The Post Office Should Just Become a Bank
newrepublic.com
newrepublic.com
Instead of banks, these mostly low-income individuals use check-cashing stores, pawnshops, payday lenders, and other unscrupulous financial services providers who gouged their customers to the tune of $89 billion in interest and fees in 2012, according to the IG report. Post offices could deliver the same services at a 90 percent discount, saving the average underserved household over $2,000 a year and still providing the USPS with $8.9 billion in new annual profits, significantly improving its troubled balance sheet.
I agree with two points: (1) embrace rather than chase away payday lenders. Part of the reason this sector is so scummy is because of the bad reputation it carries. Reputable players want to stay out of it. (2) Create simple financial services (possibly subsidised) aimed at the poor.
But... the idea that they are going to wipe out an industry, cut the revenues by 90% and make a 100% of the remaining 10% those revenue in profit is idiotic. The reason payday loans have high interest rates is because they have a high default rate and they are for small amounts/time, and therefore have high "transaction costs." It can be improved, but this kind of math is really stupid.
[0] http://consumerist.com/2013/04/26/the-average-payday-loan-bo...
State intervention does not seem to be required to fix payday lending. Indeed, i would be apprehensive about a state enterprise taking on business which requires such sharp and tricky financial judgments to run effectively.
Several problems exist that haven't been discussed.
One is coupling / product tying. If you screw up financially, no other bank or financial player will want to cooperate with you, universal default and all that. Bounce a check there, they won't accept a check over there. So... if you default on a post office loan, that means the P.O. will stop allowing you to send or rx mail, right? I mean, they gotta get leverage somehow. So... if the P.O. is in the loan biz and my letter carrier knows his job exists because people don't do biz with capital one, then physical spam from capital one might not make it into my mailbox, just sayin. Or even worse, old people who still pay bills physically might find that car payments to loaners other than the P.O. might often not be delivered...
Another problem is consistency. Nothing sounds dumber on the internet than people all over the planet arguing with each other about which multinational cellphone provider has better or worse radio coverage in their house and by extension the entire world... or their local post office is either great or sucks. Fix that first, of be doomed to endless dumb sounding complaints on the internet. Banks are fairly consistent, at least compared to cellphone coverage or postal service.
So your bread and butter main line product is going away because people are switching online both for personal-ish mail and spam. So your bright idea is to enter yet another field where virtually everything is moving online and paperless as fast as possible. Brilliant.
Finally I don't see any synergy. If there was a flaming roaring demand to merge postal services with banking services, why doesn't every bank/CU have a UPS/fedex branch office? There seems to be an immense synergy between food stores and banks, its almost like there's a law locally that food stores must have a colocated bank branch. Admittedly very few freestanding bank branches sell bacon and doritos. Still I think it far more likely and realistic to see a bank selling ice cream, beer, and popsicles than a post office selling mortgages.
Are you suggesting that payday loan operations are conducting or facilitating money laundering? Then please produce proof of a single payday loan operation that has been convicted or even accused of the charge in the last 10 years. I'll even make it easy for you to search last year's investigations: http://www.irs.gov/uac/Examples-of-Money-Laundering-Investig...
No, payday loan operations don't need to launder money, because they are making an absolute killing ripping of the poor, and they know even the slightest hint of money laundering will strip them of their license.
Only the big boys like HSBC have the political connections to engage in money laundering and keep their licenses.
In the case of the US Post office, they have a constitutional mandate to deliver the mail, so I'm doubtful they can even threaten refusal of delivery as a penalty.
if the P.O. is in the loan biz and my letter carrier knows his job exists because people don't do biz with capital one, then physical spam from capital one might not make it into my mailbox, just sayin.
Delay or destruction of mail is a federal crime that carries an up-to-five-year penalty. [2]
APR is a problematic way of looking at this. These are at the extreme end of short term & small amounts. IE, a $350 loan payable in 4 weeks. For the APR to appear reasonable on a loan like that, the fee + interest on that loan would need to be <$5. Just conducting the transaction costs more than that.
Like I said, I don't think there is no room for improvement, but this article' math is populist nonsense. The market is inherently tricky.
I get that lots of people are regularly facing hard choices, but the nature of the situation means that making better choices that add up to something like $100 can hugely tip the situation in their favor.
Edit: For example, cashing 52 $1000 checks at Walmart costs $156. $1800 is a lot of interest to pay on short term loans.
Maybe, but I'll mention the primary reason the sector is so scummy: regulation. Banking -- including check cashing -- is a prime example of regulatory capture.
In my state, the now-incumbent check cashing companies are busy at work creating even more expensive regulatory requirements, all for the "public's protection", even as they scalp and cheat the underclasses.
So you may wish to stay out of the sector because of its bad reputation, but I would love nothing more than to dive into it and bring fair and reasonable-priced banking to the underserved. And with hard work, mobile-friendly UIs, and modern machine learning techniques, it wouldn't be impossible.
But I can't even try, because I can't cough up the many millions of dollars required to pay for regulatory compliance.
But I totally agree that the idea that the post office will somehow succeed in wiping out the entire payday/check-cashing industry is pretty unrealistic. Only increased competition will do that.
Doesn't the US have credit unions or savings clubs and co-ops and so on?
These are ways for financially excluded people to save and to borrow money at reasonable rates.
Other ways payday lending can be improved is to have an association that has some rules: do not allow people to extend a loan; do not allow people to get a loan to pay pff another payday loan (both of these cause spiralling debt); check people are competant to get debt; etc.
Better information about he costs would be useful. APR gives very high numbers for payday debts, so they need to be able to give the APR as well as give sensible realistic repay rates and the costs involved.
There's probably an app in here somewhere to help people budget. You work out when their money comes in. Yu get them to photograph all their receipts and bills, and ask them to document all their outgoings, and give them advice about where to save.
>There's probably an app in here somewhere to help people budget. You work out when their money comes in. Yu get them to photograph all their receipts and bills, and ask them to document all their outgoings, and give them advice about where to save.
This seems to play off a misconception about the poor and household finances: that the poor have trouble putting aside money for saving, or are incapable of proper budgeting.
In my experience, the problem is not expenditures, it's income. Even working 2-3 jobs, poor people don't have enough money to pay for the barest of necessities -- things like rent, food, medicine, clothes[1]. So they have to make a choice between necessities. Payday lending companies make things even worse by charging extravagant interest rates that far exceed what is required to cover the risk of default.
>Other ways payday lending can be improved is to have an association that has some rules.
I don't quite understand this one. Can you describe what you mean by an "association"? You mean like a union?
In any case, I'd hesitate to add any more rules to a sector already greatly harmed by too many of them.
RESPONSE TO danbc: oh, ok. I thought you were talking about an association for the loan recipients, and couldn't quite understand. But yes, I think an industry association with teeth would be a great thing. But right now, there's little incentive among the current scummy incumbents to create an effective self-regulating association (there is one already in the US, but it's basically name only with no teeth, and primarily exists to lobby and do PR for its members).
1.The highly-publicized incidents of teenagers wearing $150 shoes are mostly the result of side income that the teenager is bringing in, which is typically hotly contested by the child's parent(s) (but they're not the ones who get the check).
Something similar to plumbers or gas fitters?
About budgeting: I tend to agree tha. People are not wasteful or extravegant. The UK is thinking about changing benefit payments from fortnightly to monthly. In the trial areas many people are having problems with debt. And once poor people get into debt it's hard for them to escape. So budgeting isn't meant to suggest that they are wasteful, just not used to budgeting "money in a bank" rather than actual cash. Older budgeting methods - envelopes on a shelf labled for all the bills - don't work when the cash to fill those envelopes is in a bank.
I think the concept of "nudge" comes in here. It sounds easy to say "just take the cash out of the bank and fill the envelopes" but people don't and so understanding why people struggle to budget and helping them do better is I think useful.
Pay day loans and such need tighter regulation, not the Post Office
Wrong way round. This sector has a bad reputation because it is so scummy.
Bingo!
But I'd argue that there are people who would like to enter this sector, despite its poor reputation, because we'd like to actually serve our clientele while making a reasonable profit in a highly transparent manner.
Incidentally I don't think it's a bad idea for government or nongovernmental to be allowed to offer these services in a deregulated market.
Such as? Deceiving consumers and engaging in usurious interest rates?
And I completely agree that NGOs and/or government agencies should be able to offer these services -- as long as the government agencies don't get any special privileges, like being able to automatically garnish tax returns of loan recipients who default, for example. That would just be taking advantage of their government powers to eliminate the competition.
The fact that these companies still end up extracting huge charges, fines and fees from their customers doesn't solve the underlying problem, but I don't see any real resistance to new entrants based on the reputation of the existing businesses.
These business are purely parasitic, and take no risk other than that the fees they charge might not be enough to cover the employees, rent, and massive profit margin expected. When I worked in a junk mail plant outside of Baltimore (and was a low-paid, marginal employee), I would be handed my check on the floor, wait for the lunch bell, then walk out to the parking lot to hand that check to someone in a truck parked 15 yards away from the door, who collected 2.5% of my income for the service.
These services are sometimes owned by the same people who are issuing the checks.
If there's any industry that should be wiped out, it's that one.
Which is next to impossible in some situations (e.g. no banks in the entire area)... and so 2.5% cut of the check cashier means e.g. for an amount of 1000$ 25$. Now take 1h for driving, half an hour for waiting in the queue and 10$ for 2-way bus ticket... it's the same cost actually
Then there are high interest short term "loans" and that seems like something else entirely. Now they may be related but I don't think basic banking needs to include this or should.
What is amusing that same letter going to, say, Vladivostok will take roughly same 3-4 days.
Want that post from hell in your country? Go ahead, make it a bank, but it will be a bank not a post office anymore.
Our postal service also sells china-made headphones, batteries, emergency birthday gifts and other totally not postal or money-related shit. And I bet that a huge chunk of the profits originate from the side-selling business, just like gas stations where the main good (here: gas) is sold as a loss leader and the real profit is made with the stuff people buy by random...
If you have only ever used a US bank you have no idea what you are missing.
Please note that it hasn't saved the world, or even prevented post offices from closing. But it does provide widespread access to banking, both for people who might otherwise be un-banked and elderly people who might have trouble travelling to the nearest branch of a high-street bank.
It would seem to run against the grain for the USA, stepping in to an industry that already has strong private services and competition. As a way to provide a social good it seems to work reasonably, but isn't the Internet going to leapfrog the need for most in-person financial services anyway?
Royal Mail was the delivery of postal mail, and the counters at post offices that did post office services (sold stamps, weighed parcels, did some government forms, did 'postal orders' etc). They got split out into separate businesses to allow competition in both spaces while making sure that postal mail was treated the same on mainland UK.
Part of the PO couters service was to convert some benefit recipients "giros" into cash. The giros were subject to masssive amounts of fraud and theft. To solve this PO counters started offering "basic accounts" - money could be paid in and benefits would be paid directly into the account. You got an ATM card with no debt facility at all.
This concept was expanded and all banks now offer something called "basic accounts" - these allow BACS transfer but do not allow overdraf at all. They are fantastically useful.
I have no idea how they're paid for from the banks point of view. No debt and small account balances means not much bank income. UK banks didn't have much choice. They are pretty unpopular in the UK and they need to do some better PR to avoid extra regulation.
There's also a gently rumbling problem of the conflict between "protecting peoe from fraud" and "allowing people to hae their cash". One of the banks has been asking people who withdraw a few thousand pounds what it's going to be used for. Obviously this causes outrage. But then other people clear out tens of thousands of pounds from six different accounts (including the max overdraft limit of a business account) because they are he victims of fraud and the bank fraud control doesn't spot it and those people ask (while acceptig their responsibility) why the bank didn't step in.
In general there is money to be made amidst the fluctuations of deposits and withdrawals, so long as you have additional capital to cover it in case too many withdrawals happen at once.
Checking accounts don't pay any interest worth discussing - the incentive for people to use them, an act that carries significant management risk (although that's been socialized through the FDIC), is because the only alternative is the mattress.
I'd gladly move my checking to the USPS if they started offering it. It's got a lot more locations than my credit union.
Traditionally the money-order served as a sort-of equivalent to the personal check, but not tied to your personal bank account (which means that they shouldn't bounce, you don't need a bank account in the first place to write one, you don't give out your bank account number by paying with it, etc.). But as personal checks get less and less commonly used, the utility of a money order as a check-like form of payment also declines. The modern personal check is the debit card, so a modern money order should probably function similarly.
... is extremely high and growing over time with poor people.
People don't pay high M.O. fees because they're ignorant or stubborn but because they can't open a bank account without having the contents seized legally (child support, debt collectors, maybe on the run who knows), or more likely the bank will refuse to open an account and offer then credit (which is what a checking account is) until they pay off past due debts A, B, and C.
This becomes a problem with the "P.O. is a bank" concept because large segments of the population need an anonymous payment system of some sort and I suspect the P.O. will be extremely interested in all your demographic information especially id documents and postal addresses.
I have experienced the latter two situations. If you have debt collectors hunting you, in Germany you can ask for a so-called "P-Konto" (Pfändungsschutzkonto, a bank account with a certain level that may not be seized by ANYONE. This amount gets higher e.g. if you have a family). If you're on the run... well, most banks let you keep your account as long as you don't manage to let it dry up, because then the notification letters will bounce.
Also, if you're on the run, remember that cards on your name may get flagged - if used, cops are silently alerted to arrest you. Or the CCTV footage might be used for mugshots, or your data mined to predict your behaviour.
It's getting quite difficult to live in our society if someone isn't "perfect." Perfect credit, or virtually everything is more expensive, even non-credit stuff like insurance; perfect criminal history, so you can forget getting a job at a lot of companies if you smoked pot or, FSM-forbid, are released from jail; perfect banking history; perfect social media presence; and on and on.
The free market isn't willing to address this, so how do we do it as a group?