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No Obamaloans at the Post Office!

While Sen. Elizabeth Warren may proudly brand herself a populist, in her latest crusade, she is casting her lot with fat cats. Warren wants to bestow banking privileges upon the United States Postal Service (USPS), an organization with executives living high on the hog even as, by Warren’s own admission, its “financial footing” is in doubt. The USPS pleaded poverty last month as it raised the price of a first-class stamp from 46 to 49 cents and promised that more rate increases are on the way. Yet in 2012, it managed to pay Postmaster General Patrick Donahoe $512,000 in total compensation, according to page 67 of the annual report filed by the Postal Regulatory Commission. And in 2008, then-Postmaster General John E. Potter received more than $800,000 in total compensation and retirement benefits. As The Washington Times noted, “that is more than double the salary for President Obama." Dozens of other USPS executives also rank among the vaunted “one percent.” According to the Federal Times, “As the U.S. Postal Service was careening toward a record $8.5 billion loss in 2010, it was paying more than three dozen top executives and officers salaries and bonuses exceeding that of Cabinet secretaries.” In fact, in 2012, Rep. Kathy Hochul, D-N.Y., and other House Democrats sponsored legislation to limit USPS executive salaries to those of cabinet secretaries under the president. The USPS and its defenders respond that this compensation isn’t as high as that of executives at competitors Federal Express and United Parcel Service, and Warren might argue that it’s not as high as the that of the CEOs of the nation’s biggest banks. But it’s certainly higher than the average compensation of the top folks at community banks and credit unions, as well as other lenders that will be hurt if the USPS expands into banking. And it is certainly more that that made by the average taxpayer, who will almost certainly be even further on the hook for the USPS’s woes. In the Huffington Post, Warren opines, "If the Postal Service offered basic banking services -- nothing fancy, just basic bill paying, check cashing and small dollar loans -- then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing." Warren puts much faith in a report that from the USPS Inspector General estimating the USPS could garner $8.9 billion in annual revenues (but not necessarily profits, an important distinction as we shall see!) from such banking ventures and maintains that "The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector." Yet financial services for low-income Americans are already being met by many entrepreneurs in the private sector, and to the extent they are not, it is mostly because of the regulatory burdens from Dodd-Frank and extra-constitutional crackdown on financial product providers such as Operation Chokepoint. The new postal plan is the latest chapter in what my Competitive Enterprise Institute colleague Iain Murray has dubbed "Obamaloans" -- a scheme that envisions "the regulatory nationalization of the U.S. financial system ... from top to bottom." At National Review Online, Murray writes that after "waging subtle war on the small financial businesses" that serve low-income consumers, the Obama administration is "subtly building an infrastructure to allow the federal government to lend money to the poor through a network of intermediaries, financed by taxpayers rather than investors." Only now with the postal putsch, it's not so subtle anymore. The Treasury Department is still funding quietly community development financial institutions to provide small loans, as Murray documents, but Obamaloan advocates are now pounding the table with the "public option" of the post office. And some don't even bother hiding the fact that they view the postal plan not as an additional option, but a takeover. Collectivist financial writer David Dayen expresses his desire in the New Republic that postal banking will "help drive out of business some of the most crooked companies in America." Dayen doesn't specify which of the USPS's potential competitors he believes are "crooked" or spell out the evidence against them, but Dodd-Frank and regulatory actions have certainly driven many community banks, credit unions, and other legitimate financial service providers out out the business of serving low-income consumers. Dodd-Frank's Durbin Amendment, which places strict price controls on what banks and credits unions may charge retailers to process debit card fees (greatly benefiting the nation's wealthiest retail chains such as Wal-Mart and Home Depot), has resulted in a dramatic reduction in free checking for low-balance accounts. As a result, notes George Mason University law professor (and CEI board member) Todd Zywicki, the Durbin Amendment is partly responsible for the increase of 1 million unbanked consumers from 2009 to 2011. Because of Dodd-Frank and Durbin and because of bad economic times in general, many folks have gravitated to "alternative" financial service providers such as pawn shops and payday lenders. The growing popularity of pawn-shop based reality television series such as "Pawn Stars" and "Hardcore Pawn" has also helped boost the trust in pawn shops by showing that the terms of both loans and sales are justified by the risks these entrepreneurs take. And indeed, a closer look at the much-distorted interest charges of payday and other small-dollar lenders shows that these are also justified by risk and often the best alternative of the available options. In the bizarre regulatory world of "annual percentage rates" (APRs), a payday lender's $15 charge on a two-week $100 loan suddenly becomes an APR of 390 percent. As the great economist Thomas Sowell has written, "Using this kind of reasoning — or lack of reasoning — you could quote the price of salmon as $15,000 a ton or say a hotel room rents for $36,000 a year, when no consumer buys a ton of salmon and few people stay in a hotel room all year." Moreover, as I note in the CEI OnPoint "The 400 Percent Loan, the $36,000 Hotel Room, and the Unicorn," even if we were to concede the APR as a valid measurement, alternatives such as bounced check fees can be equivalent to a 4000 percent APR. And this gets us back to the "fuzzy math" of the UPS Inspector General's report. The report postulates that USPS could provide loans at a 28 percent APR. Yet that comes to a profit of $1.08 per pay period of the borrower's loans. The report carefully says the USPS could reap $8.9 billion in "revenues," but carefully sidesteps the question of whether the USPS could actually turn a profit with these loans or even cover costs, even if it were the only loan game in town. One thing the report does propose should give special pause to those willing to give this power to the "friendly neighborhood post office." It says to help minimize losses, the USPS could grab tax refunds as "collateral." This is of course something no payday lender or pawn shop can do. It's a power reserved only for government agencies "here to help you."