The Loophole in Postal Banking

Is it permissible for the United States Postal Service to offer 'postal banking'?

The Postal Service’s pilot postal banking program is struggling to win customers. Yet, USPS officials “expect to expand the pilot into a fuller study with more locations and financial products” after the new year. This announcement has members in both the Senate and House of Representatives questioning the Postal Service’s authority to launch the program in the first place.

The Pilot Postal Banking Program

Before delving into how the Postal Service could be explaining its decision to begin the pilot program, it's important to understand what's going on. The test program is limited to four sites in four cities, and it provides a fairly convoluted method of check cashing. Customers can exchange a company or payroll check up to $500 for a single use gift card for a fixed cost of $5.95 instead of receiving cash.

This design may look unusual, yet it was meticulously picked. The Postal Service is "selling gift cards" instead of "cashing cheques."

Relying on Precedent

The subtle distinction between cashing a check and selling a gift card goes back to a 2015 report by the U.S. Postal Service Office of Inspector General (OIG) in which the OIG argued that while the Postal Service would need congressional authority to offer most financial services, there were a few options that could be offered under the existing legal authority. In fact, the Postal Service had already used its existing authority to expand its offerings in 2014. And it was that 2014 expansion that laid much of the groundwork for today’s pilot postal banking program.

To be clear, the Postal Service has the authority to experiment with new products. However, there are a few conditions that must first be fulfilled, according to the Postal Accountability and Enhancement Act of 2006. Chief among them, a new product cannot be significantly different from existing products offered by the Postal Service. When the Postal Regulatory Commission (PRC) officially approved the Postal Service’s expansion into the sale of gift cards in 2014, it argued that gift cards were not significantly different from existing products because,

Like money orders, gift cards may convey money, either as cash, as payment, or as a gift, and may be redeemed at locations where the card is accepted at other than postal facilities. Like money orders, they are not reloadable. Gift cards may often be transmitted in greeting cards. Moreover, the availability of gift cards in postal facilities increases customer convenience, stimulates demand for postal services, and enhances the use of the mail.

With that justification in mind, it becomes clear why the pilot postal banking program was designed so carefully. The authority to launch the pilot program comes directly from the earlier precedent of expanding from money orders to gift cards.

The features of the pilot program are almost exactly what was described in the PRC’s 2014 approval for the sale of gift cards. The $5.95 fee one pays for the check cashing service is identical to what is paid for buying a gift card directly with cash. The $500 maximum for accepted checks is the same daily maximum for buying gift cards directly. And the gift cards received in either case cannot be reloaded because that would diverge too far from the characteristics of a money order.

Conclusion

Senators and representatives in the House of Representatives are correct in questioning the Postal Service's power. It's interesting to see how the Postal Service justifies its power for a program that doesn't appear on USPS.com or even the Federal Register. All indications imply, however, that the scheme is based on the Postal Service's current capacity to offer gift cards, which was approved as an expansion of its money order services. If this is the case, Congress should look into it, and if it is, Congress should review the discretion given to the Postal Service in defining new products and services. As a result, Congress should ensure that the Postal Service does not try to reinvent itself again in a few years without greater checks and balances.

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