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Could Post Offices Become Public Banks?

The U.S. Postal Service is floundering—2013 was the seventh year in a row to report a net loss, at a whopping $5 billion—and  nobody is quite sure how to fix it. Go Private? Close branches? Deliver Mail only four days a week? Ideas are being thrown around but little progress has been made in improving the troubled agency.

But last week, the office of the Inspector General of the U.S. Postal Service released a report with an out-of-the-box suggestion that would produce $8.9 billion in new annual profits: Turning the Post Office into a bank, with savings accounts, loans and debit cards. Furthermore, it would greatly benefit the poor, who lack banking options and are often gouged by predatory financial services.

The idea has been floated before but with official backing from the Inspector General it has a higher degree of credibility and plausibility. Add in the fact that it wouldn’t require Congressional approval, only an executive order from the President, and maybe the out-there proposal could actually become a reality.

Still think the idea sounds crazy? Consider this: The Post Office already was a bank. From 1911-1967, savings accounts were offered with 2 percent interest, ending because of competition from private banks with higher interest rates. The post office still provides money orders.

The report, titled “Providing Non-Bank Financial Services for the Underserved,” suggests expanding beyond money orders to other “non-bank financial services,” including small loans and reloadable pre-paid cards similar to debit cards. This would greatly benefit the poor, who spend a disproportionate amount on banking because they are often forced to use predatory, high-interest services like payday lenders, whose fees equal, on average, a 391 percent annual interest rate. According to the IG, “the average underserved household has an annual income of about $25,500 and spends about $2,412 of that just on alternative financial services, fees and interest.”

Post Offices, furthermore, are well-positioned to help people because of their presence in lower-income areas. The report says that “93 percent of the bank branch closings since late 2008 have been in ZIP Codes with below national median household income levels.” More than half of post offices are in ZIP Codes with zero or one bank branch. “There is a clear market need for innovative financial products, and millions of families would benefit from more affordable solutions,” it says. “The Postal Service could be exactly what they are looking for.”

The report is a refreshing example of creative thinking in the Inspector General community. Innovative ideas- that are actually carried out- are exactly what we need to solve our nation’s challenging problems.

By: Avery Kleinman
Beth Daley Impact Fellow, POGO

Avery Kleinman At the time of publication Avery Kleinman was the Beth Daley Impact Fellow for the Project On Government Oversight.

Topics: Government Accountability

Related Content: Inspector General Oversight

Authors: Avery Kleinman

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