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Banking Goes Postal

American Postal Workers Union (APWU) president Mark Dimondstein has an offer that should be hard to refuse, especially for the 10 million American households, mostly low income, that do not have a checking account or other basic banking services.

Through its network of 30,000 post offices and other outlets, the United States Postal Service (USPS) could readily and cheaply provide many banking services (just as it now provides money orders), no matter where you live or what you earn. This could save people without bank access from paying the exorbitant interest and fees at currency exchanges, payday lenders, rent-to-own dealers, pawn shops and other subprime financial institutions.

Postal workers would also win: Expanding postal services would create more jobs. Moreover, the additional revenue would strengthen USPS’ finances, bolstering the four major postal unions’ ongoing fight against management’s austerity measures. Although the postal service earned a surplus on operations in 2014, it ran a deficit overall because of perverse requirements Congress imposed in 2006 that retiree health care benefits for the next 75 years be fully pre-funded within a decade, a standard far more demanding than those required by any other retirement systems. Much more than the decline in first-class mail, that manufactured budget crisis has fueled USPS management’s campaign of job cuts. The postal workforce dropped from about 700,000 in 2006 to less than 500,000 last year, and management hopes to reduce it by as many as 15,000 more this year. The cuts also involve service degradation, post office closings and privatization — such as delivering postal services at the office-supply store Staples, where jobs are low wage and non-union. If postal unions can implement banking and roll back the retiree pre-pay requirement, they will return the postal service to solvency while expanding the public sector to address private market shortcomings.

Dimondstein intends to make establishing postal banking a major demand, even though it falls outside the bread-and-butter issues unions typically bring up in bargaining. He plans to argue that creation of the bank would profoundly affect the mandatory bargaining issues of wages, hours and working conditions.

The negotiations come on the heels of a new campaign, launched by the postal unions — in partnership with community groups such as National People’s Action, Public Citizen, USAction and Interfaith Worker Justice — to mobilize the public in favor of a postal bank.

Twenty-eight percent of U.S. households either have no checking account or rely heavily on non-bank services such as currency exchanges. In many cases, poverty, high bank fees (especially for small-scale customers), credit problems and distrust keep people from opening bank accounts. But another major reason is lack of access.

United for a Fair Economy (UFE), a financial reform group and coalition member, reports that the number of federally insured financial institutions fell last year to the lowest level since 1934. This loss of banks is turning many distressed inner city and rural communities into “banking deserts,” especially for people of color. The more than one-quarter of Americans with little or no conventional banking services encompasses 53.6 percent of black households and 46.8 percent of Latino households, but only 19.5 percent of non-Latino white households.

These households are disproportionately poor; the average “underserved or unserved” household in 2012 made $25,500 a year. And, staggeringly, they paid an average of $2,412 for fees and interest to banking alternatives, according to a 2014 White Paper prepared by the Postal Service’s Office of Inspector General in support of a postal banking service. That added up to $89 billion in price-gouging revenue for the subprime finance industry in just one year. (And that’s the conservative estimate; UFE calculated the average fees and interest at $3,029 per household in 2013, for a total of $103 billion.) In one year, the underbanked and unbanked pay out more in financial service charges than the federal government spends on all domestic food aid, including food stamps — much of it going to the same people who frequent payday lenders.

Subprime financial predation seriously destabilizes working-class families. People who filed for bankruptcy in 2012 fell short on their bills by an average of just $26 a month. Given that underserved households pay out about $46 a week to the ripoff bank alternatives, these high-priced debt-service products may be a major factor driving many of the working poor into bankruptcy. Meanwhile, much of that predatory income ultimately finds its way into the coffers of Wall Street, the big banks and the super-rich who own and finance the alternative, high-cost operations.

Most poor people distrust both banks and the alternatives, such as pawn shops, but they do trust the post office, according to the UFE’s research. Also, unlike banks, post offices are in every neighborhood. Nearly 60 percent are in zip codes with one or no banks.

Postal banking has plenty of precedents. From 1911 to 1966, the United States Postal Savings System offered financially secure but low-interest savings accounts for small depositors. Many other countries, starting with Britain in 1861, have had postal banks, often quite large: Japan’s Post Bank was the world’s biggest savings bank in 2006.

A new postal banking system could be a fully public institution or an alliance with other parts of the banking system, such as community banks or credit unions. But in the end, “there’s this public option if [people] want to put their money where their mouth is,” says Dimondstein.

A postal bank is an example of the “Grand Alliance” between postal unions and the public that Dimondstein sees as essential for saving the postal service from dismantling. For this political strategy to succeed, the postal bank will have to provide its customers with a low-cost alternative to the predators, not just a means of making more money for the postal service.

The USPS should be able to dramatically reduce charges for services like check cashing, money transfer and bill paying, while still earning enough to make the postal service more financially sound. As the postal service already has a huge infrastructure and workforce, it would require relatively little startup capital and could quickly operate on a very large scale, opening up potential efficiencies.

The coalition for a U.S. postal bank is part of a small but growing movement to democratize finance through institutions such as state banks. Postal banking has already won support from consumer financial protection advocate Senator Elizabeth Warren (D-MA). In July 2014, Rep. Cedric L. Richmond (D-LA) introduced a bill that would establish a postal bank, but it died in committee.

Because postal banking has existed previously in the U.S., the APWU believes that new legislation may not be necessary for USPS to offer expanded financial services. Instead, says Dimondstein, “We want the postmaster general and postal management to take this up. Here’s a natural postal solution to their problems.”

But outgoing postmaster general Patrick Donahoe’s strategy has been the polar opposite. He explained in his farewell speech in early January that USPS management wants more flexibility to cut jobs, benefits, services and facilities, and to shift work into Staples stores. The new postmaster general, Megan J. Brennan, comes from his team; she served as chief of postal operations. But the combined pressure of union negotiations and public demand could inspire a new postmaster general to change course.

Dimondstein and the coalition believe the venerable post offices of America can play a new role in stopping the fleecing of a quarter of American families by piratical subprime financiers. And they believe that this old standby could demonstrate how government can fix a serious shortcoming of the private markets and avoid the resulting wreckage to many already hard-pressed American families. The opportunity for more democracy, equality and financial security, especially for the most vulnerable Americans, is huge. The cost of failure could be just as large.

David Moberg is a senior editor at In These Times.

Originally posted at In These Times.

Photo via Wikimedia Commons

An American Banking Revolution Awaits

Vermonters aren’t like the rest of us: They live in a small state with a flinty history and a legendary suspicion of outsiders.

That independent streak gained luster when 15 Vermont towns voted earlier this year to reinforce this independent tradition by approving a proposal to create a state bank.

The Vermont Economic Development Authority would get a license to do what private banks normally do — only with a mandate to serve the public interest no matter what.

This isn’t unprecedented. North Dakota has enjoyed a flourishing state banking system for nearly a century.

Costa Rica set another good precedent. Its public banking dates back to 1949. As of a decade ago, its four state banks held 75 percent or more of all individual deposits.

All this is quite vexing to the World Bank and the International Monetary Fund. As elsewhere, they have muscled Costa Rica to privatize its government-owned businesses. Costa Rica has largely done this, but it won’t let go of its state-owned banks. For some reason, Costa Ricans don’t trust the commercial ones.

No, Americans don’t trust our banks either. But only North Dakota’s state bank remains under public control.

Everywhere else, banking laws have made it very profitable for old-fashioned mutual (non-profit) savings banks, once popular, to sell out their depositors and turn commercial. The executives who accomplish this switch all do very nicely for themselves.

Luckily, credit unions carry on from bygone times as a thorn in the side of the industry, but Wall Street is working hard to extinguish them too. Credit unions depend heavily on their non-profit status to protect them against taxes, so conservative outfits like the Tax Foundation are trying mightily to squash that exemption.

Theoretically, the government is our protector from the avaricious cartel of private banks. Both state and federal laws ostensibly provide us with banking watchdogs which safeguard the honesty and fairness of our saving and borrowing.

That’s really just in theory. Unfortunately, a cynical revolving door regularly sends regulators wheeling into bank jobs and bankers hot-footing it over to regulation. At the same time, lobbyists sap the rectitude of those lawmakers and oversight agencies who you might have thought had our best interests at heart.

Hence, banks feel unrestricted to manipulate credit cards, student loans, mortgages, securitizations, hedge funds, credit default swaps, currency exchanges, and all manner of rigged financial transactions. Our regulators rein them in sometimes, but in many cases not until after the damage is done.

As a result, when mortgages default, neighborhoods collapse, families are ruined, and the economy tanks, the banks go right on — perhaps with their wrists slapped.

One other savings alternative does exist: the Post Office. In years gone by, the U.S. Postal Service doubled as a bank that had lots of branches and no securitized mortgages.

But given the general lack of trust most people have with banks, some lawmakers are looking to bring the Post Office back into banking. That would be a new American Revolution.

OtherWords columnist William A. Collins is a former state representative and a former mayor of Norwalk, Connecticut

Cross-posted from OtherWords

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Financial Crisis Pits Workers Against Republicans In Postal Showdown

Saving the Post Office from financial ruin might seem nearly as hopeless as running for president on the Green Party ticket — but this time Ralph Nader, lifelong consumer advocate and perennial presidential candidate, has the numbers on his side.

While Congress considers closing post offices and drastic cutbacks in mail service because the United States Postal Service appears to be going bankrupt, Nader insists that the real cause of the agency’s distress is fiscal discrimination embodied in a 2006 law requiring the USPS to “prepay” 75 years of health benefits for its workers by 2016. “People were never informed about these huge prepays,” he told The National Memo. “No corporation is ever prepaid like that. No government agency ever prepays like that. The federal government owes the USPS $80 billion. And now we’re on the brink.”

Misconceptions about the Postal Service abound, according to Nader, who notes that the agency been fiscally independent since the old Post Office was reorganized as the U.S. Postal Service more than 40 years ago — and forced to rely solely on stamps and postage for revenues. “It hasn’t taken a dollar in tax money since 1970,” notes Nader. “What private corporation can say that? What Wall Street corporation can say that? What oil company can say that?”

The Postal Service confronts an immediate shortfall of $5.5 billion, which must be contributed to its healthcare fund by September 30 — money that Nader says the USPS would have readily available, were it not for those burdensome prepayment requirements.

What Nader does not mention is that the Postal Service has seen a decline in mail volume over the last two decades, owing mainly to email and other technologies that allow bills to be paid online and messages to be received digitally. And that decline seems likely to accelerate in years to come.

“I believe the postal service has passed a tipping point in terms of falling revenues,” said R. Richard Geddes, associate professor of policy and management at Cornell University and an expert on postal issues. “That’s because of the increasing use of and comfort with electronic document delivery over the Internet. The Postal Service’s mail volume has dropped almost 25 percent since its peak in 2006. That’s an enormous decline in mail volume we haven’t seen since the Great Depression. I believe we’re in a period of fundamental structural change, where its mail volume and revenues are going to continue to decline.”

In fact, the 2006 law was meant to shore up financing by relieving the USPS of some pension liabilities while providing for a smaller annual contribution toward eventual retirees’ health benefits. But the recession that quickly followed led to a massive drop in postal revenue.

So the Postal Service has structural problems — a declining revenue stream as fewer use regular mail and especially first-class postage — and competitors springing up left and right that face fewer restrictions on their ability to innovate as private corporations. But the immediate crisis is indeed a result of the 2006 Postal Accountability and Enhancement Act and its unprecedented financial requirements, which postal union leaders believe were designed to conceal massive federal deficits of the Bush years.

“The federal government has used the USPS as a means of hiding its deficit by implementing the 2006 law to prefund,” said Sally Davidow, spokeswoman for the American Postal Workers Union. “The whole purpose is to make the federal deficit look smaller,” she said, by transferring revenue into federal coffers from an independent agency.

By removing the burdensome prepayment requirement, Congress could lift the USPS out of its immediate fiscal hole, and prevent the regressive pain that might be inflicted as a consequence. Some Americans depend on the USPS far more than others, as Nader also points out. Ending Saturday delivery and closing regional offices, for instance,”hurts rural people, hurts the poor, hurts the elderly who aren’t Internet-connected,” he said.

As the second largest civilian employer in the country, moreover, the Postal Service is “the main source of decent middle class wages with security for minorities,” said Nader.

Yet to critics, the Postal Service appears to be an antiquated institution operating in a radically new media landscape — and one that hasn’t always changed with the times, for worse and in some ways for better. “The USPS has a universal service obligation, has to serve everybody. That’s part of the deal,” said the APWU’s Davidow. “They have to deliver to rural areas, poor areas where people don’t have other communication. UPS and FedEx aren’t required to go to sparsely populated areas.”

The Obama administration reportedly will seek additional time beyond Sept. 30 for the USPS to make its $5.5 billion annual payment for future beneficiaries. But Rep. Darrell Issa, the California Republican Chairman of the Oversight Committee in the House, wants legislation to renegotiate collective bargaining agreements in order to remove worker protections and make way for some 200,000 layoffs and additional office closures — which Postmaster General Patrick Donahue has said will be necessary for the USPS to remain viable.

“I firmly believe a big part of what’s going on here is that this is part of the assault on public workers,” Davidow said, referring to collective bargaining restrictions legislated in several states since the Republican sweep in the 2010 midterm election. “And there are people who would like to privatize the Postal Service. The potential for profits is in certain specific areas where there’s a high population concentration and high volume.”

To resist the proposed layoffs, postal workers rallied nationwide at regional Congressional offices on Tuesday. But this may only be the beginning of a long and bitter battle between Congressional Republicans and one of the largest forces of unionized workers in the United States.