The U.S. Postal Service is in a position to earn billions of dollars a year by entering the payday-loan business, but former banking lobbyist Mickey Barnett could block its path.
Barnett now chairs the USPS Board of Governors. He previously represented the interests of payday lenders, the very folks who stand to lose out if the Postal Service grabs a share of the small-loan market.
By venturing into the loan business, the Postal Service could experience an influx of new revenue after eight straight years of multibillion-dollar losses. Would Barnett support such a move, or would he oppose it because of his old ties to the banking industry?
Either way, the Leadership Conference on Human and Civil Rights sees a potential conflict of interest. The group issued a letter to all members of the Senate this week urging the lawmakers not to confirm Barnett for another term until he thoroughly explains his positions on payday lending.
“As a past lobbyist for the payday-lending industry, Mr. Barnett has demonstrated a willingness to ignore the public interest in favor of the pecuniary interests of his clients,” the letter said. “He must give assurances that he would not use his position to promote the practices of the industry he previously represented.”
The Leadership Conference also suggested that the Postal Service would be a more trustworthy source of payday loans, which are cash advances that have to be repaid by the next payday.
The loans are controversial because of their high interest rates and the fact that they often trap low-income individuals in a cycle of debt. A report from the Consumer Financial Protection Bureau this years said more than 80 percent of payday loans are rolled over or followed by another loan within two weeks.
A report this year from the USPS inspector general said the Postal Service could offer interest rates of 28 percent on payday loans, which would be far lower than the triple-digit rates that traditional lenders charge.
Payday lenders tend to set up shop in African-American and Hispanic communities, which is another reason the Leadership Conference has taken such an interest in Barnett’s stance toward the practice. The group sees an opportunity for the Postal Service, which Americans largely trust, to provide cash advances in those communities at lower rates.
Barnett joined the postal board in 2006. The previous year, he opposed efforts by the New Mexico legislature to impose stricter regulations on payday lenders, such as limiting delinquency fees and requiring lenders to forgive loans once a customer has paid twice the amount that was borrowed.
Working as an attorney, Barnett argued in one case that borrowers must settle disputes with lenders through arbitration rather than through the courts, and that no such restrictions should apply to lenders. The New Mexico Supreme Court unanimously rejected that position as “substantively unconscionable and therefore unenforceable.”
The Postal Service has long provided financial services, including money orders and international money transfers. It also offered savings accounts until 1967.
Researchers have estimated that the agency could bring in nearly $9 billion annually by capturing 10 percent of the market from Americans on the fringes of the banking system, according to the inspector general’s report.
But industry groups such as the American Bankers Association have pushed back against further USPS forays into the financial-services, arguing that the agency could have unfair advantages — theoretically through fewer regulations and the perception of being government-endorsed.
Any major policy changes for the Postal Service require congressional approval, so the agency’s board of governors could not act alone on the payday-loan matter. But Barnett would still play a deciding role if the Senate confirms him for another term.
The USPS has not provided a statement from Barnett or a reaction to the Leadership Conference’s concerns, despite several requests from the Federal Eye on Wednesday.