More on the Postal Savings System

We talked about it here. The Pacific Standard addresses it here.

Congress Kills No Birds with Two Stones

Kevin Drum notes that the Senate (but not the House) has passed legislation to save the Post Office. As we discussed here, the Post Office is fighting a losing battle against e-mail, so much so that first-class mail now makes up less than 30% of all mail delivered. (The rest -- mostly catalogs and the like -- is sent via standard mail.)


The USPS had suggested a series of sensible changes -- ending Saturday delivery, relaxing delivery times (40% of first-class mail is delivered within one day), and closing a bunch of post offices and postal centers.


We also noted that much of the current "crisis" is fake, as the USPS was forced by (the Republican-controlled) Congress to pre-fund 75 years worth of its employee benefits within a 10-year window. That helped turn the USPS' $1 billion surplus in 2006 into a $5 billion deficit in 2007.


So how did the Senate do? Kevin Drum summarizes (and we editorialize):

Allows USPS to recoup more than $11 billion that it had overpaid into one of its pension funds.	About time.
Provides early retirement incentives for nearly 100,000 USPS workers.	Good one.
Restructures payments to a health benefits fund for future retirees.	Probably a good thing.
Frees up USPS to offer a broader range of services like delivering beer and wine for retailers.	Okay – but we could do more.
Creates a USPS chief innovation officer.	Absolutely pointless.
Halts the immediate closing of up to 252 mail-processing centers and 3,700 post offices.	Not good.
Forces USPS to preserve overnight delivery of mail sent to nearby communities.	More not good.
Forbids USPS from closing a rural post office unless the next-nearest location is no more than 10 miles away.	Still  more not good.
Places a one-year moratorium on closing rural post offices and then requires the mail agency to take rural issues into special consideration.	Oh, Christ.
Prevents USPS from cutting Saturday delivery for two years, until the agency can prove such a cut is needed as a "last resort."	Seriously?
Transitions from door-to-door delivery to curbside delivery in some areas, such as suburban neighborhoods.	Meh.
Strengthens the appeals process for customers opposed to closing a post office.	Bleh.
Caps bonuses and pay for USPS executives.	Pointless.
Forces USPS to wait until after Election Day to close postal facilities in states that permit voting by mail.	Apparently, these states don’t have mailboxes.
Permits USPS to co-locate post offices in government-owned buildings.	Good.

So, Kevin, what do you think?

There's nothing in there about allowing the postal service to increase postal rates. 

This is crazy. 

Take a look at countries around the world that have smaller volumes of mail than us: they all charge higher postage rates. They have to. And as volumes keep declining in America, we're going to need higher rates here too. Right now, a first-class equivalent stamp runs 75¢ in Germany, 72¢ in Britain, 82¢ in France, 98¢ in Switzerland, 97¢ in Belgium, and 63¢ in the Netherlands. There's no way that we can stay at 45¢ as volumes decline and pretend that somehow everything will be hunky-dory. 

Agreed.

And the Senate also failed to consider resurrecting the United States Postal Savings System, which was shut down during the patchouli-scented days of 1967, when we all thought the banking system was safe. Not only would the United States Postal Savings System provide another revenue stream, it would require virtually no start-up costs -- the USPS already engages on certain small-scale financial transactions (money orders) and the post offices themselves are already built and fully staffed.

A revived Unites States Postal System would also provide crucial financial services to a population which increasingly can't afford to use banks. An April 2011 study by the Pew Charitable Trust found 16.4% of all Mississippians didn't have a bank. And it's about to get a lot worse.

The New York Times reports that:

An increasing number of the nation’s large banks — U.S. Bank, Regions Financial and Wells Fargo among them — are aggressively courting low-income customers ... with alternative products that can carry high fees. They are rapidly expanding these offerings partly because the products were largely untouched by recent financial regulations, and also to recoup the billions in lost income from recent limits on debit and credit card fees. 

Banks say that they are offering a valuable service for customers who might not otherwise have access to traditional banking and that they can offer these products at competitive prices. The Consumer Financial Protection Bureau, a new federal agency, said it was examining whether banks ran afoul of consumer protection laws in the marketing of these products. 

In the push for these customers, banks often have an advantage over payday loan companies and other storefront lenders because, even though banks are regulated, they typically are not subject to interest rate limits on payday loans and other alternative products.

For example:

When David Wegner went looking for a checking account in January, he was peppered with offers for low-end financial products, including a prepaid debit card with numerous fees, a short-term emergency loan with steep charges, money wire services and check-cashing options. 

“I may as well have gone to a payday lender,” said Mr. Wegner, a 36-year-old nursing assistant in Minneapolis, who ended up choosing a local branch of U.S. Bank and avoided the payday lenders, pawnshops and check cashers lining his neighborhood. 

Along with a checking account, he selected a $1,000 short-term loan to help pay for his cystic fibrosis medications. The loan cost him $100 in fees, and that will escalate if it goes unpaid. 

And it gets worse:

 Lenders are also joining the prepaid card market. In 2009, consumers held about $29 billion in prepaid cards, according to the Mercator Advisory Group, a payments industry research group. By the end of 2013, the market is expected to reach $90 billion. A big lure for banks is that prepaid cards are not restricted by Dodd-Frank financial regulation law. That exemption means that banks are able to charge high fees when a consumer swipes a prepaid card. 

The companies distributing the cards have drawn criticism for not clearly disclosing fees that can include a charge to activate the card, load money on it and even to call customer service. Customers with a “convenient cash” prepaid card from U.S. Bank, for example, pay a $3 fee to enroll, a $3 monthly maintenance fee, $3 to visit a bank teller and $15 dollars to replace a lost card. 

Capital One charges prepaid card users $1.95 for using an A.T.M. more than once a month, while Wells Fargo charges $1 to speak to a customer service agent more than twice a month.

Banks are evil. The Post Office is not. For more on why the United States Postal Savings System is a good idea, check out our earlier post here.

Saving the Post Office through Financial Reform-ish

We wouldn't normally take the time to solve a problem which has largely been fixed, or that wasn’t that big of a problem in the first place, but the situation with the United States Postal Service is an opportunity to sneak in a little financial reform, and all in a historically appropriate manner.

In late 2011, much to do was made of the postal service’s financial condition. They were $8.5 billion dollars in the red, and Republicans were raising the usual cry for privatization (and further paring down union membership). The causes cited were generally high labor costs – some 80% of its budget – and the replacement of snail mail with e-mail.

From Chicagomag.com

We’re pretty sure no one got rich working at the post office, but it is undeniable that e-mail is proving to be a worthy substitute for regular mail in most cases.

But there is an additional reason for the postal service’s financial woes; namely, the Postal Accountability and Enhancement Act of 2006. Despite its non-threatening title, this law created a burden for the postal service which no other entity of the government -- or the private sector – faces. The postal service is now required to pre-fund 75 years of its employee benefits within a ten-year period.

We note in passing that Republicans, at that time, controlled the White House, the Senate and the House of Representatives. Coincidentally, there are more than a half million union members working at the post office – 47,000 with the National Postal Mail Handlers Union, 220,000 with the American Postal Workers Union, and 300,000 with the National Association of Letter Carriers.

The effect was drastic.

From Chicagomag.com

The USPS went from running a surplus in 2006 to running a $5 billion deficit in one year – despite seeing its revenue grow by $3.2 billion. The deficit is entirely due to the increase in expenses, which shot up $8.2 billion, or 11%.

So while we do need to junk this atrocious law, demand for the postal service’s, um, services, will continue to slacken, and adjustments must be made.

The USPS has done an admirable job at this, suggesting a slew of reasonable cut-backs, namely relaxing delivery times – right now, 40% of all first-class mail is delivered within one day – and eliminating Saturday deliveries; shuttering half of the 487 mail processing centers around the country and closing 3,700 of the nation’s 32,000 post offices; and eliminating about 100,000 of its 653,000 jobs.

We’re not happy at the loss of union jobs, and we’re concerned about how the closing of post offices will affect rural customers, who are not as well served by the internet as those in urban areas. To help the friendly folk at the post office, we’d like to propose that the United States Postal Service … get in the banking game.

Actually, the USPS is already in the banking game, as it sells money orders – $1.10 gets you a money order up to $500, and $1.55 gets you one up to $1000. And, until 1967, the USPS ran its own bank – the United States Postal Savings System. Citizens who were concerned about the financial health of banks (and their ethically dubious business practices) had an easy-to-use alternative. At its peak in 1947, the Postal Savings System held $3.4 billion in deposits, or $32.8 billion in 2010 dollars. This would have made them the 37^th biggest bank in America.

By comparison, Citibank and Wells Fargo each have roughly $800 billion in deposits, and Bank of America and JPMorganChaseManhattanChemicalBankManufacturersHanoverBankOne have over a trillion dollars in deposits. The fifth biggest bank, U.S. Bank, has a mere $200 billion.

There are several great reasons why getting the Postal Savings System up and going again would be a good thing.

#1.  A lot of people can’t afford banks. A Pew Charitable Trust survey found that many households in the old Confederacy – figure that – don’t have checking accounts.

From the WashingtonPost

And both the FDIC and Pew suggest that about a third of all people who closed a bank account did so due to high account fees. 


#2.  Banks don’t want small customers. Felix Salmon at Reuters reports:

All four of the big banks have a standard checking account with a monthly fee which is waived once you keep a monthly balance of more than $1,500. At Wells Fargo, that fee is $5. At Citi, it’s $10. At Chase, it’s $12. And at BofA, it’s also $12, rising to $17 if you use your debit card.

Oddly, Felix is in a good position to judge these matters, as he was on the board of the Lower East Side Federal Credit Union. They, too, have a checking account fee – but it’s:

$3 a month, for people carrying a balance of less than $75 — essentially, a way to discourage people from keeping bank accounts open and unused with no money on deposit.

#3.  Banks are evil. The Pew study found that:

• the median length of bank disclosures for key checking account policies and fee information was 111 pages;

• overdraft fees will cost American consumers an estimated $38 billion in 2011—an all-time high; [and]

• banks can maximize the number of times an account “goes negative” by reordering deposits and withdrawals to reduce the account balance as quickly as possible.

In addition, the Pew Charitable Trust reviewed how Wells Fargo treated one of its customers, Veronica Gutierrez, to extort more money from her.

Here are Gutierrez' charges in chronological order.

From the Pew Charitable Trusts

And here is how Wells Fargo maximized the penalties they could impose on her. 

From the Pew Charitable Trusts

Yup, the quadrupled their revenue.

#4.            Reducing balances held at the makes them less profitable. This is a feature, not a bug. The fewer deposits a bank has, the less it can lend out. And the less it can lend out, the less profit it makes. With less profit, the bank has less money to go to PAC and lobbyists. Maybe then we wouldn’t have a fiasco where the most qualified person to head up the Consumer Financial Regulatory Bureau – Elizabeth Warren – wasn’t even nominated, and the second choice – former Ohio attorney general Richard Cordray – couldn’t get an up-or-down vote.

#5.            It’s cheap funding for the federal government. Okay, $32.8 billion isn’t a lot of money when compared to a $3.83 trillion budget, but it’s something. But that number would explode if state and local governments were required to place their accounts there, instead of holding them at banks. See, also, #4.

#6.            It would be dirt cheap to do. Some of the biggest costs of banking are building and maintaining its branch offices, and payroll for tellers and the like. With the Postal Savings System, these costs would be … $0. The buildings are already in place, and the employees are already there. To be fair, some costs would be involved in things like setting up an on-line banking facility, but these would be minimal in comparison to the benefit of having 28,000 branch offices up and ready to go on Day One.

By comparison, Bank of America had 5,856 branches in 2010.

*                                   *                                   *

Now that we’ve come up with extra revenue for the postal service, we need to take some of it away.

Last year, there were 3.7 billion pounds of first-class mail – and an additional 9.3 billion pounds of standard mail (the kind mass-market advertisers use). We don’t know what percentage of that 9.3 billion is made up of catalogs, but we’d venture to say it’s substantial.

And wasteful. Our highly unscientific polling suggests that most catalogs get thrown away with barely a glance between their pages. At a minimum, there should be a Do Not Mail registry which operates like the Do Not Call registry, giving people the opportunity to opt out of receiving catalogs in the mail. This would result in lost revenue for the postal service, although some portion of that could be made up by increasing the rates applicable to standard mail.


Unfortunately, reducing the amount of junk mail will mean fewer mail carriers and processors. But maintaining those jobs just to drive around and deliver a billion (or two, or three) pounds of stuff no one wants just doesn't make sense.