by Peter Roff • Independent Journal Opinion
Throughout his career, Vermont’s Bernie Sanders has championed postal reform. He wants to save the United States Postal Service and its hundreds of thousands of public employee union jobs, by broadening the scope of its activities.
It’s an interesting idea, which is probably why the American Postal Workers Union was an early presidential endorser, and a bad one. Allowing the USPS to transact non-bank financial services opens the door to competition in areas private business has shown it can handle quite competently, thank you very much.
It’s inevitable a full range of banking services would eventually follow, free of the encumbrance of the onerous Dodd-Frank requirements and the overly invasive Consumer Financial Protection Board the massive new banking law spawned. The idea is already out there. More than one policy wonk has hit on it as to provide services to what folks have taken to calling the under-banked.
As Paul Waldman wrote last November in The Week:
“What if you could get some limited financial services — a prepaid debit card, a savings account, a place to pay bills, or even a small loan — from the post office? Post offices in much of the world provide these kinds of services. Our Postal Service already has over 35,000 locations in every corner of the country, so almost no one is too far from one. It already sells money orders. And it can charge reasonable rates to its customers and still turn a profit.”
What Sanders, Waldman and others are proposing, in its various forms, is a typical, government-first approach to a problem defined in terms most favorable to their ideal. Meanwhile, they’ve ignored what American tech-entrepreneurs are doing to address the same problems without the heavy hand of government over-reach and unionized bureaucracy that makes dealing with the postal service such a joy for so many of us each and every day.
Consumers without access to the full range of banking services are as they are for a combination of reasons, including:
• Choice – They don’t like dealing with banks and have found alternatives to meet their needs;
• Previous Behavior – They defaulted on loans, bounced checks, had accounts closed, and proved themselves to not be credit worthy;
• Lack of Financial Literacy – They just don’t know what’s out so they turn to the closest available alternative that works without regard to the cost.
None of these things are, on their own, especially pernicious. Millennials have embraced the idea of private transactions that don’t go through banks but instead can be conducted on phones and tablets. “It makes sense that young adults use alternative financial services, even if they come with a higher price tag but make cash available immediately,” TIAA-CREF wealth management adviser Joe Wilson wrote in USA Today. “’Most things are to us readily accessible and convenient.”
Where things become a little sketchy is when the problem of default comes up. People with bad credit aren’t going to be less of a risk for the U.S. Postal Service than for a bank. It’s not the institution lending the money that is the issue; it’s the individual who’s borrowing it. None of this though seems to matter to the fans of post office lending. There’s no getting around the fact short-term credit costs are commensurate with the risk profile of the borrower and are driven up by the cost of complying with burdensome and outdated state and federal law.
Even the CFPB has had to acknowledge this. In testimony before a House Committee, the agency’s deputy director admitted that antiquated business models are being replaced by alternatives that have their roots in the Internet. He’s not alone. “The Internet is changing the way Americans leverage financial services. In the private sector, innovative fintech companies are working every day to provide more affordable, convenient short-term credit products to consumers,” said the MacFarlane Group’s Mark Curry, an early innovator in the fintech sector and founder of Reform Online Lending to promote best practices in the online lending space.
According to Curry, who wants regulators to work more closely with the private sector to find workable solutions:
“Many smart fintech startups with strong business models fail due to burdensome and costly compliance requirements created by a confusing patchwork of state and federal laws. Many of these regulations were enacted prior to the advent of modern online financial services. Some laws even predate the Internet. It can very difficult to navigate decades-old laws that don’t adequately address e-commerce.”
Having a postal system established by Benjamin Franklin compete with the 21st century financial services industry is a nonsensical idea. Regulators ought to let the innovators do what they do best by staying out of their way if they really want to see the unbanked served fairly and efficiently.