Thursday, February 13, 2014
UGA law prof available for comment on USPS financial services proposal
Athens, Ga. – A new proposal by the U.S. Postal Service Office of the Inspector General suggests the agency could offer financial services, and a University of Georgia faculty member and expert on the subject, Mehrsa Baradaran, says this could be beneficial to underbanked consumers and those on the lower end of the socioeconomic scale.
Baradaran, an assistant professor in the UGA School of Law, is available to comment on the proposal for the USPS to offer loans and other financial services. She can be contacted Monday-Friday from 8 a.m.-5 p.m. at 646-382-2632 or firstname.lastname@example.org.
On Jan. 27, the USPS' Office of the Inspector General issued a white paper stating the agency could offer services such as remittances, debit cards, international money orders and transfers, and even small loans in an effort to reach underbanked consumers. By offering these financial services reports estimate that the USPS could raise approximately $8.9 billion in additional revenue and potentially reach 68 million adults. The report states this move is not meant to make the postal service a competitor to banks but suggests it could partner with financial institutions.
Baradaran, who explored a similar direction in an article two years ago and just had an opinion piece published in The New York Times on the topic, said credit unions and savings and loans used to be subsidized by the federal government to provide credit to the poor, but it stopped doing that a few decades ago. "Since then, our government continues to subsidize banks, but those subsidies are not making their way to those who most need banking and credit services," she said. "This gap of services to the poor is a relatively new phenomenon, and one that I believe the USPS should help to fill."
Based on her article titled "How the Poor Got Cut Out of Banking" published in the Emory Law Journal, Baradaran provides five reasons for this bold move:
1. Location, Location, Location: When mainstream commercial banks and thrifts started facing intense market competition in the 1970s and 1980s, they deserted low-income neighborhoods en-masse and basically stopped lending there. This is what the Community Reinvestment Act is meant to address. When the banking establishment left, the fringe banks moved in. In many low-income neighborhoods, payday lenders are the only establishments offering credit. But the local post office still operates in those areas.
2. The local post office is more inviting than a local bank: Among the documented reasons the poor avoid banks is they feel certain race, class and language barriers. They just do not feel comfortable. The post office does not have a stiff formality like most mainstream banks and can overcome some of these cultural barriers because the institution serves a diverse array of customers.
3. Postal banking used to happen in the U.S., and it still happens abroad: President Ulysses S. Grant suggested and President William Howard Taft initiated post office savings accounts in the early 1900s. The Postal Savings Accounts were created and geared to recent immigrants and the unbanked poor, and they were widely successful. Many other countries currently use their postal service to provide credit and saving services to their citizens, including: Japan, Germany, China, Brazil, Israel, France, Korea, India, South Africa, Kenya and Sri Lanka.
4. Post offices could fill a market gap: A recent Federal Deposit Insurance Corporation study found that more than half of the U.S. population cannot access $2,000 in the event of an emergency and that about 30 percent is either unbanked or underbanked. Currently, most banks do not offer the types of small loans the poor need. If the USPS can offer small loans and other simple transactional services at lower costs, they do not put anyone out of business; they fill a real market need. Additionally, the post office can offer these services at a much lower cost because it would be using its existing infrastructure.
5. The government should facilitate and subsidize access to credit for all people. The U.S. banking system has always been and will always be a heavily subsidized sector. A big justification for these subsidies is that the populace gets something in return. The government supports banks because we need them to provide credit, which allows companies and individuals to improve their economic position. But unfortunately, most of these subsidies (especially in the form of bailouts) flow to the largest banks, which are not serving most of the public.