COMMONOMICS
Growing Our Common Wealth™
Warren vs Issa: Ten Rounds on Postal Banking
by Ira Dember on June 28th, 2016

Senator Elizabeth Warren (D-MA) and Representative Darrell Issa (R-CA) each addressed the all-day conference on postal banking, hosted by The Pew Charitable Trusts in Washington, DC on July 16, 2014.
 
At the conference, Rep. Issa noted that he and Sen. Warren are “bookends” on issues like postal banking, that is, they take sharply contrasting points of view.
 
The following quotes are taken from the respective talks of Rep. Issa and Sen. Warren at the July 2014 conference — juxtaposed here with issues raised and supporting facts.


ROUND 1: Are US Postal Service facilities capable of providing basic financial services as proposed by the USPS Inspector General?
 
REP. ISSA: ". . .in many, many cases the exact neighborhoods we're talking about do not have the postal facilities that would match the actual needs: a place that dispenses money and has sit-down locations for the discussions of a payday loan equivalent or a longer term need or for that matter just general banking needs."

SEN. WARREN: “S&L Financial, a research firm, reports that banks are. . .reducing the number of branches they operate in areas where the median [income] is under $50,000. . . 
 
      “Nearly 60 percent of Post Office branches are in banking deserts. They are in zipcodes where there are either one or no bank branches. This means that the Postal Service already has the strong brick-and-mortar presence in low-income and rural communities that traditional banks are leaving behind.
 
      “. . .it’s not often in life when you see such a perfect match: there is a big need — 68 million Americans, who don’t have access to traditional banking — and a Post Office that has plenty of additional capacity. The two can be put together, bring down costs [and] bring more families into the financial mainstream. . .”
 
FACTS: Existing USPS postal counters and personnel routinely handle significant cash transactions and related services including domestic money orders of up to $1,000, and government check cashing. Also routine are more complex transactions such as international money orders and international electronic cash transfers.

The US Postal Service’s Office of Inspector General, Sen. Elizabeth Warren, the US Council of Mayors and other leaders support the idea of the USPS offering other basic financial services, primarily to low-income people. No mention of “longer term need” or “general banking needs.”
 
In a space of less than 100 square feet, the “Money Center” in a west Houston Walmart offers bill pay, money orders, reloadable cash cards, government and payroll check cashing and other financial services such as Walmart-to-Walmart cash transfers.
 
Many banks also occupy small spaces. For example, a full service Houston bank branch in a Kroger store occupies 240 square feet. That includes the back office, vault, and customer standing and seating areas.
 
Nearly 20,000 small storefronts, mostly in low-income neighborhoods, are occupied by payday lenders and other financial predators. 


ROUND 2:  Have financial services played a significant role in US postal history?
 
REP. ISSA: ". . .is banking a major part of [USPS] history at any point? Beyond, if you will, the money order portion that was slow, laborious, but did occur? And the answer is no."
 
SEN. WARREN: “Even our own Post Office — and I am old enough to remember this — offered basic savings accounts as late as the 1960s. And they helped bring hundreds of thousands of recent immigrants into the financial system.”
 
FACTS: The US Post Office first offered money orders in 1864 to fill an urgent need: Union soldiers sought to send money home without putting cash in the mail. Thus 2014 marks the 150th anniversary of US postal money orders — still a mainstay of post office operations and one of the most significant innovations in US financial history.
 
Even with the rise of electronic transfers, the US Postal Service issued nearly 95 million money orders in 2013, about four for every ten US adults — at a profit. The US in 1911 launched the Postal Savings System, enabling people to have a savings account at their neighborhood post office — just as most developed (and many underdeveloped) nations do today.
 
At its peak in 1947, 10% of American households had a postal savings account. Adjusting for inflation and population growth, the Postal Savings System had today’s equivalent of nearly $80 billion in savings — and held these deposits in local community financial institutions, which the USPS could also do today. Postal savings were especially popular in immigrant communities, where participation was very high. However, the savings system dwindled when Congress refused to let the Post Office continue offering competitive interest rates. Lawmakers struck the final blow in 1966, terminating America’s “public option” for savings.
 
From the Civil War to the 1960s, post office financial services played substantial roles in the lives of ordinary Americans and their immigrant forebears — and still do.


ROUND 3:  Will postal banking require taxpayer subsidies?
 
 REP. ISSA: "I believe [Elizabeth Warren] want[s] a highly subsidized, government-fed way to provide. . .financial services to the underserved."
 
SEN. WARREN:  “[Basic financial services] could be offered that are safer. . .at a lower cost. And they could generate some revenue. . .and help [financially] stabilize the Post Office.”
 
FACTS: US Postal Service operating overhead, including personnel, is fully paid for by existing services at a net operating profit. The incremental cost of the proposed financial services would be far less than if starting from scratch, as predatory payday lenders must do with their own storefront infrastructure.
 
For these and other reasons, the USPS could offer proposed financial services at substantially lower pricing, without subsidy.
 
The Office of Inspector General of the US Postal Service performed an analysis of proposed services, costs and pricing. In its January 2014 report, the OIG concluded that, based on the evidence at hand, the proposed financial services would generate a net profit for the Postal Service.
 

ROUND 4: Will postal banking generate big profits on the backs of low-income people?
 
REP. ISSA:  ". . .quite frankly, it is disingenuous to believe that the [market] specifics of the underserved community are highly profitable."
 
SEN. WARREN: “[Financial service] storefronts. . .all across the country [are]  raking in billions of dollars in profits. . . 
 
“We must also consider the question of how to balance generating revenue for the Postal Service against providing affordable [financial] products to the under-banked and unbanked. History shows that without careful safeguards, institutions that start out with the goal of increasing access to financial services can lose sight of that goal, if their attention turns to maximizing profits.”
 
FACTS: Payday lending and other financial services targeting the poor are highly profitable for Wall Street-backed storefront chains. Yet these companies each bear the cost of their own pervasive brick-and-mortar presence in low-income communities across America — a presence the USPS already has, and which is already self-supporting.
 
The Inspector General’s January 2014 report indicates that the USPS could provide payday loans at less than one-tenth the average price currently charged by predatory lenders — and do so at a profit. This finding reflects both post office cost-efficiency and obscene overcharging by payday lenders.
 
Nowhere does any proponent claim postal banking will be “highly” profitable. However, demand for payday loans and other financial services is so high, even a modest profit would contribute substantially to the Postal Service’s profitable bottom line, thanks to high volume.
 
The OIG report offers this price comparison: a typical $375 short term loan from a payday predator costs an average of $520 in exorbitant fees and interest. The USPS could charge just $48 for the same loan — at a profit.
 
To produce this report, the OIG “contracted with Decision/Analysis Partners, who assembled a team of experts including: Hans Boon, a world-renowned expert on postal operations and financial inclusion strategies who has helped implement postal financial services in various countries, formerly with ING and the Netherlands Postbank; Jean Philippe Ducasse, an expert on postal strategies, formerly with the European Commission, La Poste, and the Universal Postal Union (UPU); James Pérez Foster, a former VP with Merrill Lynch and Morgan Stanley Smith Barney, who has recent experience as an expert on banking services for underserved communities; and Ana Harvey, the former head of the Small Business Administration’s Office of Women’s Business Ownership.”
 

ROUND 5: Is the US Postal Service financially unsustainable, losing billions of dollars?
 
REP. ISSA: "But today they [the USPS] are losing in the range of $8 billion a [year]. They are losing it in the old-fashioned "railroad retirement" sort of way: they are defaulting on payments for their future retirement and health benefits".
 
SEN. WARREN: “. . .the Postal Services reported losses of about $5 billion during its most recent fiscal year. But all of those losses and more, were the result of a bizarre requirement that Congress and the Bush administration imposed on the Postal Service in 2006. They suddenly required the Postal Service to pre-fund health benefit payments for retirees for the next 75 years — and to satisfy that requirement in the next 10 years.
 
 “. . .in the first quarter of 2014 alone, the Postal Service would have made more than $750 million in profit, if not for the pre-funding requirement.
 
 “The Postal Service has actually adapted quite well to the changes brought about by the Internet age. Its financial woes. . .are simply the creation of a Congress and an administration that wanted to see the Postal Service weakened and cut back.
 
FACTS: Rep. Issa himself championed federal legislation requiring the USPS to pre-fund pension obligations 75 years into the future — covering postal workers who have not yet even been born. No other business or government organization, anywhere on earth, has ever been forced to bear such an extreme mandate. It artificially imposes a $5.5 billion annual cost burden on the Postal Service.
 
 Further, the USPS Office of Inspector General has found — and publicly reported — that up to 2011 the Postal Service overpaid its pension obligations by a total of $13 billion. However, Congress refuses to credit these overpayments to the USPS.
 
 For several years, the USPS did lose money on its operations. This is common among businesses when technologies such as the Internet disrupt markets. That’s what happened to the Postal Service: its profitable first-class mail service declined as email and the Web soared to prominence.
 
 Like any robust business, the USPS made adjustments and continues to do so. As a result, in fiscal 2013 it generated a $600 million net profit on operations. The only “loss” exists in Congress’ artificial 75-year pension pre-funding requirement.


ROUND 6: Are high-cost payday lenders highly regulated?
 
REP. ISSA: ". . .these [payday lenders] are often vilified, regulated at every stage and are further regulated by the Dodd-Franks. So we have highly regulated entities. . ."
 
“Maybe they are not doing a good enough job. Maybe in fact we need more government oversight on them. Maybe.”
 
SEN. WARREN: “Twenty-eight percent of all households, 68 million people, rely on non-bank financial services like check-cashing or payday lending; and the cost of these services is extraordinary. In 2012, the average annual income for these families was about $25,300, and they spent an average of $2,400 on interest and fees for non-bank financial services.
 
“Think about that: that is just under ten percent of their annual income, or about the same amount that they spent on food. When more than a quarter of this country is spending about the same amount on basic financial services as they are spending on food, we have a market failure.”
 
FACTS: These “highly regulated entities” charge exorbitant fees and usurious interest amounting to a predatory 391% effective APR, according to nonpartisan independent studies. The predators’ main targets: low-income working families, and retirees struggling to survive on Social Security.
 
In an April 2014 report, the US Department of Defense admitted that despite a Congressional mandate, the DoD has been losing its own battle against payday lenders and other financial predators that rip off military personnel and their families.
 
In June 2014, the US Conference of Mayors adopted resolutions in support of postal banking to provide a low-cost “public option” for financial services, countering the out-of-control entities described as “highly regulated”. 


ROUND 7: Is the US Postal Service slow, irresponsible and inflexible?
 
REP. ISSA: "I've overseen the Postal Service as both the minority and the majority now for a decade. And what I've discovered is, they are slow, irresponsible, highly unionized, reasonably good at what their core function is, but very resistant to any change, any flexibility.
 
SEN. WARREN: “[T]he postal system has done [this] for America for over two centuries: and that is to adapt to changing times. . .
 
“Postal Service employees could certainly manage the [proposed postal banking] transactions. In fact, Postal Service employees are already providing relatively complicated financial services like international remittances. . . with a little training, they could cash a check or open a basic savings account.”
 
FACTS:  While Rep. Issa led Congress to impose impossibly large, artificial financial burdens on the Postal Service, he simultaneously worked to ensure that the USPS could not do what major businesses do in tough times: innovate by diversifying into new lines of business, or amplify existing lines.
 
For example, when Hewlett-Packard saw its PC business stagnate, it doubled down on enterprise IT to achieve renewed success. When Apple’s flagship Macintosh computer lost market share, experts predicted the company’s demise. But Apple remade itself first with the iPod and, later, the iPhone, iPad and other innovations such as iTunes and the App Store. Apple is now the world’s most valuable company, worth over a half trillion dollars.
 
And the US Postal Service? A law enacted by Congress in 2006 prohibits the USPS from trying new lines of business. This legislation was driven by the same Rep. Issa who today charges that the Postal Service is “resistant to any change.”
 
Despite overwhelming odds — including Rep. Issa’s straitjacket legislation, 75-year pension requirement and refusal to recognize the Postal Service’s $13 billion pension overpayment — the USPS and its highly unionized workforce have wrestled this enormous enterprise back into the black, generating a net operating profit of $600 million in fiscal 2013 (averaging $150 million per quarter) and, in the first half of fiscal 2014 alone, over $1 billion net operating profit.
 
While Rep. Issa “discovered” that postal workers are “slow, irresponsible”, USPS senior management led by Postmaster General Patrick Donahoe has been closing mail processing facilities, thereby degrading core services. Donahoe-led management has publicly proposed further service degradation, such as ending Saturday delivery, door-to-door delivery, and a full day delay in mail delivery time.
 
Postal workers have protested these plans. Thus it appears that “highly unionized” postal workers are striving to defend the USPS’s respected brand and service reputation, while USPS senior management attempts to diminish them.
 
The Postal Service under Postmaster General Donahoe appears to focus almost exclusively on cutting costs by degrading service and selling off postal facilities. By contrast, National Association of Letter Carriers president Fred Rolando proposes that the Postal Service bring back postal savings accounts — and use resulting billions in deposits to help fund a national infrastructure bank.
 
At the post office, then, it seems as if innovation is flowing up from the bottom, not downward from the top. 


ROUND 8:  Do postal unions obstruct progress?
 
REP. ISSA: “They are an organization that at present, you cannot fire, you cannot reduce in force, you cannot lay off, you cannot force them to retire."
 
SEN. WARREN: (At the Pew Trusts conference, Sen. Warren focused on issues and opportunities around postal banking only.)
 
FACTS: Despite a no-layoff contract provision, the US Postal Service shed 110,000 jobs between 2007 and 2012 through attrition, buyouts and threatened transfers. Thus while some workers may not be laid off, the Postal Service does have ways to induce or “force them to retire.”
 
Further, postal unions have demonstrated extraordinary flexibility, for example agreeing that new hires will not covered by no-layoff provisions. Meanwhile, Postal Service senior management aims to shed tens of thousands of additional union jobs, replacing many with non-union workers.
 
Postal unions are united in support for postal banking. USPS Office of Inspector General’s findings indicate that postal banking would financially stabilize the Postal Service with additional revenues and a renewed source of profitability. These changes could in turn help preclude postal service cuts, layoffs, and selling off post office properties. 


ROUND 9: Should the Postal Service cut the most jobs in hard hit, low-income communities?
 
REP. ISSA: “[The USPS] has a labor force that. . .needs to be rightsized and reduced, and many of the reductions have to occur in the very communities that in fact Elizabeth Warren says are underserved."
 
SEN. WARREN: “I bristle at the notion that [banks] can be closing branches in zipcodes where median income is under $50,000, while they’re opening branches in zipcodes where median income is over $100,000. And then [they] opposed the Post Office offering the basic services that they refused to offer.
 
“But it also potentially — potentially — is a win-win for the small banks and for the credit unions. This is an opportunity to partner up, an opportunity for the community bank that’s in the next zipcode over, to work with the Post Office to help them get the business model in place, to help train the employees so they can provide these basic services; and help bring more people — eventually — into traditional banking.”
 
FACTS: More than 90% of bank branch closings in the last 5-6 years have been in low-income zip codes. In 2012 alone, banks shuttered well over 2,000 branches. As a result, 59% of post offices are located in “bank deserts” — zip codes having no bank branches or just one. By definition, these communities are underserved — not because “Elizabeth Warren says” they are underserved.
 
USPS Inspector General David Williams, the US Conference of Mayors and other leaders, along with Sen. Warren, propose that post offices provide basic financial services at low cost, especially in these underserved communities.
 
A nonpartisan independent study reveals that payday lenders and other financial predators cluster most strongly in neighborhoods abandoned by banks.
 
Cutting postal workers in low-income neighborhoods could stop the Postal Service from redeploying experienced workers to provide urgently needed financial services profitably at low cost — helping both the Postal Service and affected families to financially stabilize themselves at no cost to taxpayers. 
 
The job cuts demanded by Rep. Issa would disproportionately hurt people living in low-income neighborhoods: minorities, women (including millions of single working mothers), retirees on Social Security, veterans, and immigrants.
 
The USPS Inspector General’s report states: ". . .there could be a role for the Postal Service to play in helping banks and other institutions to comply with regulations. For example, the Postal Service might explore whether banks that partner with it could earn credit toward fulfilling their requirements under the 1977 Community Reinvestment Act to meet the credit needs of the communities where they operate. This might be especially helpful for community or local institutions that have fewer resources to dedicate to ensuring compliance with new and changing regulations."


ROUND 10: Could the Postal Service use its existing strengths to do postal banking?
  
REP. ISSA: ". . .you would be building almost from scratch. You would be building new facilities — or at least repurposing or moving. . .to a new facility."
 
SEN. WARREN: “[O]nce the debate starts with how to shut down the Post Office — which is the view of some people — then they don’t want to hear that there’s a solution, there are ways to bring more revenue into the Post Office, to use the space more efficiently. . .
 
“This is just an opportunity for the Post Office to use its space and to use its employees more efficiently, to bring needed services to more Americans. . .  Why would anyone object . .?
     
FACTS: Many post offices could readily provide space for basic financial services. As noted, Walmart offers its “Money Center” services in less than 100 square feet. Chartered financial institutions offer full banking services in as little as 240 square feet. Payday lenders and other financial predators infesting low-income neighborhoods operate thousands of small storefronts.
 
Conventional retail businesses periodically rebuild their interiors, so remodeling some post office interiors would not be an insurmountable task. Postal workers could readily do the types of jobs performed by low-level clerks in thousands of payday lender storefronts and check cashing stores.
 
However, Rep. Issa insists that without “building new facilities” or “moving. . .to a new facility” the USPS would be incapable of managing reloadable money cards, cashing checks (as it already does for government checks), providing small payday loans (as predators do in minutes from tiny offices at stand-up customer windows) and handling postal savings accounts (as post offices did for more than a half century).
 

BONUS ROUND: How do you feel about the Post Office?
 
REP. ISSA: “I love the institution of the Post Office.”
 
SEN. WARREN: “The Post Office has been here since colonial times. It’s a part of who we are, part of how we run this country, an essential government service. Why would anyone object to making that service more efficient, using the spaces more effectively, and helping bring service to more Americans?
 
“[T]he Postal Service. . .has the infrastructure, it has the experience, and it has the trustworthy reputation needed to address this problem.”
 
FACTS: Rep. Issa was largely responsible for imposing the notorious and unprecedented 75-year pension pre-funding burden on the US Postal Service; straightjacketing the USPS by prohibiting innovation in new services (as any business would innovate under similar circumstances), and leading the drive to sell off post offices nationwide.
 
Sen. Warren was among the first national leaders to endorse the idea of giving both low-income families and the USPS new opportunities via postal banking, which would help financially stabilize millions of families and the Postal Service itself. 


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