NR 2002-32a
April 8, 2002

Remarks by John D. Hawke, Jr., Comptroller of the Currency, Before the Consumer 
Bankers Association, Arlington, Virginia

Financial Literacy: A Key to New Banking Markets

It's a pleasure to join you at your annual Community Reinvestment Act 
conference -- another opportunity for CBA to reaffirm its standing as one of the premier 
banking organizations in this country. A large share of the credit for your success goes to 
Joe Belew, who over the years has led with intelligence, conviction, and style.

One of the most important of your products is your survey of the industry's 
financial literacy efforts.  When it was first released last summer, the survey confirmed 
what many of us already knew: that thousands of Americans have been smarter financial 
consumers -- and more successful participants in the economy -- because they attended 
educational programs developed, financed, and carried out by banks across the country.  

This year's survey reflects an even more impressive variety of bank-sponsored 
programs: credit counseling, small business development, in-school tutoring, foreclosure 
prevention, and more.  Of the banks surveyed -- a group that represented almost 60 percent 
of the industry's total assets -- nearly all said that they contributed to the war on 
financial illiteracy in some way, with more than half serving as primary sponsors of the 
programs in which they participated. 

Clearly, bank-sponsored financial education programs have not only benefited the 
people who have enrolled in them, they've also earned respect and good will for the 
industry. 

Yet when you think about it, the wonder is not that financial institutions have 
been so busy and active in promoting financial literacy, it's that there are still banks 
out there that aren't involved.

There are certainly plenty of reasons for public-spirited bankers to become 
involved in the effort to promote financial literacy. Evidence confirms that people who 
have been through well-designed and well-executed financial education programs are more 
likely to make sound economic choices for themselves and their families.  

They're more likely to own their own homes and to keep them, with all of the 
social and economic advantages that go with homeownership.  They're more likely to 
accumulate assets and less likely to be burdened by excessive debt.  As Treasury Secretary 
Paul H. O'Neill recently said, "Ownership, independence, and access to wealth should not 
be the privilege of a few.  They should be the hope of every American. Financial literacy 
is an essential tool to make that hope a reality." 

Studies also tell us that financial education is an indispensable element of any 
strategy to combat the rise of predatory lending. I don't need to tell you that abusive 
lending has become a serious public policy concern -- and a serious concern for the financial 
services industry.  

Although those who engage in predatory practices are relatively few in number -- 
and only rarely include regulated depository institutions -- they've done real harm to the 
reputation of all financial institutions.  It's therefore very much in the industry's 
interests to assist in efforts to oust the bad actors.  

One of the best ways we've found to do that is through education, with programs 
that focus on the most common victims of predatory lending -- particularly the poor, 
the elderly, and minority groups -- programs that provide information on predatory practices 
and on non-predatory financial options. I was encouraged to see that more than half of the 
respondents in the current CBA survey reported addressing predatory lending issues in their 
financial literacy programs. 

The predatory lending problem illustrates what I think is a point of surpassing 
importance: altruism that's reinforced by self-interest is most likely to produce results.  
And I believe that banks have a strong self-interest in promoting financial literacy.  

High among the reasons why banks serve themselves when they serve others 
through participation in financial literacy efforts are regulatory considerations, and 
particularly CRA considerations. 

We and other financial regulators give CRA credit for financial literacy programs in 
assessing your record of serving the needs of low- and moderate-income individuals.  Banks' 
participation in these programs may receive consideration under the CRA regulations.  

For example, the Interagency Q&As offer a long list of activities that would 
qualify for consideration under the CRA service test.  The list includes such things as: 

- providing technical assistance on financial matters to small businesses;

- providing credit counseling, home buyer and home maintenance counseling, 
financial planning or other financial services education to promote community 
development; and 

- establishing school savings programs and developing or teaching financial 
education curricula for low- and moderate-income individuals. 

Regarding the investment test, the Interagency Q&As note that when financial 
institutions make investments in or grants to non-profit organizations that provide counseling 
for credit, home-ownership, home maintenance, and other financial services education, such 
investments will qualify for CRA consideration.  Clearly, financial literacy activities can 
play a big part in any financial institution's overall CRA strategy.  And we know that some 
of our largest institutions already play such a role. 

But banks should not get involved in the financial literacy crusade merely as a 
matter of public spirit or regulatory obligation.  They should do it because it makes good 
business sense -- because a financially literate public is the natural market for bank 
products and services.  

It's now well known that there's a large pool of unbanked Americans -- people 
who may use the banking system for a casual transaction or two, or maybe not at all.  By 
definition, they don't have a savings or checking account, and they rely on nonbank financial 
providers when they need to cash a check or buy a money order.  According to some estimates, 
this group may constitute up to ten percent of all American households. 

Then there are the underbanked, as I call them  -- millions of people who may 
have a bank account, but who rely to a greater or lesser extent on high-cost, short-term 
credit provided by nonbank lenders, often in the form of payday loans. 

There are significant differences between these two groups.  But they also have a lot in 
common. Both generally pay more than they should have to for financial services in a fully 
competitive market.  Both would benefit from more comprehensive banking relationships.  And 
for both, financial literacy programs may hold the key to getting there. 

Let me emphasize again that for banks, this should be a matter of enlightened 
self-interest. This a lucrative market that we're talking about. Overall, those who serve 
the unbanked and the underbanked do exceedingly well at it. In 2000, Americans cashed 180 
million checks at 11,000 check-cashing outlets, generating fees of $1.5 billion.  And the 
payday loan industry has been booming. Today up to 10,000 outlets nationwide make payday 
loans -- and earn fees that may total as much as $2.2 billion. 

While many will say that fees for these services are unreasonably high, bankers in this 
country can't afford to ignore the number of consumers using these services.  They clearly 
demonstrate a market opportunity. 

Is it realistic to think that bankers can gain a bigger share of this promising 
market? Clearly, it won't be easy. The nonbank providers that currently control the market 
possess a number of advantages -- not the least of which is public acceptance. 

Check cashers and payday lenders have attracted customers for a reason -- or for a host of 
reasons. They keep longer hours than banks. They tend to be more conveniently located.  They 
speak their customers' languages. They don't ask for a lot of intrusive paperwork.  They 
frequently offer more of the retail products and services these customers need than banks 
do -- including money orders, wire transfers, and bill payments, as well as short-term, 
low-denomination loans.

They're set up to work fast -- a fact of paramount importance to many payday 
borrowers, who are usually impatient for their money and won't wait days or weeks for a loan 
to be approved.  In short, they're more user-friendly.  And nonbank providers can often 
claim -- correctly -- that their services cost no more -- and sometimes less -- than the 
same services provided by banks -- that is, when those services are even available at banks.  

Yet banks have some significant competitive advantages that should position 
them to be far greater rivals than they are for these fringe providers. Banks alone have 
access to the payments system.  They alone can hold transaction balances. They alone have 
deposit insurance coverage and access to the discount window.  They alone are eligible to 
accept direct deposits.  And they alone can offer banking services in conjunction with a 
variety of other services. 

Add the many intangible benefits that banking relationships offer-- institutional advice 
and support, opportunities to build formal credit histories, and so on --- and you have a 
powerful set of reasons for banks to go after this business.

Of course, banks have enjoyed these advantages for years. Yet that hasn't 
prevented the estrangement of millions of Americans from the banking system.  So the problem 
becomes one of ensuring that these advantages are understood by -- and made accessible to -- 
the individuals who would benefit from them.

The answer -- or part of it -- lies in something that is relatively new.  I have long 
suggested that technology is an essential component of any viable strategy to extend 
the benefits of banking to the underbanked. I'm pleased to see that this view is beginning 
to take hold both among consumer advocates and among bankers themselves. 

For example, last week a large national bank introduced a no-frills, "checkless" 
account that gives customers unlimited access to their funds through the bank's ATM network 
and eliminates the need to cash payroll checks.  	

This is one of those cases where government has led effectively by example.  
Consider the case of the ETA -- the Electronic Transfer Account -- that was developed by 
the Treasury Department when I was Under Secretary for Domestic Finance.  ETAs are now being 
offered by hundreds of banks around the country -- including the six largest -- and have 
already drawn thousands of previously unbanked Americans into the banking system. More than 
26,000 ETA accounts have been opened since the program began.  To be sure, that's not an 
earth-shaking number.  But it's a good start.

When we developed the ETA model, we had two principal goals in mind. First, it 
was designed to facilitate the transition -- mandated by law -- from paper to electronic 
delivery of Federal payments. Obviously, people can't receive electronic payments unless 
they have a bank account to do so.  

The transition to electronic direct deposit was expected to save the government 
tens of millions of dollars -- as indeed it has done. Over the past decade, in fact, the 
government has saved more than $2 billion by converting from paper checks to electronic 
payments. 

But we also hoped and expected that the ETA -- a cheap, no-frills, utilitarian 
account -- would serve as a model for financial institutions seeking to establish or expand 
a foothold in the unbanked market. 

Taking advantage of their ability to batch remittances, some banks are beginning 
to develop electronic accounts that combine direct deposit with debit card access and bill 
payment options.  Such accounts are proving attractive to individuals accustomed to spending 
several dollars per month for money orders or electronic bill payments. Because such accounts 
largely dispense with paper, they can be offered at low cost -- lower in many cases than the 
customer would pay for the same set of services at a nonbank outlet.

But it's not only their competitive pricing that makes such accounts attractive to those who 
would otherwise be dealing with a nonbank.  They provide a safe and cheap repository for 
funds.  No more lost or stolen checks; no more hassles to cash a payment check; no more 
risk of carrying around a wad of cash and becoming a target for predators.  The paycheck 
goes directly into the bank account, and with a debit card the customer can draw funds as 
she needs them, at an ATM or at point of sale.  And if the bank has been innovative, the 
customer may even be able to make basic payments from the account by electronic transfer, 
either without cost or at a cost far less than a money order. 

For the bank there are also important benefits: no processing of paper checks; no risk 
of overdrafts; the opportunity to establish new customer relationships that may be developed 
into something more.  

For example, if such customers need small loans, for a car or appliance purchases -- or even 
payday-type credit -- a direct deposit account, which already enjoys cost advantages over a 
paper-based account, offers the possibility of prearranged electronic debits, significantly 
reducing not only the processing cost, but the bank's risk of default, as well.  And they 
are favorably considered in a bank's CRA evaluation.

Banks are also taking the initiative to address the short-term borrowing needs of their 
customers, and here again, technology can be a big part of the solution.  

In one noteworthy development, a prominent national bank has begun to offer a 
product that provides access to low-cost cash advances for direct deposit customers.  Funds 
can be obtained directly from the bank's ATM network or by speaking to a telephone agent 
who will transfer the funds into the customer's account.  The bank has also automated the 
underwriting process, cutting costs for both parties to the transaction and virtually 
eliminating the waiting period for established customers -- a matter of considerable 
importance, as we've seen, for the emergency borrower.  

Let me commend those of you who have added such innovative products to your 
offerings -- and challenge those of you who haven't done so to think of even better 
ways of delivering these services. 

But despite what Emerson said, it's not enough to build a better mousetrap; the 
world has to know about it before anyone will beat a path to your door.  You have to 
give people a reason to break old patterns and habits; you have to let them know that 
they do have better options.  And that brings me back to the importance of financial 
literacy. 

A quick cautionary note is in order here.  There can be a fine line between 
education and marketing, and it's a line that should be heeded in an educational setting.  
But this is an instance in which the facts -- plain and uninflated -- are on your side. 
Bank products and services -- and the value of banking relationships -- should sell 
themselves to informed consumers.

Coupled with innovative, technology-based approaches to product delivery, I 
believe that educational outreach holds tremendous potential for reducing the ranks 
of the underbanked.  The potential rewards -- for the economy and the banking system -- 
certainly make the effort worthwhile. 		

It's not an effort we expect the industry to undertake on its own, of course.  As with 
technology, we in government are leading by example, and we're working in partnership 
with others to promote the cause of financial literacy. I'm proud to report that the 
Treasury Department and its bureaus -- especially the OCC -- have been extremely 
active in this effort.  

OCC has published resource guides and advisories to banks and others in search 
of ideas about where to obtain financial education and about how to help. We participate 
in the National Forum to Promote Low-Income Savings, an effort directed by the Consumer 
Federation of America to increase the savings rate in local communities. The OCC is one of 
only four Federal agencies to have a formal partnership with the National Academy 
Foundation, a nonprofit organization dedicated to preparing young people for careers 
in the fields of finance, travel and tourism, and information technology.  

And of course, we work closely with banks, individually and through 
organizations like CBA, encouraging them to expand the scope and quality of their 
financial literacy activities.

Indeed, I believe it says something about our success in regard to numbers -- 
numbers of banks participating and number of clients served, for example -- that 
we're turning more to the question of program quality.  Success in the financial literacy 
area cannot be measured simply in terms of raw statistics.  We have to develop qualitative 
measures of our programs' effectiveness.  We must set standards and measure outcomes where 
appropriate.  I'm encouraged to see that many banks are engaging their community-based 
partners and other independent parties to evaluate the effectiveness of their programs.
  
Let me close by once again commending CBA and the banking industry for your 
important work in reaching out to the unbanked, the underbanked, and those in need of 
more and better information about their financial options. But we can't stop here, 
because the truth is that your work -- our work -- has just begun.  There are 
millions more who remain outside the banking system -- and outside the mainstream 
of our economy.  We will never achieve our full potential as a nation as long as 
that's the case.  And the banking industry will miss out on opportunities to serve, 
to grow, and to profit.  

Reach out because it is the right thing to do; reach out because the American 
people need you. But do it most of all because it's good business. After all, 
doing good by doing well is the American way.