FDIC to Banks: You Need to Do More for the Unbanked

Last Week the FDIC Advisory Committee on Economic Inclusion met to discuss the FDIC’s recent survey of banks on their efforts to reach out to the unbanked and underbanked. The first of its kind national survey was mailed to a random sample of 1,300 FDIC-insured banks and thrifts, with responses from a little over half of them. 16 case studies were also completed to highlight innovative efforts by some banks to serve the unbanked. A presentation was given at the meeting to provide an overview of the survey results, the highlights of which are below.

• The majority of banks surveyed were aware that there are unbanked and underbanked individuals in their service areas. However, less than 18 percent of them identified recruiting these groups of potential customers as a priority.
• 63 percent of banks offer basic financial education materials, but far fewer of them provide more effective forms of outreach and education.
• The top three challenges cited by banks to serving this market were “profitability,” “regulatory barriers” and “fraud concerns.”
• 62 percent of banks offer basic checking accounts that do not require a minimum balance. Approximately half of banks offer check cashing and fewer offer other services popular among the unbanked such as money orders, bill payment, prepaid cards and check cashing kiosks.
• Some requirements for opening bank accounts can prevent unbanked individuals from utilizing mainstream banking services. 87 percent of banks require a credit check such as ChexSystems in order to open an account, which impacts unbanked individuals with poor credit histories. The vast majority of banks also require either a driver’s license or passport.

The study recommends setting a goal for lowering the number of unbanked and underbanked individuals in the U.S along with the creation of a national taskforce to oversee this process. In addition, several other interesting recommendations were discussed during the meeting such as the improvement and expansion of the FDIC’s Small-Dollar Loan Pilot Program. Another recommendation was to further explore the development of a safe and affordable electronic bank account (similar to a prepaid or debit card) that cannot be overdrawn. There are several products similar to this that are currently being piloted at various sites throughout the country. This concept is also very similar to New America’s SAFE-T Account proposal. In addition, it was recommended that the role of credit check screening systems, such as ChexSystems, as a barrier to opening up basic savings accounts be examined and policy solutions developed.

The FDIC is also currently conducting a national survey of 50,000 households in order to develop an accurate estimate of the number of unbanked and underbanked households in the U.S. The survey will help researchers and banks better understand the reasons why these populations are not using banks and their services. It is part of a supplement to the Census' Current Population Survey and is expected to be released later this year.