Post Office: Let Us Get Involved in Lending and Debt Collection

A new report from the Office of the Inspector General of the U.S. Postal Service proposes using the Postal Service for a variety of financial services for low-income Americans, including small loans and debt collection. The idea got a high-profile endorsement from Sen. Elizabeth Warren (D-Mass.) Saturday in an op-ed for Huffington Post.

According to the report, approximately 68 million adults – or one in four U.S. households – don’t have a bank account or use services like payday lenders. The average under-served household spends more than two thousand dollars per year on interest and fees. For the debt collection industry, this contributed to $6.7 billion in cancelled debt for 2011 alone. If collectors could avoid just five percent of this cancelled debt, the industry would end up saving $335 million a year in write-offs; this doesn’t even include the millions of dollars potentially saved in collection costs, and legal and administrative fees.

The USPS would go about instituting these changes by offering credit services like small personal loans. First, consumers would be offered a Postal Service prepaid card. Then, “Postal Loans” would be available to people who have their paychecks directly loaded onto that card; consumers could borrow up to half of their gross paycheck. Every borrower would pay at least five percent from their gross pay per paycheck until the loan is paid off; the USPS could automatically withhold payments from the consumer’s paycheck, and then put the difference on the card.

“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,” the report states.

This proposal comes at a time when federal regulators are cracking down on predatory payday lending practices, and the collectors associated with them. In December, the Consumer Financial Protection Bureau took its first action against an online loan provider by filling a lawsuit against CashCall Inc. and affiliated debt collection agency Delbert Services Corporation, under allegations that the companies collected money consumers didn’t owe. The CFPB alleged that some of the loans provided violated interest rate caps; in some states, the consumer’s obligation to pay the debt was nullified. The fact that CashCall and Delbert still tried to collect these debts is a violation of UDAAP (Unfair, Deceptive or Abusive Acts and Practices).

Learn what other common debt collection practices the CFPB finds unfair, deceptive and abusive with To the Point: UDAAP. We compiled the key points from our insideCompliance webinar to help collection agencies prepare for the next steps in UDAAP enforcement. It’s a resource no collector should be without!