The Dumbest Thing Democrats Could Do with the Post Office

"Far too many can't afford to be banked & end up paying MORE in fees to check cashing places.  So ... and I called upon the USPS to provide basic $ services, like cashing, wiring or an ATM w/o fees.  The program also provides revenue for the USPS."

Alexandria Ocasio-Cortez

At first, I thought this was a joke — some recycled Elizabeth Warren humor injected into an otherwise boring and predictable news cycle a few months ago.  But apparently, AOC and other notables like New York senator Kirsten Gillibrand are quite serious about salvaging this absolutely terrible idea from the past.

History lesson first: The Post Office already tried being a bank!  From 1911 to 1966, it operated the U.S. Postal Savings System at every one of its brick-and-mortar locations.  Peaking in popularity in 1947, it had about $3.7 billion in deposits, roughly $45 billion in today's dollars.  In other words, today, it would be the 53rd largest bank by deposits — so not that popular.  Currently, Japan's Mizuho Bank, with only six U.S. locations, holds roughly the same amount of American deposits.

The Postal Savings System — created by a Republican president and eliminated by a Democratic one, by the way — failed for a variety of reasons.  Most believe that the rise and acceptance of federal deposit insurance made commercial banks just as safe as Post Office banking.  But perhaps the real reason was its lack of competitiveness against the free market.  When it was abolished, the Postal Savings System's customer base had decreased markedly from its peak, and that's because while at the time it paid 2 percent on deposits, savers could easily earn more than 3 percent at traditional banks and S&Ls.

With the Post Office projected to lose about $10 billion this year, the idea that by entering the banking business it can grow itself out of losing money is pure fantasy.  Particularly since AOC in her very own words called for the services to be provided without fees and yet also hyped that it would provide revenue for the USPS.  Let that sink in.  Maybe in her twisted economic world, giving something away like financial services that have real tangible costs increases revenue, but...

Today, the financial services market is dramatically different from when President Johnson said "enough is enough," and shuttered the postal banks.  The very idea that having a lot of physical locations provides some type of access and economies of scale doesn't make any sense in our technology-driven world.  If it's sheer physical presence that matters, then why not have McDonald's go into the banking business and throw in Pizza Hut as well?  Between them, they have almost as many locations as the Post Office, and I bet more people can tell you where to get a burger than to buy a stamp — and with more convenient hours!

A recent report on mobile banking shows that over 75% of all bank customers use either their computer or their cell phone for transactions.  Branch banking at brick-and-mortar locations is not dying; it's already dead.  It's foolish to think that having 30,000 buildings is somehow a competitive advantage.  Those locations are more like an albatross for the delivery of financial services.  But the sales pitch for reviving the Post Office Bank is that it would serve the un-banked and under-banked segment of the population.  But why wouldn't the poor and under-banked not just use their cell phone or computer like everyone else?  Recent Pew Research shows that 97% of the U.S. population has a cell phone, and for the other 3%, there's free public computer access available at libraries and schools nationwide. 

"But it's the fees!" the AOC crowd screams back.  Wrong again!  A quick search online reveals dozens of FDIC-insured banks that offer free no-fee checking accounts with no minimum balance requirements and mobile banking access.  "But what about needing cash?" comes the "gotcha" retort.  Simple, why not just use the free checking account's ATM card that came in the mail — delivered by the Post Office!  Plus, isn't this the same crowd that's trying to track financial transactions to stop tax fraud?  Hyping the need for access to cash is sort of counter-intuitive to that argument.

And as far as fees go, the USPS is now trying a limited banking test in four locations.  Surprise!  The Bronx, AOC's Congressional District, is one of them.  There, folks can inconveniently go to the Post Office and swap their payroll check for a prepaid non-reloadable VISA card.  Get this: no ID required, no endorsement required, and that service costs $5.95 — for every paycheck and additional fees for every ATM withdrawal!  So much for tracking financial transactions and saving money.  By comparison, American Express offers a prepaid debit card that costs only $5 to establish.  It's re-loadable, carries no monthly fees, lets users withdraw cash at over 30,000 locations for free, offers free monthly bill pay, and pays a cashback incentive on purchases.  Even beyond the question of how the USPS could offer a competitive product, why would anyone want to stand in line at the Post Office every payday?

Finally, let's have a look at the one remnant of the Postal Savings Bank that the USPS still operates at all locations nationwide: the sale of money orders.  Today you can go into any Post Office and buy a money order up to $500 for only $1.20, or up to $1,000 for $1.60.  That sounds pretty cheap.  But once again, even this maddeningly simple banking task is horribly mismanaged by the USPS.  Walmart, with only about 10 percent of the locations as the Post Office, sells all of its money orders, regardless of amount, for a flat $0.70 each — about half of what the Post Office charges.

Folks, we haven't even touched on the other ludicrous banking proposals floating around Washington for the Post Office.  Like providing small loans — think payday loans — to low-income individuals.  But wait...isn't payday lending bad?  And, looking at the government's past track record in the lending arena, we can all predict how this proposal would turn out.

No, the Post Office should just stick to losing billions of dollars mis-delivering the mail — it's quite good at both of those — and leave high finance to the Walmarts and McDonald'ses of the world.

Kevin Cochrane is an economist that teaches economics and business at Colorado Mesa University.  He previously taught at the University of California and was a senior national banking executive.

Image via Pxhere.

To comment, you can find the MeWe post for this article here.

If you experience technical problems, please write to