The Post Office as Payday Lender? Return to Sender
By Lisa Servon, a professor and former dean at the New School
February 24, 2014
Wall Street Journal
The U.S. Postal Service is in a bind. The Congressional Research Service reported in July 2013 that the agency's ability to remain financially self-sustaining over the long term is questionable. As the volume of paper mail declines amid advances in technology, the Postal Service still has to visit every address in the U.S. six days a week. To save money, it has closed branches and reduced opening hours, but there are only so many corners to cut.
All this may help to explain why the U.S. Postal Service Office of Inspector General issued a white paper in January proposing a new line of business: providing nonbank financial services to the "underserved" by handling bill payments, making small loans, offering international money transfers and so on. Many countries currently provide financial services through post offices. The U.S. Postal Service, which has not taken a position on the white paper's proposal, has a strong brand, a large footprint and even some experience with financial services: It sells money orders and, for about 50 years until 1967, it let people make savings deposits.
The idea that the Postal Service can improve its finances while giving more people access to financial services is compelling. But my research into businesses that already provide such services makes me wonder about the wisdom of the white paper's proposal.
How would the Postal Service structure and price its products and services? The white paper claims that the agency could save the underserved "billions of dollars in exorbitant fees and interest." What it does not explain is how the Postal Service would offer better prices than check cashers and payday lenders already do—and make money.
Consider the one financial product that the Postal Service already sells. For a money order of up to $500, it charges a bit more than $1.20—significantly higher than the price charged by many current check-cashing businesses. RiteCheck, the New York City-based check casher where I worked as a teller for four months last year as part of my research, charges 89 cents for money orders up to $500. The PLS chain of check cashers, which operates in several states, charges nothing.
The Postal Service's inspector-general office envisions offering the Postal Card, a reloadable prepaid card, and the Postal Loan, an alternative payday loan product. These seem promising on the surface. A $375 postal loan would cost $48 in interest and fees, compared with $520 in interest and fees for a loan of the same size at a typical payday lender, according to the white paper. But the proposal fails to specify how the Postal Service would develop effective risk scorecards for underserved segments of the population—which often require nonstandard approaches. It also does not describe collections routines for delinquent loans, or how its loan model would generate a profit.
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