Gillibrand’s post office banking bill bypasses years of careful, quiet work to kill payday lending

A huge potential benefit to the poor. And a spotlight not everyone wanted.

Sen. Kirsten Gillirband (D-NY), left, introduced legislation Wednesday on a high-profile idea Sen. Elizabeth Warren (D-MA), right, helped popularize. Some stakeholders had been hoping to keep the idea off the floors of Congress and use existing law instead of new legislation. (CREDIT:  Tom Williams/CQ Roll Call)
Sen. Kirsten Gillirband (D-NY), left, introduced legislation Wednesday on a high-profile idea Sen. Elizabeth Warren (D-MA), right, helped popularize. Some stakeholders had been hoping to keep the idea off the floors of Congress and use existing law instead of new legislation. (CREDIT: Tom Williams/CQ Roll Call)

The popular progressive idea of using the United States Postal Service to help families struggling with their finances escape the trap of predatory payday lending got a renewed bounce this week from a prominent senator widely expected to run for the White House in 2020.

Sen. Kirsten Gillibrand’s (D-NY) Postal Banking Act, announced Wednesday, would launch a new set of basic financial services at USPS branches. For the tens of millions of families who either have no bank account or are categorized as “underbanked” because they also rely on expensive alternatives like payday loans, the idea could create new opportunities to start saving money or to hurdle an unexpected expense without dropping into almost permanent debt.

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The campaign to get USPS to offer such services has been going on for a long time, just in a delicate and quiet way. The new bill ups the stakes dramatically, creating a rallying point for both supporters of the idea — and their opponents, who have both legislative majorities and the White House.

“I think she’s probably making a different calculus,” said Mehrsa Baradaran, a law professor and the preeminent expert on postal banking. “This is a bold move. If you put this out there and say ‘hey let’s do this thing,’ then more people could get on board and push it through.”

One person’s bold gamble is another’s miscalculation. Many supporters of the idea, stung by past harms done to the USPS on Capitol Hill, consciously decided years ago that they would not bring this idea to Congress and focus instead on using the agency’s existing authority to act.

“We’re happy to have Sen. Gillibrand’s enthusiasm added to the chorus,” said Katherine Isaac of the Campaign for Postal Banking, “but we’re still pushing for the things the postal service can do now.”

A fake crisis, and a real opportunity

The idea Gillibrand’s pushing has been prominent in progressive circles for more than four years. Its full history is far longer — post offices did actually provide similar services in the early 20th century — but as a modern political cause in an era defined by a Wall Street crash and stunning inequality of wealth and opportunity, it’s in its fifth year.

The USPS’s Inspector General kicked off the push in 2014 with a report that built on Baradaran’s work and detailed how the agency could begin offering financial services. Prominent finance reporter David Dayen quickly picked up on the report as a solution to the stubborn predation of the payday lending industry, which we now know siphons billions of dollars out of poor communities each year by trapping families in cycles of debt. Sen. Elizabeth Warren (D-MA) soon gave the idea the massive signal boost others hadn’t been able to, and post-office banking was suddenly in vogue.

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The IG’s findings came in part out of a desire to help USPS get onto firmer financial ground. Though the idea was framed as a boon to the public, the report also made the bottom line clear: The agency could net some $9 billion a year in new revenue.

Postal banking’s rebirth, then, came out of a sense that the agency is in a funding crisis. But that crisis is fake, manufactured intentionally by lawmakers in 2006 when Congress imposed an absurd accounting rule on the service. The change makes its future obligations to retired postal workers seem artificially dire. The appearance of insolvency that’s haunted USPS for more than a decade since would largely evaporate if lawmakers reversed that pension-funding rule.

That 2006 legislative debacle illustrates why the staunchest advocates for postal banking have spent four quiet years working on the administrative side. Warren has introduced some 250 pieces of legislation in her time in the Senate, none of them tied to postal banking.

To the extent Gillibrand’s breaking new ground here, she’s able to in part because others felt leery that a Congress led by Sen. Mitch McConnell (R-KY) and Rep. Paul Ryan (R-WI) would be prone to doing more harm than good. Gillibrand is the second congressional supporter of the cause to try the legislative route. Rep. Cedric Richmond (D-LA) introduced his own version of the idea back in 2014. It died in committee, but it also didn’t become the bugaboo vehicle for worsening policy that some people working on this idea fear.

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The behind-the-scenes advocacy has been slow. But it’s also shown signs of progress from where things stood immediately after the IG’s report, Dayen’s coverage, and Warren’s public remarks on the idea helped create an opportunity for change.

The USPS initially rebuffed the pressure, issuing a curt statement that both promised to explore potential expansions of financial services and warned that the agency wouldn’t move forward alone. “Our core function is delivery, not banking,” it said.

Advocates kept the pressure on and eventually chipped away at that initial resistance. USPS agreed to look into pilot program versions of postal banking in a 2016 memorandum of understanding appended to contract negotiations with the American Postal Workers’ Union (APWU). Those conversations have continued since, Isaac said.

“Different players have different tactics. We looked at the situation in 2014 and 2015 and decided to go in the non-legislative direction,” Isaac said. “Sen. Warren knows that and has been supportive of that direction, and has done things like meet with the Postmaster General as recently as two months ago to urge her to get busy on pilots around the country to figure out what works and what doesn’t work.”

A USPS spokesman declined to comment on the Warren meeting or the state of the pilot program work agreed to in the 2016 bargaining process.

The delicate balance of price and sustainability

However it might get done, some version of postal banking that includes alternatives to payday loans would be a huge lift for the masses of working poor who are currently one car repair away from a for-profit debt trap.

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But unless the new class of loans can manage to be both genuinely affordable to users and somewhere close to break-even for the lender, no version of a change like this can survive for very long. The details of how postal banking loans get priced therefore become incredibly important, for the public and USPS alike.

“If this is about saving the post office then it’s about revenue. But Sen. Gillibrand came to it from my lens, that this is a public option for the unbanked,” Baradaran said. “Super low interest loans, probably way too low, but she really wants to be bold and say this is about the public not about saving the post office.”

Other organizations that have tried to clear payday lenders out of the paint may have found the balance point of sustainability and non-exploitative prices. But it’s a far cry from where Gillibrand’s bill aims.

Small-dollar short-term lending of this sort can break even at interest rates roughly one sixth of the average payday loan price. It can even be profitable without trapping people in endless reborrowing cycles, as experiments with modest regulation in Colorado have shown.

Research suggests that low-cost alternatives to payday lending are only sustainable at annual interest rates in the mid-double-digits, Alex Horowitz of the Pew Charitable Trusts said in an interview. Such products would generate some amount of revenue, but not necessarily at levels forecast in 2014 by those worried about USPS’ bottom line. Go much above 100 percent, and Horowitz’s research suggests people start thinking you’re preying on poor folks in a newer, gentler way.

Gillibrand’s bill would throw out that delicate balancing act between what’s sustainable for a lender and what’s fair to a borrower. Where a payday lender currently charges about $350 in total to borrow $400 for three months, the current alternatives offered by credit unions charge about $39 for the same loan. The credit unions say they are just about breaking even at that price, and could actually be profitable if they charged for like $60, according to Horowitz.

Under Gillibrand’s postal banking bill, USPS would charge $1.12 for the same three-month $400 loan product, Horowitz calculated.

That’s a recipe for a free money store with a blue-and-white eagle logo on the front. And that would be a very good thing for low-income families — and for the broader economy that relies on lower- and middle-income family spending to grow.

But it’s also apt to provoke backlash among the tightfisted conservative set who generated USPS’ fake funding crisis in the first place — the exact thing the people working this cause for years have feared from legislative approaches. If the perfect is sometimes the enemy of the good, Gillibrand may just have delivered the “perfect” side of a political risk equation that others have diligently worked from the opposite, more attainable end for half a decade.

“We can’t predict the future on that,” the Campaign for Postal Banking’s Isaac said. “But we want to work with anybody who thinks it’s a good idea. Time will tell which strategy is the right one.”