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FDIC Advisory Committee on Economic Inclusion (ComE-IN)
FDIC Advisory Committee on Economic Inclusion (ComE-IN)
ADOPTED APRIL 1, 2010
FDIC ADVISORY COMMITTEE ON ECONOMIC INCLUSION
Upon the approval of the FDIC’s Board of Directors, the Chairman established the FDIC Advisory Committee on Economic Inclusion (“ComE-IN” or the Committee”) in 2006 and extended its two-year charter in 2008. The purpose of the Committee is to provide advice and recommendations to the FDIC regarding expanding access to banking services by underserved populations. This Strategic Plan describes program areas in which the Committee can focus its work, particularly related to safety and affordability for consumers and feasibility for banks.
BACKGROUND INFORMATION REGARDING UNBANKED AND UNDERBANKED
For purposes of this Strategic Plan, “underserved” refers to households that are either “unbanked” or “underbanked.” According to the FDIC Survey of Unbanked and Underbanked Households (“Household Survey”), “unbanked” means that no one in the household has a checking or savings account. “Underbanked” is defined as those households that have a checking or savings account, but rely on non-bank, alternative financial services and providers, such as money orders, check cashing services, payday loans, rent-to-own agreements, pawn shops, or refund anticipation loans.
At least 25.6 percent of U.S. households, close to 30 million households with 60 million adults residing in them, are underserved.
On the surface, it would appear that banks have a strong incentive for pursuing underserved consumers, given the sheer size of the alternative financial services industry. The annual dollar volume of alternative financial service provider transactions is estimated at more than $320 billion. However, according to the FDIC Survey of Banks’ Efforts to Serve the Unbanked and Underbanked (“Bank Survey”), while 73 percent of banks are aware of significant underserved populations in their market area, less than 18 percent identify expanding services to these consumers as a priority in their business strategy. Common reasons banks provided in the Bank Survey for not pursuing these customers include profitability issues, regulatory barriers, and fraud concerns. The following are some specific findings of the Bank Survey regarding the extent to which banks provide services targeted to underserved consumers:
From a consumer perspective, having access to appropriate mainstream financial institution services confers two primary benefits. First, banks provide a safe place for consumer savings. Basic, FDIC-insured savings accounts, with low or no minimum balances and fees, are easy to understand and use, provide a safe way to earn at least a modicum of return, and, unlike more sophisticated investment options, are accessible to consumers regardless of income level.
Additionally, mainstream financial institution services are often less costly than alternative financial services. For example, the Brookings Institution estimated that an employed consumer could save as much as $40,000 over his or her career by relying on a lower-cost checking account instead of check cashing services. In another example, the FDIC’s Small-Dollar Loan Pilot Program has demonstrated that banks can feasibly offer affordable small dollar loan products as an alternative to high-cost credit products, like payday loans and fee-based overdraft protection. Banks operating under the pilot offer small-dollar credit products below a 36 percent annual percentage rate (APR) versus the 400 percent APR or higher typically charged by payday lenders.
However, not all bank products and services are beneficial to consumers from a cost perspective. For example, a consumer who is unfamiliar with or unable to manage a traditional checking account could potentially incur costly and unforeseen overdraft fees for misuse of the account. There are also costs and other feasibility issues associated with banks providing products and services to underserved consumers, particularly for low-balance accounts and products.
The Committee provides advice and recommendations to the FDIC on initiatives to expand access to banking services by underserved populations. Initiatives are concentrated in, but are not limited to, the following program areas:
The ComE-IN’s vision is to support research, demonstration projects and pilots, and sound supervisory and public policies intended to improve appropriate engagement with mainstream financial institutions through its advice and recommendations. “Appropriate engagement” means that households are using financial products and services that are affordable, easy to understand, and not subject to unfair or unforeseen fees.
The Committee believes there are certain program areas in which the Committee can focus its work as set forth in this Strategic Plan in order to facilitate progress on improving appropriate engagement with mainstream financial institutions. The Committee recognizes that specific measures of improvement it may recommend to the FDIC in appropriate engagement are national goals that would require participation and cooperation of multiple stakeholders, including the FDIC, other government agencies, Federal, state and local policymakers, the financial services industry, nonprofit and philanthropic groups, consumer groups and consumers.
The Committee’s objectives for study and possible recommendations to the FDIC are in two relatively straightforward and complementary areas. The Committee hopes to accomplish these objectives through the initiatives as set forth in this Strategic Plan.
1) Lowering the Level Of Underserved Households: The Committee’s efforts could prioritize economic inclusion activities towards certain racial and ethnic households that are most likely to be underserved, and on lower-income households that are most likely to be unbanked. Accordingly, achievement of this objective could also be monitored in terms of reductions in the levels of underserved households among those groups. Assessment of achievement of this goal could also be measured in terms of appropriate engagement with the financial mainstream, ensuring that households are using financial products and services that are affordable, easy to understand, and not subject to unfair or unforeseen fees.
2) Increasing the Supply of Financial Products and Services Targeted to Underserved Households: The Committee’s efforts could focus on encouraging the supply of appropriate bank products and services that are specifically tailored to the needs of underserved households. Achievement of this objective could be tied to the completion of the initiatives in the five program areas and could be monitored in terms of increases in the percentages of banks offering products and services targeted to underserved households in as many categories as possible. Assessment of this objective could be made in the context of prices charged by banks for such services and demonstration that prices are competitive with those charged by alternative service providers and do not involve opaque, unfair, or otherwise inappropriate fees or other charges.
Ongoing progress on these objectives could be tracked through the ongoing
Household and Bank
PROGRAM AREA INITIATIVES
To achieve its objectives, the Committee believes there are certain program areas in which the Committee can focus its work. The following descriptions of program area initiatives delineate programmatic goals and estimated completion dates for each initiative. As initiatives progress, they may change and new or revised initiatives may be considered.
Transactional Accounts: Identify safe, affordable, and innovative transactional accounts for low- to moderate-income (LMI) consumers and develop methods of stimulating bank offering of such products. Identify ways to encourage banks to provide products that support saving as well as handle financial transactions.
Savings: Identify ways to provide underserved consumers with safe and convenient ways to save, focusing on the short to medium-term horizon, that are also attractive to and feasible for mainstream financial institutions to offer.
Affordable Credit: Identify ways to stimulate the availability of safe, affordable, responsible credit to underserved consumers that is also feasible and profitable for financial institutions to offer.
Financial Literacy: Examine current financial education delivery and research efforts, and consider recommendations to improve the dissemination of existing financial education resources and strategies.
Incentives: Study ways to encourage banks to lend and invest in LMI communities, and to offer responsible loan and deposit products to LMI and underserved individuals and families by offering stronger CRA incentives and visible demonstrations of support from the FDIC Chairman.
· Consider Chairman’s Award for Outreach to LMI Consumers (Estimated Completion Date: Mid 2011) – The Committee could consider recommending the FDIC create a high profile FDIC Chairman’s award that provides positive publicity for programs that creatively reach out to underserved LMI consumers. The Committee could consider a sufficient number of awards for the development of programs or increase in services where they do not currently exist. For example, individuals at an institution who spearheaded a program could be the recipient of the award. The awards could rest on demonstrated results (such as behavioral change), not just on product offerings or financial education.
Other Stakeholders: The Committee recognizes that the FDIC may not have the ability to directly implement or influence all of the Committee’s recommendations that arise from these initiatives intended to improve appropriate engagement with the financial mainstream. Similarly, there are challenges to measuring whether and to what extent execution of the Committee’s initiatives can be linked to decreasing the national level of underserved households.
 All data regarding unbanked and underbanked households referenced in this Strategic Plan were obtained from the “FDIC National Survey of Unbanked and Underbanked Households,” December 2009. http://www.fdic.gov/householdsurvey/ The data were collected through an FDIC-sponsored Unbanked/Underbanked Supplement to the Current Population Survey conducted by the U.S. Census Bureau in January 2009.
 Christine Bradley, Susan Burhouse, Heather Gratton, and Rae-Ann Miller, “Alternative Financial Services: A Primer,” FDIC Quarterly, Volume 3, Number 1, March 2009. http://www.fdic.gov/bank/analytical/quarterly/2009_vol3_1/AltFinServicesprimer.html
 All data regarding banks offering products and services tailored to the underserved were obtained from the “FDIC Survey of Banks’ Efforts to Serve the Unbanked and Underbanked” February 2009. The data were collected during 2008 from a sample of banks representing the population of banks. http://www.fdic.gov/unbankedsurveys/unbankedstudy/FDICBankSurvey_ExecSummary.pdf
 The extent to which banks offer small dollar loans is uncertain based on the Bank Survey. This was due to widespread apparent misinterpretation of a question by banks regarding offering small dollar loans to include overdraft lines of credit that distorted the results. This question will be clarified in subsequent survey efforts.
 The Matricula Consular is an identification card issued by the government of Mexico through its consulate offices to Mexican nationals residing outside of Mexico regardless of their emigration status. An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service (IRS) to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration. IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs.
 Matt Fellowes and Mia Mabanta, “Banking on Wealth: America’s New Retail Banking Infrastructure and Its Wealth-Building Potential,” A Research Brief for the Metropolitan Policy Program at Brookings, January 2008.
 Susan Burhouse, Rae-Ann Miller, and Aileen Sampson, “The FDIC’s Small-Dollar Loan Pilot Program: A Case Study after One Year,” FDIC Quarterly, Volume 2, Number 2, August 009. http://www.fdic.gov/bank/analytical/quarterly/2009_vol3_2/SmallDollar.pdf
 See “Joint Guidance on Overdraft Protection Programs,” February 2005 for a description of supervisory guidance regarding bank overdraft programs. http://www.fdic.gov/news/news/financial/2005/fil1105.html.
See also “FDIC Study of Bank Overdraft Programs,” November 2008 that sets forth data on the provision of overdraft services by FDIC-supervised banks and the use of those services by consumers. http://www.fdic.gov/bank/analytical/overdraft/FDIC138_ExecutiveSummary_v508.pdf
 For example, the Household Survey reported that 54 percent of black households, 43.3 percent of Hispanic households, and 44.5 percent of American Indian/Alaskan households are unbanked or underbanked. In addition, 46 percent of households with less than $15,000 annual income and 25 percent of households with annual income between $15,000 and $30,000 are unbanked.
 The Household Survey and the Bank Survey are expected to be re-administered in 2011.
 The 2005 “Joint Guidance on Overdraft Protection Programs,” supra, footnote 8, already provides encouragement for banks to offer alternatives to fee-based overdraft protection. The Guidance suggests “monitoring excessive consumer usage, which may indicate a need for alternative credit arrangements or other services, and inform consumers of these available options.” These options could include small-dollar credit products.
 “Report of FDIC’s Advisory Committee on Economic Inclusion’s February 15, 2009 Meeting,” October 8, 2009, which describes issues and challenges related to increasing access to the financial mainstream. http://www.fdic.gov/about/comein/committeereport2009.pdf
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