New Deal lovers share a sort of reverence for little tidbits of American history that aren’t widely known, anecdotes about when government actually did really cool stuff. One of them is when the Fed was controlled by the Treasury during World War II and brought unemployment down to 1% while controlling inflation with credit controls. Another was when the Post Office was… a bank. From 1911-1967, the Post Office actually let people make savings deposits, and they did (particularly immigrants). Even today, the Post Office offers financial products, like money orders.
This week, the Office of Inspector General for the Post Office just proposed letting the Post Office go back to those roots and offer financial products targeted at the poor. It makes sense, and it wouldn’t require legislation (just an executive order). The Post Office has tens of thousands of branches all over the country, serving literally everyone. Meanwhile our banking system doesn’t, leaving financial options for the poor (ie. underbanked) overpriced and awful. As the IG wrote:
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.
That’s crazy. 10% of your income if you’re poor goes to financial predators.
But there’s more. Banks have been closing branches like crazy since 2008, as consolidation and internet banking hit. Where are they closing branches? You guessed it.
In fact, an astounding 93 percent of the bank branch closings since late 2008 have been in ZIP Codes with below national median household income levels.
There’s one more aspect to this proposal that I like. If you do your financing with the Post Office and its partners, you’d probably be protected by the Privacy Act of 1974, which applies to government entities and not commercial entities. That’s very good, especially for people who are targeted by database-driven loan sharks and don’t have the ability to fight back through the courts or recognize tricks and traps. After all, if you can’t get data, it’s much harder to offer deceptive offers of credit.
It’s really quite joyful to read a good government report like this. Too often we only think about how to protect services that exist, but creative, powerful consideration about how to use our collective social resources to better our society does exist and is quite powerful. So thanks to the Post Office IG David C. Williams.
P.S. I should say this post is basically a copy of Dave Dayen’s TNR piece. But I did add the privacy point!
P.P.S. Predictably, the banks are freaking out. Richard Hunt of the Consumer Bankers Association is calling this the “worst idea since the Edsel.” If you were born before 1950 and follow automotive history you might know that Hunt just burned you!
P.P.P.S. This is actually a good way to launch an M-Pesa style mobile cash system, one that currently is in existence in Kenya and everyone loves. Basically you get to load up your phone with cash at a Post Office, and then text that cash to anyone who has a similarly enabled phone. Then that person can keep that cash on his phone for later use, or withdraw it at a Post Office. If this doesn’t make sense to you, just Google M-Pesa. Trust me, it works. It’s awesome. Way better than our payments system. It can even be designed to be anonymous.