At bottom, though, the problem with postal banking is a certain inherent tension between its policy objectives: Is the primary purpose to help low-income people, or is it to help the postal service make more money to offset the irreversible decline of its bread-and-butter business, first-class mail?
Supporters say “both,” which simply shows that they learned nothing from the last great federally backed effort to make money by cheapening credit for the masses, Fannie Mae.
Payday lenders don’t charge high fees and interest, or encourage revolving credit, because they’re evil — or because they face burdensome overhead costs that a postal bank would not, as is sometimes claimed. They do it because unsecured lending to borrowers who have no assets and little earnings is a highly risky business, and they have to compensate for those risks.
Indirect proof of this comes from a two-year FDIC pilot project, begun in February 2008, to test whether banks could offer lower-cost small-dollar loans as an alternative to payday-lending establishments. A report by Bretton Woods, a consulting firm, summarized the results: “It is clear that, on a stand-alone basis, these loans were not profitable to originate, underwrite and process.”
These same costs and risks, more or less, would face the Postal Service, too. If it couldn’t charge small-dollar borrowers enough to offset them, it would have to raise the money from other customers, like bulk mailers, or ordinary first-class letter-writers or, perhaps, taxpayers.