USPS Inspector General’s Foray Earns Ire of Top House Fiscal Watch Dog | Citizens Against Government Waste

USPS Inspector General’s Foray Earns Ire of Top House Fiscal Watch Dog

The WasteWatcher

“Mr. Williams, I was madder than hell at your proposal. I think the idea that you’re trying to be the chief innovation officer and promoting banking within the [Inspector General’s] office is reprehensible.  I am shocked than an Inspector General would go from the waste, fraud, and abuse and inefficiency to promoting a specific agenda, and I’m disappointed.” 

So said House Oversight and Government Reform Committee Chairman Darryl Issa (R-Calif.) during a May 22, 2014 hearing entitled “Examining Innovative Postal Products for the 21st Century.”  It was the opening salvo in a lengthier diatribe related to the appropriate role of the U.S. Postal Service’s Office of Inspector General (OIG). 

The report that provoked Chairman Issa’s remarks was a white paper, released on January 27, 2014, entitled “Providing Non-Bank Financial Services for the Underserved,” in which the USPS OIG advocated allowing the USPS to enter into banking and financial services as a new revenue-generating venture.  IG David Williams’ publication stated, “Postal financial services may appeal to many customers who feel abandoned by major financial institutions.  Postal organizations have an unmatched ability to reach consumers from diverse backgrounds.  Many international posts are already garnering significant new revenue and keeping citizens connected by offering financial services.  Financial services have been the single best new opportunity for posts to earn additional revenue.  For the Postal Service, this might ultimately translate into $8.9 billion per year.”

The idea of allowing the USPS to encroach upon private sector businesses to offer a variety of already available commercial services has been a fixture in the postal reform arena for decades.  With the rapid worsening of the USPS’s financial crisis, the dream of finding a magic bullet to solve all of its problems has taken on more urgency.  Aside from the irony of having the OIG, which is charged with rooting out waste, fraud, and abuse divert scarce resources to produce a self-indulgent 28-page wish list, there are (at least) three other issues at play: advisability, legality, and viability. 

Based upon the contents of the report, the OIG appears to believe that USPS officials are free to embark on these new entrepreneurial adventures unilaterally, without a change in law or a green light from the agency’s oversight body, the Postal Regulatory Commission (PRC). 

In fact, current postal law expressly forbids the USPS from pursuing non-postal lines of business without the PRC’s permission.  The USPS is a government-owned corporation with a raft of special privileges and benefits unavailable to the private sector.  Although the USPS is currently offering 12 non-postal services, such as passport photos and advertising to help defray the costs associated with change-of-address processing, all of those activities were grandfathered in by the PRC in 2006 after the passage of the Postal Accountability and Enhancement Act.  The white paper does not address the issue of where the USPS would derive the legal authority to dive into financial services, but there is little doubt that a statutory change would be required. 

If past is prologue, the USPS’s track record with non-postal products indicates that the agency loses money.  A 1998 Government Accountability Office (GAO) report found that only one of the 19 new products or services that USPS introduced during fiscal years (FY) 1995, 1996, and 1997 made a profit.  Overall, the USPS lost $84.7 million during that time on a collection of products.

According to the USPS, liabilities exceed assets by $42 billion, and it posted a FY 2014 second quarter net loss of $1.9 billion, the 20th of the last 22 quarters marked by such deficits.  Putting aside the irony of having an organization that is in such dire financial shape blithely suggest that it should hang out a financial services shingle, the OIG’s report demonstrates an almost juvenile grasp of the digital-age sophistication and technical exigencies of today’s financial services sector.     

The OIG’s white paper claims that the USPS has “extensive experience in the financial services market through current and past products” and that it has developed sophisticated “essential institutional experience with financial transactions.”  As proof of the thesis, it goes on for three paragraphs preening over its success in selling domestic and international money orders, which are so pervasive that they are currently sold at thousands of retail outlets, such a CVS, for minimal cost.  The paper then reaches back into USPS history to tout its Postal Savings System, which existed between 1911 and 1967, and “hit its peak in 1947 with nearly $3.4 billion in savings deposits from more than 4 million customers using more than 8,100 postal units.”  

A clue to the USPS’s true objective in the white paper becomes more discernible when the paper reaches the section dealing with credit services for the “unbanked.”  Instead of fixating on its core mission and focusing on the target-rich environment of opportunities to upgrade and improve service and products within its monopoly purview, first class mail, the USPS has begun to see itself as a savior of the “unbanked” and those with damaged credit, and as an alternative to short-term lenders. 

The IG argued, “However, the underserved (and especially the unbanked) often cannot get credit cards because they have bad or nonexistent credit histories, which make them a high credit risk under typical underwriting models.  Without access to traditional credit, the underserved often turn to alternative lenders, which charge high interest rates, fees, or both in part to compensate for the riskiness of their borrowers, who are more likely to default on their loans.  Generally, payday lenders require borrowers to have a checking account.  This leaves the unbanked with even fewer options for credit, forcing them to go to pawnshops or even loan sharks.  In this landscape with scant affordable lending options for the underserved, the Postal Service has a tremendous opportunity to offer small loans that could save borrowers a lot of money — billions of dollars when aggregated across all potential users — which they could spend on more productive things like rent, groceries, utilities, and mortgage and student loan payments.”

The strategic goal of the USPS OIG white paper became more obvious when Sen. Elizabeth Warren (D-Mass) went public with an explicit endorsement of the USPS’s plan within five days of its release.  In a February 1,  2014 Huffington Post op-ed, Sen. Warren mused that “[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.” 

Of course, Sen. Warren included a brief nod to the reality of the USPS’s fiscal situation by admitting that “The Postal Service is huge -- employing more than a half million people -- and its history is long and complicated.” 

Complicated, yes indeed.  Calamitous would be more accurate.  (Sen. Warren’s support for the plan earned her Citizens Against Government Waste’s February 2014 Porker of the Month.)  

The USPS commissioned a study by a private sector consulting firm in 2010 which thoroughly evaluated the issue of USPS diversification and came to a different conclusion. 

The Accenture report, entitled “Is Diversification the Answer to Mail Woes?  The Experience of International Posts” found that foreign postal services that successfully diversified got their fiscal houses in order, delinked from their governments, and enacted “profound alterations” to their business models well before they initiated new lines of business.      

According to the analysis, foreign postal services which eventually added financial services to their portfolios started by rightsizing their operations and regaining control of their finances.  The “[l]imited diversification and high exposure to declining mail volumes put the U.S. Postal Service in a very unfavorable position relative to other posts....  Diversifying the U.S. Postal Service will be challenging; in particular due to the lack of mail profitability, high labor costs and limited cash or access to cash in support of an acquisition and/or an investment strategy.”

The development of the USPS OIG’s white paper appears more and more likely to have been driven by politics rather than any serious attempt to shore up the USPS’s bottom line.  The OIG would be better off using its current ratepayers’ dollars to hew to its core mission to root out the ample waste, fraud, and abuse in today’s USPS, and help forestall an increasingly likely collapse and bailout, which would be paid for by taxpayers.


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