Postal Service Wants to Offer Payday Loans

Charging 28 Percent Interest, Instead of 391 Percent

German Postal Service, Deutsche Post, Has Long Offered Banking Services in Postbanks. Sean Gallup/Getty Images

Even though it loses massive quantities of it every year, the U.S. Postal Service (USPS) wants to loan you money.

Short-term “payday” loans are just one of the financial services the USPS has proposed offering though Post Offices in order to serve the scores of American “unbanked” individuals and families, while protecting them from predatory payday lenders and, of course, bettering its own dismal financial status.

According to a report from the USPS’ inspector general, one in four U.S. households lives at least partially outside the financial mainstream -- without bank accounts or using costly services like payday lenders – and spends an average of $2,412 each year just on interest and fees for such alternative financial services.

“Many of the 34 million financially underserved households — representing 68 million adults — are treading water very close to the economic edge,” wrote the inspector general. “Unexpected expenses can push them over the brink into homelessness or bankruptcy, which come with broad social and economic costs.”

The inspector general estimates the USPS could bring in almost $9 billion a year by capturing just 10% of the $89 billion spent on alternative financial services in the U.S. every year.

“Postal financial services may appeal to many customers who feel abandoned by major financial institutions,” states the report. “Postal organizations have an unmatched ability to reach consumers from diverse backgrounds.”

As the report notes, many international postal services are already garnering significant new revenue by offering financial services.

Of course, the USPS also hopes to make money by charging interest on these short-term loans, but at a far lower rate than those charged by traditional payday lenders.

USPS Brand Payday Loan vs. Traditional Payday Loans

The USPS inspector general suggests the Postal Service could offer short-term – payday – loans with interest rates of 28%, compared to the average interest rate of 391% charged by traditional payday lenders.

For example, a person borrowing $375 from a traditional payday lender would end up having to pay back a total of about $896, including $521 in interest and fees. The same $375 borrowed from the USPS would end up costing only $423, including $48 in interest and fees.

“That single loan from the Postal Service could effectively put $472 back into a consumer’s pocket, which he or she could then use on more economically productive expenses,” stated the report. “If even one-tenth of the 12 million Americans who take out a payday loan each year got this hypothetical Postal Loan instead, they could collectively save more than half a billion dollars a year in fees and interest.”

In addition, says the inspector general, short-term Postal Service loans would allow the estimated 10 million unbanked U.S. households which cannot afford high-interest rate payday loans to borrow the money they need.

“There is a wide range of consumers who need access to small-dollar credit, and the Postal Loan could strongly appeal to these different types of borrowers,” noted the inspector general. “For example, people whose income varies throughout the year, consumers with no other avenues to credit, families with unexpected expenses, and others.”

Finally, contends the report, affordable Postal Service loans would help people break the “cycle of debt,” that forces them to borrow more money to make payments on existing loans. According to a 2104 report from the Consumer Financial Protection Bureau, more than 80% of payday loans are either extended or followed by another loan less than two weeks later.

While the “average” interest rate for traditional payday loans may be 391%, the Consumer Federation of America (CFA) has warned consumers of online payday lenders charging interest rates of 650%

USPS Vows Not to Compete with Banks

If you own a bank, don’t worry. The inspector general makes it perfectly clear that the USPS has no intention of becoming a bank or even competing with banks.

Instead, says his report, in offering small short-term loans and other financial services, the Postal Service would “greatly complement” the services offered by banks.

Correctly noting that banks are closing branches in inner city low-income and rural areas nationwide, the inspector general says the USPS would help banks “fill the gaps in their efforts to reach the underserved.”

And remember, “The Postal Service also is among the most trusted companies in America, and trust is a critical element for implementing financial services,” he added.

Also See: Postal Services Wants to Deliver Groceries