Banking and Finance Law Daily Wrap Up, BANKING OPERATIONS—FDIC’s Gruenberg speaks on economic inclusion at CFA conference, (Dec 6, 2013)

By J. Preston Carter, J.D., LL.M.

“Supporting broad economic inclusion of consumers in the financial mainstream is an important priority at the FDIC,” according to Martin J. Gruenberg, Chairman of the Federal Deposit Insurance Corporation, who summarized the agency’s findings from its economic inclusion work at the Consumer Federation of America (CFA) 26th Annual Financial Services Conference in Washington, D.C. “Increasing households’ access to safe, secure and affordable banking services improves their ability to build assets and create wealth, protects them from theft and discriminatory or predatory lending practices, and provides a financial safety net against unforeseen circumstances,” he continued.

Unbanked surveys. Gruenberg stated that, in order to have better data to help guide effective economic inclusion strategies, and in response to a statutory mandate, the FDIC periodically conducts national studies that explore households’ financial behavior and banks’ provision of services to underserved consumers. Although results from the 2013 survey are not yet available, Gruenberg noted that there are four important takeaways from the 2011 survey:

1. The unbanked and underbanked populations are not a homogeneous group. These households have diverse experience, interactions, financial needs, and perceptions about the banking system. Understanding differences among different segments could lead to stronger economic inclusions strategies.

2. Having a bank account at the moment does not guarantee long-term or full engagement in the financial mainstream, the survey revealed. Almost half of the unbanked households in the United States were previously banked. Therefore, Gruenberg said, effective economic inclusion strategies require not only bringing households into the banking system, but also keeping them in the system. The offering of low-cost deposit products with transparent fee structures could play an important role in this effort, he added.

3. Being more fully engaged in the banking system appears to be associated with positive perceptions of bank accounts—previously banked households are considerably more likely to want to open an account in the future and less likely to say that they are unbanked because they “do not need or want an account,” according to the survey.

4. According to Gruenberg, the survey results imply that banks need to more clearly demonstrate to alternative financial services users that there is value and convenience in accessing financial services through a bank.

Model Safe Account pilot. For one year, nine banks piloted transparent, low cost, easy-to-understand accounts, backed by consumer protections and insured by the FDIC. Gruenberg noted that more than 80 percent of transaction accounts and 95 percent of savings accounts opened during the one-year pilot remained open at the project’s conclusion. He said the results of the pilot provided insight into the feasibility of these accounts and were encouraging, suggesting that financial institutions can offer these kinds of sensible accounts to the underserved.

Mobile financial services. Gruenberg said the surveys show convenience to be one of the most important reasons why households use nonbank transaction services, such as check cashers. He pointed to one technology that has emerged that banks might use to enhance convenience for unbanked and underbanked consumers—mobile financial services (MFS). Utilizing mobile phones and tablet-based platforms, MFS have the potential to provide real time account information from virtually any location at any hour, Gruenberg said. They also provide tools consumers can use to act on this information right away, potentially helping consumers better manage their finances and avoid problems such as overdrafts, fraud, and late fees, he added.

Small-dollar lending and savings. Consumers frequently rely on savings and affordable small dollar credit to help address temporary shortfalls in income or to accommodate even predictable, but irregular expenses, Gruenberg stated. Therefore, he suggested, increasing and supporting savings accumulation, especially among low and moderate income households, is an important priority and, he noted, it is “one that the CFA has been a leader in for a long time.” Another way that households can meet irregular or unexpected financial demand is through accessing credit. Gruenberg said the two-year FDIC Small Dollar Loan Template pilot demonstrated that banks can feasibly offer affordable small-dollar loans in a manner that suits their business plans and is fair to consumers, including those who previously were unbanked or underbanked.

Financial education and outreach. Finally, Gruenberg noted that economic inclusion “efforts have been enhanced by engaging financial institutions, community-based organizations, and consumers through financial education and outreach.” The FDIC’s Money Smart Financial Education Program helps consumers, especially low- and moderate-income consumers and entrepreneurs, enhance their financial skills and helps create positive banking relationships, he said. Gruenberg added that the FDIC, along with other members of the Financial Literacy and Education Commission, recognize that starting financial education early has important and, quite likely, long-standing, benefits for younger people.

Companies: Consumer Federation of America

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