ginnie Mae compliant), car loans, etc.

The cost of opening and operating a branch in underserved areas. It is more likely to drive out payday lenders than attract large banks.

Originally, the postal bank accounts had maximum balances (inflation adjusted $20,000 when the postal bank was shut down).

They only invested in treasuries. The new proposal is aimed at skimming much of the profits associated with payday lending and check cashing from cash poor but otherwise reasonable credit risks (see military and other federal personnel and tax refunds).

Read the white paper that is linked in the article.

I think so. The old postal bank closed because they were only allowed to invest in treasuries and as the spread between treasuries and lending rates grew, the postal bank rates seemed very meager but with microscopic savings rates today, I don’t see a problem, espcially if you are tagetting a customer base that isn’t going to have very much money in their accounts anyways.

This seems like a bit of a constitutional problem.

That would seem to assume that they happen to have extra space in their various post office buildings that can be turned over to bank activity. I doubt if this is correct.

This is true, but it’s much broader than that. The FedGov has legal advantages over every private business in the country, by being more immune to non-payment of debt, being less subsceptible to lawsuits, higher credit rating, better access to capital, among others. If they start using their advantages garnered by virtue of the government to use as a private business, they could put virtually any private business in the country out of business.

I’m not sure if most people would be comfortable with that.

I’m surprised that they have high approval ratings, but if they do, it’s probably because they haven’t yet entered into the banking business. If they do, there’s no reason to assume their approval ratings would be any higher than any other bank’s. Lower if anything, if the DMV is any indicator.

I believe it was Rudy Giuliani who noted that the government-run OTB was “the only bookie in the world to lose money”.

Lizzie Warren gives a fuck about people who don’t have money. Seriously, what is wrong with that woman?

Maybe. I’m not sure why I should care if drug-pushers like HSBC or crooks and welfare-queens like Chase and BofA go out of business.

You might care a bit more if you go out of business.

But then of course, other people of a similar mindset might be happy about that as well, along with some choice epithets of their own to describe you.

Surely this would be offset by the incredible inefficiency conservatives are always telling us is inherent in government?

Well, if the government ran into bail me out every time I ran my business into the ground, like they do for the big banks, I’d never go out of business either!

And I’ve got some choice epithets I’m thinking of to describe you, if you want to go that route.

It might be. In which case it’s also incorrect to say that the post office would be a better bank.

I was responding to someone who related the point that the government did have certain advantages, and I wasn’t looking to discuss the broader issue of government versus private efficiency, so I didn’t raise that issue at the time. Whether private advantages in efficiency would outweigh the government stacking the deck in favor of itself is a broader issue.

You’re playing both sides of the same argument here.

Reread what I wrote.