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A BRIEF HISTORY OF POSTAL FINANCE

Offering basic financial services through the post office isn’t a new business model. It’s commonplace in Europe and Asia and once was popular in the United States too.

Starting in 1911, the Postal Savings System allowed Americans to deposit money at post offices. Competition with banks was minimized by limiting deposits to $500 and capping interest rates at 2 percent. Deposit limits were raised to $2,500 in 1918.

At its peak in 1947, more than 4 million Americans had $3.4 billion in savings in the Postal Savings System, which was considered a safe place to keep money before the government introduced bank deposit insurance.

When banks raised interest rates after World War II, deposits in the Postal Savings System dropped. The program was discontinued in 1967.

The Postal Service now sells money orders, processes remittance payments and cashes U.S. Treasury checks in addition to delivering mail and packages.

McClatchy News Service

Postal Services considers expanding into banking services

  • Article by: Lindsay Wise
  • McClatchy News Service
  • July 24, 2014 - 7:40 PM

– Lawmakers and government officials looking for a way to save the cash-strapped U.S. Postal Service are considering a proposal that would make check cashing, small loans, prepaid cards and other financial services available at your local post office.

The plan, which was floated in a special report by the Postal Service’s Office of Inspector General, would use post offices across the country to reach consumers who are underserved by banks.

In the report, the inspector general suggested that post offices could fill a gap left by the dwindling number of bank branches in rural areas and inner cities, generating an estimated $8.9 billion in additional annual revenue.

As the Postal Service struggles to remake itself in the Internet age, this proposal to solve the agency’s budgetary woes is generating buzz — and vigorous debate — in Washington’s policymaking circles.

Without a new source of funding, the Postal Service might soon be forced to end Saturday delivery and shutter rural post offices after hemorrhaging more than $20 billion over the past two years.

Perhaps the most high-profile proponent of the inspector general’s proposal is Sen. Elizabeth Warren, D-Mass., who laid out her case for “postal banking” last week at a conference hosted by the Pew Charitable Trusts.

Warren said the post office was an ideal venue to provide affordable financial products for families of moderate means whose needs weren’t met by the traditional banking system.

For example, a hypothetical “Postal Loan” of $375 with a $25 upfront fee and 25 percent interest rate would cost $48 in interest and fees over the life of the loan, less than a tenth of what the typical payday loan would cost a consumer to borrow the same amount, according to the report.

“That single loan from the Postal Service could effectively put $472 back into a consumer’s pocket,” the report said.

Critics of the proposal say postal employees don’t have the experience or training necessary to offer financial products and the Postal Service doesn’t have the capacity to take on new lines of business.

Rep. Darrell Issa, R-Calif., has condemned the plan as an irresponsible power grab by the federal government. He is the chairman of the House committee that oversees the Postal Service.

Issa says the agency should focus on breaking even instead of branching out into new ventures.

Most banks aren’t fans of the idea either. They see it as government-sponsored competition.

© 2014 Star Tribune