191i 

Minutes 

of 

The Meeting of the FDIC Advisory Committee on Economic Inclusion 

of the 

Federal Deposit Insurance Corporation 

Held in the Board Room 

Federal Deposit Insurance Corporation Building 

Washington, D.C. 

Open to Public Observation 

December 1, 2011 - 8:55 A.M. 

The meeting of the FDIC Advisory Committee on Economic 

Inclusion ("ComE-IN" or "Committee") was called to order by 

Martin J. Gruenberg, Acting Chairman of the Board of Directors of 

the Federal Deposit Insurance Corporation ("Corporation" or 

"FDIC") 

The members of ComE-IN present at the meeting were Ted Beck, 

President and Chief Executive Officer (CEO), National Endowment 

for Financial Education; Martin Eakes, CEO, Self-Help/Center for 

Responsible Lending, Durham, North Carolina; Ester R. Fuchs, 

Professor, School of International and Public Affairs, Columbia 

University; Wade Henderson, President and CEO, Leadership 

Conference on Civil Rights, and Counselor to the Leadership 

Conference on Civil Rights Education Fund; Alden J. McDonald, 

Jr., President and CEO, Liberty Bank and Trust, New Orleans, 

Louisiana; Bruce D. Murphy, Executive Vice President and 

President, Community Development Banking, KeyBank National 

Association; Manuel Orozco, Senior Associate at the InterAmerican Dialogue, and Senior Researcher, Institute for the Study 

of International Migration, Georgetown University; John W. Ryan, 

Executive Vice President, Conference of State Bank Supervisors; 

J. Michael Shepherd, President and CEO, Bank of the West and 

BancWest Corporation; Robert K. Steel, Deputy Mayor for Economic 

Development, The City of New York; and Deborah C. Wright, 

Chairman and CEO, Carver Bancorp Inc., New York, New York. Rev. 

Dr. Floyd H. Flake, Senior Pastor, Greater Allen AME Cathedral of 

New York, participated in the meeting by phone. Kelvin Boston, 

Executive Producer and Host of PBS’ Moneywise with Kelvin Boston; 
197 

and Lawrence K. Fish, Former Chairman and CEO, Citizens Financial 

Group, Inc., were absent from the meeting. 

Members of the Corporation’s Board of Directors present at 

the meeting were Martin J. Gruenberg, Acting Chairman, and 

Thomas J. Curry, Director (Appointive). Roberta K. McInerney, 

Designated Federal Officer for the Committee and Deputy General 

Counsel, Corporate, Consumer, Insurance, and Legislation Branch, 

FDIC Legal Division, also was present at the meeting. 

Corporation staff who attended the meeting included Willa Allen, 

Ruth Amberg, James L. Anderson, Shelina M. Baker, Michael J. 

Barry, Chris Bellotto, Valerie Best, Thomas M. Bonnette, Michelle 

Borzillo, Michael W. Briggs, Luke H. Brown, Susan Burhouse, 

Kymberly K. Copa, Carolyn D. Curran, Debra A. Decker, Martha L. 

Ellett, Keith S. Ernst, Robert E. Feldman, Heather Gratton, 

Andrew Gray, Leneta G. Gregorie, Christopher L. Hencke, Sally 

Kearney, Elizabeth A. Khalil, Ellen W. Lazar, Joan M. Lok, 

Christopher Lucas, Alan W. Levy, Jonathan N. Miller, Janet V. 

Norcom, Yazmin E. Osaki, Richard Osterman, Victoria Pawelski, 

Mark Pearce, Sylvia H. Plunkett, Luke W. Reynolds, Sherrie L. W. 

Rhine, Barbara A. Ryan, Richard M. Schwartz, and James Yagley. 

Acting Chairman Gruenberg opened and presided at the 

meeting. He began by thanking Committee members for agreeing to 

continue their memberships on the Committee after expiration of 

their initial two-year terms, noting that it was a very generous 

gesture on the part of Committee members as well as an indication 

of the value the Corporation places on their contributions. He 

also acknowledged former Chairman Bair’s role in establishing the 

Committee, indicating that it was one of her many legacies. 

Next, Acting Chairman Gruenberg provided an overview of the 

meeting agenda, identifying as the two major topics mobile 

financial services as a potential vehicle for expanding access to 

mainstream banking and the challenges presented by the increasing 

use of prepaid cards. Regarding mobile financial services, he 

advised that, although low-income and minority households are 

disproportionately represented among the unbanked and 

underbanked, mobile phone penetration in those communities is 

actually higher than in the general population, offering 

intriguing possibilities for economic inclusion. He then 

reminded Committee members that the Corporation had, within the 

past year, established a new Division of Depositor and Consumer 

Protection ("DCP") to consolidate all of the FDIC’s 

responsibilities relating to compliance examination and 

enforcement, policy and research, and consumer outreach, and that 

the Director of DCP, Mark Pearce, was the former Senior Deputy 

Commissioner of Banks in North Carolina. He advised that DCP, 

which would be working directly with the Committee, had 

significant input into the development of the meeting agenda. 

December 1, 2011 
19 

Acting Chairman Gruenberg then turned the discussion over to Ms. 

Lazar, moderator of the first panel, "Updates on ComE-In 

Initiatives." 

Ms. Lazar advised that staff would begin by providing 

updates on several Corporation initiatives implemented on the 

basis of Committee recommendations. She then introduced 

Sherrie L. W. Rhine, who she advised would provide an update on 

the Model Safe Accounts Pilot, and Luke W. Reynolds, who she 

advised would provide updates on the FDIC Adopt-A-School Pilot 

Program and the CDFI Small Business Lending Symposium. 

Ms. Rhine began by noting that the purpose of the one--year 

Model Safe Accounts Pilot, which began in January 2011 and was 

scheduled to conclude at the end of the year, was to determine 

the feasibility of insured depository institutions offering safe, 

low-cost transaction and savings accounts to help meet the needs 

of U.S. households that are unbanked or underbanked, and that 

nine financial institutions were participating in the pilot, 

offering low-cost transaction and savings accounts that are FDICinsured, covered under consumer protection laws and regulations, 

and have product features identified in the FDIC’s Model Safe 

Accounts template. She then recalled that interest in conducting 

the pilot had its genesis in a finding from the 2009 FDIC 

National Survey of Unbanked and Underbanked Households that 

nearly 26 percent of U.S. households were unbanked or 

underbanked; that the survey finding raised the question of what 

combination of features and fees would comprise safe transaction 

and savings accounts to bring lower-income households into the 

financial mainstream; that, to answer the question, the financial 

services landscape was surveyed and several geographically-based 

programs aimed at bringing financial products to unbanked 

consumers were identified; that the features and fees offered in 

those programs were the starting point for the initial draft of 

the Model Safe Accounts template; that the initial draft was 

presented to the Committee at its April 1, 2010, meeting; and 

that the Committee’s suggestions were incorporated into the final 

template. 

Next, Ms. Rhine briefly addressed the characteristics of the 

pilot institutions, the characteristics of the transaction and 

savings account products, and data gathering techniques for the 

pilot. With respect to the pilot institutions, she indicated 

that they were geographically represented across the country as 

well as by urban, suburban, and rural areas. With respect to the 

characteristics of the transaction and savings account products, 

she advised that they were card-based, electronic accounts and 

did not allow for overdraft or non-sufficient funds fees. 

Regarding data gathering techniques, she advised that Corporation 

December 1, 2011 
staff set up conference calls with each institution around the 

end of each quarter to discuss some of the challenges and lessons 

learned; that 45 days after the end of each quarter, the FDIC 

received basic information from pilot institutions such as the 

number of accounts opened, the average opening balance, and the 

average monthly balance; and that data for the fourth quarter 

would be received in mid-February 2012, with development of the 

final report to begin shortly thereafter. 

Turning to some of the observations to date, Ms. Rhine 

reported that the majority of pilot institutions participated in 

marketing and advertising in the first quarter, with a slow-down 

in such activity during the second quarter and an uptick in such 

activity in the third quarter, and that several potential 

business models had begun to emerge from the preliminary data. 

She identified the business models as the partnership model, in 

which a financial institution partners with non-profit 

organizations, community groups, and local and state government 

agencies to help bring the unbanked into the financial 

mainstream; the new entrant model, in which a financial 

institution markets their products to the young adult consumer 

segment; the re-entrant model, in which a financial institution 

markets to previously banked consumers; and the cross-selling 

model, in which a financial institution offers one product as an 

entry point to selling other financial products and services, 

with some blending of the models by some institutions. Ms. Rhine 

further reported that the take-up rate for the accounts was 

significant, with 453 of 529 transaction accounts and 2,036 of 

2,133 savings accounts remaining open, which translates into 

retention rates of 86 percent and 95 percent, respectively; and 

that, as expected, there was significant variability in opening 

minimum balances for the accounts, especially savings accounts, 

with average opening and monthly balances at one institution 

ranging from $20 to $30 and $30 to $40, respectively, and average 

opening balances and monthly balances at another institution of 

$200 to $300 and $200 to $500, respectively. 

Next addressing challenges, lessons learned, and potential 

positive implications, Ms. Rhine advised that, among the 

challenges, a few pilot institutions indicated that potential 

accountholders did not have the appropriate identification to 

open an account; some institutions cited the difficulty of 

effectively marketing, advertising, and reaching the targeted 

consumer segments within a fairly short timeframe; and several 

institutions pointed to current economic conditions as having 

resulted in added pressure on business budgets and staffing. 

Among the lessons learned, she advised that efforts to reach new 

entrant and re-entrant consumer segments were meeting with some 

success; that partnerships with third parties advanced some of 

December 1, 2011 
the outreach and marketing activities; that teller training is an 

important tool in reaching consumer segments, particularly 

consumers who have never had a transaction or savings accounts, 

consumers with lower incomes or lower-balance accounts, and 

consumers listed in ChexSystems for reasons other than fraud; 

that calculating cost recovery or profitability of the pilot 

program is proving to be difficult, with possible reasons being a 

mismatch between the business model used for the pilot and the 

model used for other deposit accounts at the institution, the 

accounting problem of allocating fixed costs for short-term 

projects such as the pilot, or IT or other infrastructure 

limitations; and that financial education has a positive impact 

on account performance for the new entrant consumer group. 

Regarding potential positive implications, she stated that 

relatively few of the accounts had closed, speaking to the 

potential longevity of the accounts; that relatively few accounts 

had gone into a negative balance; that a large proportion of the 

accounts had sustained or growing balances; and that crossselling opportunities seemed to be in place and productive. 

Concluding her presentation, Ms. Rhine identified as next 

steps analysis of fourth quarter data in mid-February 2012, 

followed by development of the final report, and presentation of 

findings to the Committee, as the Committee’s schedule permits, 

sometime in 2012. 

Mr. Reynolds then briefed the Committee on the status of the 

FDIC’s Adopt-A-School Pilot Program and the CDFI Small Business 

Lending Symposium, recalling with respect to the Adopt-A-School 

Pilot Program that the Committee had recommended, at its meeting 

On June 24, 2010, that the Corporation consider implementing a 

program that would facilitate staff volunteering on official time 

to teach financial education at underserved schools. He then 

advised that staff had developed guidelines for the program; 

presented those guidelines to the Committee’s Financial Education 

Working Group; made adjustments to the guidelines on the basis of 

the group’s feedback, including the addition of an evaluative 

component to help assess the readiness of employees to teach 

financial education; and launched an 18-month pilot program on 

June 13, 2011, to allow up to 100 FDIC employees to teach 

financial education at underserved schools. He further advised 

that employees may use up to 12 hours of official time per 

quarter to participate in qualifying financial education 

activities, with qualifying activities including anything from 

teaching student workshops to providing technical assistance to 

teachers on personal finance and personal financial education to 

help improve their capability to deliver financial education. 

December 1, 2011 
201 

Elaborating on progress since the program’s launch, Mr. 

Reynolds explained that it was marketed to employees in July and 

August 2011; that 228 applications were received by the September 

6 deadline; that applications were considered on the basis of 

criteria outlined in the program directive, including the 

employee’s previous experience teaching financial education and 

their proximity to an interested school; that selected employees 

completed training and an assessment, with 100 employees 

ultimately accepted into the program; and that during the month 

of November, pairing of participating employees with underserved 

schools began, with 75 pairings to date and 25 employees 

currently in discussions with schools. Looking forward to next 

steps, he advised that employees are required to submit afteraction reports on a regular basis to help assess the 

effectiveness of the program, and that staff would analyze the 

program on the basis of the reports, taking into consideration 

the number of hours devoted to the program. He then thanked 

those involved in the program’s design and implementation. 

Mr. Reynolds next discussed the CDFI symposium held in San 

Francisco on November 2, 2011, to help senior management of 

California banks and small business-focused CDFIs learn 

successful strategies to promote small business lending in 

California through bank-CDFI partnerships. He reported that the 

event was co-sponsored in collaboration with the Federal Reserve 

Bank of San Francisco and the Office of the Comptroller of the 

Currency ("0CC") . He stated that the event showcased successful 

models, with presenters addressing the mechanics and end path of 

their bank’s CDFI partnership and innovative approaches that 

increase access to capital for small businesses; that the 

approaches identified by panelists ranged from more structured, 

formal approaches to less formal approaches built over time 

through strong working relationships, including those using new 

market tax credits and programs launched through the Small 

Business Jobs Act; that a document showcasing key partnerships 

was distributed to participants; and that Marie Johns, Deputy 

Administrator, Small Business Administration, addressed the 

symposium, emphasizing the importance of CDFIs in small business 

lending. Mr. Reynolds ended his briefing by noting that 

participants of the symposium numbered about 130; that 

evaluations of the symposium were overwhelmingly positive, with 

participants finding the information provided to be relevant and 

valuable and 100 percent of participants indicating an intent to 

implement some of the ideas shared at the symposium. He 

suggested that the symposium provided a strong model for similar 

events in the near future, with some of the questions and lessons 

learned being compiled in a resource document for use by banks 

and CDFIs. 

December 1, 2011 
In response to a question from Mr. Henderson regarding 

future symposiums, Mr. Reynolds confirmed that similar events 

were planned for 2012 and Ms. Lazar advised that the Appalachian 

Regional Commission in Kentucky was currently planning an 

interagency event very similar in scope to the symposium in San 

Francisco. Mr. Steel asked whether staff could identify two or 

three of the more important opportunities for successful business 

lending arising from the symposium, in response to which Mr. 

Reynolds advised that, included among the lessons learned, was 

the lesson that partnerships need not just involve a bank making 

an investment in a CDFI, but also may involve less formal 

arrangements such as providing referrals to a CDFI to provide 

technical assistance and training to help a business qualify for 

a loan; the lesson that opportunities exist for community banks 

as well as large banks; and the lesson that, to overcome the 

community bank challenge of locating CDFIs, more effort should be 

placed on facilitating connections between banks and CDFIs and 

assisting banks in understanding what Community Reinvestment Act 

("CRA") considerations are currently available for such 

activities. 

During the discussion of the Model Safe Accounts Pilot, 

Committee members made a number of recommendations for 

information to be included in the pilot report, how best to 

utilize the findings, and ways to encourage other institutions to 

offer similar products. Mr. Henderson suggested that staff 

explore combining the results of the Model Safe Accounts Pilot 

with the findings of the FDIC’s other economic inclusion studies 

into a sophisticated presentation that can be used by the 

administration for larger public policy purposes. Ms. Wright and 

Mr. McDonald agreed, with Ms. Wright suggesting that the 

education system is an important stakeholder in economic 

inclusion efforts and Mr. McDonald suggesting that perhaps staff 

could explore with pilot institutions any recommendations they 

may have on including financial literacy as part of the school 

curriculum. Mr. Beck, after noting that he sits on the 

President’s Advisory Council for Financial Capability and that 

the findings and data from the FDIC’s various economic inclusion 

studies is very actively used by the U.S Treasury Department 

("Treasury") and the U.S. Department of Education, suggested that 

the staff share with Committee members at a future meeting of the 

ComE-In any examples of pilot institutions that were effective in 

engaging young adults, especially through financial education. 

With regard to replicating the pilot, Mr. Orozco suggested that, 

if the findings provide enough evidence for expanding the safe 

accounts products to a wider audience, staff make an effort to 

identify the necessary ingredients to replicate the pilot on a 

larger scale; Professor Fuchs and Mr. Henderson suggested that 

providing CPA credit for products with Model Safe Accounts 

December 1, 2011 
203 

features would likely be the only way to spur widespread offering 

of such products; Mr. Murphy suggested that, in his opinion, any 

focus on CPA credit should not be limited to a single product, 

but should instead be part of an overall underbanked strategy 

that speaks to an integrated product set and an integrated 

approach; and Mr. Eakes suggested that, to the extent possible, 

staff should determine the marginal cost of providing the fully 

electronic transaction and savings accounts to aid in determining 

scalability. Mr. Ryan then noted that it makes sense to connect 

financial literacy efforts with products that would be 

appropriate starting points for entry into the mainstream 

financial system and asked whether the Corporation’s safe 

accounts template was being incorporated into BankOn or similar 

efforts promoting financial access for low- and moderate-income 

Americans. Mr. Reynolds, answering in the affirmative, indicated 

that there are approximately 16 or 17 banks in addition to the 

pilot institutions that are offering accounts consistent with the 

safe accounts template and that the template is being distributed 

through the FDIC’s Alliance for Economic Inclusion. 

Next, Mr. Ernst, moderator of the panel discussion on "The 

Role of Mobile Financial Services Technology in Economic 

Inclusion," provided background information on mobile financial 

services and the underserved, noting that the vast majority of 

adults in the U.S. own mobile phones, with more than one-third of 

adults owning smartphones; that racial and ethnic minorities, who 

are disproportionately represented among the unbanked and 

underbanked, are more likely to own a smartphone, with 44 percent 

of African-Americans and Hispanics reporting that they own a 

smartphone versus only 30 percent of white consumers; that, among 

mobile phone users, almost half of African-Americans have engaged 

in mobile banking, double the rate of their white counterparts; 

and that younger Americans, those with higher incomes, and those 

with more education are more likely to own smartphones. He 

suggested that the rate of mobile phone ownership and current 

technology present the significant potential to interact in 

different ways with financial services systems and indicated that 

panelists would provide even more information regarding the 

capacity of consumers to engage the financial services system 

through mobile devices. Mr. Ernst then introduced as his fellow 

panelists James Van Dyke, President, Javelin Strategy Research 

("Javelin") ; Jeff Easley, Executive Director, Deposits Product 

Management, USAA Federal Savings Bank; Allison Landers, Senior 

Vice President, Online and Mobile Banking, KeyBank; Suzanne 

Martindale, Staff Attorney, Consumers Union; and Jim Cunha, 

Senior Vice President, Treasury and Financial Services, Federal 

Reserve Bank of Boston. 

December 1, 2011 
q)c , 

(.’5 ’4 

Mr. Van Dyke provided a brief overview of services offered 

by Javelin, noting that it combines proprietary research data 

from approximately 300,000 individuals, financial institutions, 

merchants, processors, and others, with public data from federal 

agencies and others to identify trends in technology adoption, 

especially in the area of customer-provider relationships. He 

then advised that the context of his presentation to the 

Committee would be the value proposition that arises from the 

confluence of technology vendors working through providers, such 

as merchants and financial institutions, and customers, such as 

consumers and small businesses, which, in effect, determine 

whether innovations become mainstream. Pointing to the impact of 

innovation and deregulation in the financial industry, he 

indicated that there was a quick evolution from a simplified 

system in which banking was conducted at a bank’s main office, 

with transactions duly recorded in a check register, to a more 

complex system in which banking is conducted at branch offices, 

through card-based technology, online, through mobile devices, by 

touch-tone phone, through investment banks, at automatic teller 

machines, or via social media. 

Moving to research findings on the use of mobile technology 

by the underbanked, lower-income population, Mr. Van Dyke 

reported that the underbanked are less likely than the general 

population to own a landline, yet more likely to own a mobile 

phone and, despite scarce economic resources, more likely to own 

a smartphone; and that the underbanked are less likely to use 

mobile devices for high value activities such as checking 

balances, viewing bank account statements, transferring funds 

between accounts, and monitoring recent transactions, more likely 

to use mobile devices to pay bills, and equally likely to use 

mobile devices to receive email alerts. He further reported that 

the underbanked are more likely to use prepaid cards or payroll 

cards through their mobile devices; that the underbanked use 

mobile banking more frequently than the general population; and 

that the underbanked are more likely to use their mobile devices 

to make purchases. Mr. Van Dyke then raised the issue of whether 

mobile technology can be used to empower the underbanked, and 

suggested that the potential adoption of new technologies is 

driven by their features and that financial institutions, by 

adopting a customer-driven architecture that provides information 

in real time with transparency, can both empower and protect 

underbanked consumers. 

Next, Mr. Easley provided information on the history and 

mission of USAA Federal Savings Bank, noting, among other things, 

that it currently has nearly six million members from all 

branches of the military; that its culture mirrors the values of 

the military; and that it has only one teller-assisted branch in 

December 1, 2011 
205 

the lobby of its headquarters in San Antonio, Texas, which 

underscores the reason for its reliance on technology to serve 

its members. Citing remote deposits as an example of USAA’s use 

of technology, he advised that the bank has a Deposit@Home 

program that allows qualifying members to scan in a deposit from 

home, a Deposit@Mobile program that allows qualifying members to 

make deposits via smartphones, and an Easy Deposit program in 

partnership with The UPS Stores that allows members to make 

deposits with the assistance of a store associate through a 

remote desktop connection. Elaborating, he stated that, given 

the lack of USAA branches, Deposit@Home was launched in 2006 to 

overcome access barriers and that, in order to qualify, members 

have to be insurance-eligible, be credit qualified, and have 

existing USAA product ownership in good standing; that, with the 

advent of improved mobile smartphone technology and USAA’s 

existing Deposit@Home infrastructure and processes, 

Deposit@Mobile, which was launched in 2009, was a logical 

evolution; that, in 2010, Easy Deposit, which makes use of a 

dedicated desktop scanner at The UPS Stores, was made available 

for members who prefer a face-to-face deposit experience or who 

do not yet qualify for Deposit@Home or Deposit@Mobile services; 

and that, in July 2011, remote deposit services were extended to 

tablet computing for qualifying members. 

Reiterating the fact that USAA’s mission is to facilitate 

the financial security of its members, Mr. Easley advised that 

the bank has launched Money Manager, an online and mobile 

personal finance management suite of tools that allows members to 

get control of everyday finances with, among other things, 

automatic budget creation and spend tracking by category, the 

ability to add non-USAA accounts, 18 months of history, and the 

ability to keep track of items not yet reflected in their 

balances. In closing, he indicated that Money Manager has been 

well-received, with over one million members using the tool and 

over 8 million sessions a month attributable to just the mobile 

version of the tool, and that USAA’s technological innovations 

have contributed to the bank’s growth and helped it to access and 

engage its members. 

Ms. Landers began her presentation by observing that 

consumer experiences with and expectations for their mobile 

phones have changed drastically since they were first introduced, 

with the phones now being used not only for calls, but also for 

text messaging, surfing the internet, as televisions, as cameras 

and as video cameras, and to keep in touch with their families, 

friends, finances, and health. She stated that the upshot of the 

ubiquitous nature of mobile phones is that consumers’ experiences 

with mobile banking are no longer being compared to their 

experiences with banks in general, but with the experiences they 

December 1, 2011 
201 

have with any company or any industry because that is what 

consumers have come to expect. Ms. Landers advised that the most 

often cited reason for not using mobile phones for banking is 

that consumers prefer other channels and the second most cited 

reason is concerns about security. Regarding the former reason, 

she suggested that consumers who prefer other channels probably 

have yet to try mobile banking and regarding the latter reason, 

she suggested that security concerns likely tops the list of any 

reason for not adopting a certain technology. Concluding, she 

suggested that in order to remain relevant, financial 

institutions need to give thought to what consumers have come to 

expect, i.e., the ability to interact with anyone from anywhere 

at any time that’s convenient to them. 

Next, Ms. Martindale, focusing on mobile payments, cautioned 

that the complexity inherent in mobile payments might present 

some obstacles to efforts to use mobile devices to bring more 

people into mainstream financial services. She reiterated 

comments from earlier presenters that mobile payments are rising, 

with projections that it will be a multi-billion dollar business 

in the United States by 2014, due largely to widespread adoption 

of cell phones. She observed that there are many ways to make 

mobile payments, including via text message, such as donations 

made to the Red Cross; through Near Field Communication ("NFC") 

chips, in the form of a sticker affixed to a mobile phone or a 

chip embedded in phone hardware; through a smartphone 

application, such as PayPal, downloaded to a mobile phone; or 

through a smartphone web browser. She also observed that there 

are different ways to fund mobile payments, noting that consumers 

can pay later, by linking to a credit card or phone bill; they 

can pay now, by linking to a debit card or bank account number; 

or they can pay in advance, by linking to a prepaid card, gift 

card, or a prepaid deposit held by a wireless carrier. She then 

suggested that perhaps one of the reasons that mobile banking is 

concentrated in select niche markets is because consumers have 

questions and concerns regarding the safety of mobile payments. 

Ms. Martindale elaborated on consumer questions about the 

security of mobile payments, indicating that they have concerns 

about data privacy and where their financial information is 

stored; about consumer protection laws and whether they can 

recover lost or stolen funds; and about trust accounts for 

deposits given to wireless carriers, including concerns about 

whether prepaid deposits to wireless carriers are in insured 

accounts, whether pass-through requirements for FDIC insurance 

are met, and whether they are at risk of losing their funds if 

the company goes bankrupt. She noted that the method of a mobile 

payment determines its level of protection, with the best 

consumer protections associated with mobile payments linked to a 

December 1, 2011 
207 

credit card, with mandatory protections under the Truth In 

Lending Act ("TILA") and Regulation Z; the second best consumer 

protections associated with mobile payments linked to a debit 

card or bank account, with mandatory protections under the 

Electronic Fund Transfer Act ("EFTA") and Regulation E; and the 

least consumer protections associated with mobile payments linked 

to a prepaid card or gift card, which have no statutory or 

regulatory protections and contractual protections, if any, are 

voluntary and subject to change. She further noted that consumer 

protections for mobile payments linked to a phone bill or prepaid 

deposits held by a wireless carrier are even murkier because they 

are not explicitly covered by TILA, although such payments are 

similar to credit card transactions, and truth-in-billing 

regulations issued by the Federal Communications Commission apply 

only to telephone services. She noted that, in an effort to 

determine whether wireless contracts offer any protection for 

mobile payments linked to phone bills, Consumers Union recently 

reviewed such contracts and determined that most are silent on 

the issue of charges resulting from mobile payments, with the few 

that do offer some consumer protections doing so only in a very 

limited way. 

Ms. Martindale ended her presentation by indicating that 

technology is far outpacing consumer protection laws, which 

should be kept in mind in any discussions about reaching the 

underbanked through mobile banking. She expressed hope that the 

new Consumer Financial Protection Bureau ("CFPB") , which has 

jurisdiction over payment providers, would be instrumental in 

harmonizing consumer protections without regard to payment 

methods. She noted as well that there exists the potential for 

states to pass their own legislation to close some of the gaps in 

consumer protection, with California having paved the way with a 

2010 rule that provides something akin to a chargeback right for 

any California consumer who makes a non-communications charge, 

including a mobile payment, on their phone. By way of policy 

recommendations to limit consumer liability and potential 

exposure to fraud and unauthorized transactions, she suggested 

that prepaid deposits be subject to consumer protections; that 

limits be placed on the size and complexity of wireless contracts 

to provide more transparency; that consumers be encouraged to 

place PIN protection on their smartphones; and that limits be 

placed on mobile phone payments, including customer-set limits on 

transaction size and daily limits. 

Mr. Cunha then advised the Committee that he would also 

focus his presentation on mobile payments, specifically why 

mobile payments matter for purposes of economic inclusion, the 

state of mobile payments in the U.S., the work of the Mobile 

Payments Industry Workgroup ("MPIW"), benefits for the unbanked 

December 1, 2011 
208 

arising from mobile payments, and the challenges presented by 

mobile payments, especially for the unbanked. As to why mobile 

payments matter with respect to economic inclusion, he stated 

that the processing of transactions such as check cashing, stored 

value, and payments is a fundamental need among the unbanked and 

that, once adopted, mobile transaction processing can lead to the 

next steps up the economic inclusion ladder to include credit and 

asset accumulation. Further, he noted, on the provider side, 

mobile products for the unbanked can be leveraged to create 

greater value by also offering the same products to those who are 

banked. Next moving to the state of mobile payments, Mr. Cunha 

observed that adoption of mobile payments is much stronger in 

foreign markets than it has been in the U.S., with financial 

institutions in the U.S. mainly focusing on extending their Web 

presence to the phone; that only within the past year has there 

been a growing emphasis on commercial partnerships for mobile 

payments in this country; and that, despite announcements of such 

partnerships, there is still no significant implementation of 

mobile payments on a national scale. 

Then, turning his attention to the evolution of the MPIW, 

Mr. Cunha advised that it grew out of growing awareness and 

concern with fragmentation and lack of communication between key 

stakeholders regarding the direction of mobile payments in the 

U.S.; that the Boston and Atlanta Federal Reserve Banks, in 

January 2010, convened the group of stakeholders, including 

telephone companies, handset manufacturers, large and small 

banks, and credit card companies, to facilitate discussion on the 

evolution of mobile payments in the U.S., to establish 

relationships among stakeholders, and to determine whether there 

is a shared vision on the future of mobile payments and identify 

any barriers. After noting that the discussion did not 

explicitly focus on the unbanked, he further advised that the 

group reached a general consensus that mobile devices will be 

used to initiate and receive payments for purchases between 

consumers and businesses; that mobile payments would revolve 

around an open wallet concept for which anyone could create a 

product that could be used within the wallet; that NFC technology 

would be the standard for mobile payments at the point-of-sale; 

that payments would be cleared over existing channels such as 

ACH, debit, and credit, but that there also exists an opportunity 

for any accessible new channels; that mobile payments would 

involve dynamic data authorizations, with each transaction 

getting its own security signature which could not be replicated 

or reused; that standards developed for the U.S. would be based 

on global standards to allow for transportability; that there 

should be regulatory clarity for ongoing oversight of mobile 

payments; and that the secure elements of mobile phones should be 

well-structured, regulated and consistent across all phones. 

December 1, 2011 
209 

Listing the benefits of mobile devices, Mr. Cunha cited 

accessibility, especially for the unbanked and underbanked; 

convenience; control; the opportunity to educate and change 

behavior at decision points; richer functionality such as the 

ability to budget, place funds in different envelopes for 

different purposes, or place a lock on funds; and the ability to 

leverage products across different types of customers, such as 

the banked and unbanked, thereby creating economy of scale for 

providers. Finally, Mr. Cunha addressed the challenges still 

ahead, noting that the industry path to the desired objective is 

complex; that there are regulatory uncertainties as previously 

discussed by Ms. Martindale; that, given the different 

demographics for the unbanked and underbanked, banks and others 

have to assess risk, other priorities, and the business case for 

mobile payment services and choose to participate on the basis of 

that assessment; that banks will have to contend with compliance 

requirements such as those under the Anti-Money Laundering Act 

and the Bank Secrecy Act; that the unbanked will have to be 

educated about the technology and overcome any trust issues and 

language barriers to decide the right solution for them; and that 

smartphone penetration among the unbanked is still relatively 

low. He stated that, despite the complexities, in his opinion, 

the computing capability of mobile devices can be a huge benefit 

for the unbanked, not just for payment purposes but also for 

bringing them into the mainstream financial system. 

In the discussion that followed, Committee members and 

panelists addressed a number of issues related to mobile banking, 

including general regulatory challenges, security issues, the 

financial implications for banks and consumers, and the need for 

additional research. Both Mr. McDonald and Mr. Murphy commented 

on the complexities presented by mobile banking, especially the 

regulatory issues, with Mr. McDonald suggesting that any efforts 

to encourage banks to better serve the unbanked and underbanked 

through mobile technology could be frustrated if accompanied by 

too much additional regulation and Mr. Murphy suggesting that the 

prospect of using mobile technology to increase access to the 

banking system seems to be greater than the potential risks and 

that, in his opinion, any additional regulatory burden for banks 

could be mitigated by modifying and extending existing 

regulations rather than implementing a host of new regulations. 

Mr. Shepherd stated that, in his opinion, banks are willing and, 

in fact, eager to provide mobile banking services without the 

need for regulatory incentives because it offers convenience to 

customers and, for smaller and mid-sized institutions, provides 

an opportunity to compete with larger institutions that have a 

greater ATM and branch presence. Mr. Cunha advised that, based 

on his experience with MPIW, the industry is extremely eager to 

December 1, 2011 
210 

have an open conversation with regulators to address the 

regulatory issues because an uncertain regulatory environment is 

viewed as even worse than more regulation. Mr. Beck asked about 

the implications of mobile banking on the "know your customer" 

requirements of the USA Patriot Act, in response to which Mr. 

Easley advised that, in order to use USAA mobile banking 

services, customers must have already established a relationship 

with the bank and be credit-qualified, with the result that the 

bank, in essence, knows even more about users of its mobile 

services; and Ms. Landers advised that KeyBank customers using 

the bank’s text messaging services are either authenticated 

through online banking or, if set up by phone, required to 

provide answers to the typical "know your customer" questions and 

that those engaging in mobile banking use the same user 

identification and password used for online banking. Offering a 

different perspective, Mr. Eakes, noting that "know your 

customer" rules are aimed at preventing terrorism and money 

laundering and perhaps it is time to reduce reliance on rules 

that no longer serve their intended purpose or modify them in a 

way that provides exemptions for smaller transactions. On the 

issue of security, Mr. Van Dyke advised that, within the security 

community, user authentication typically involves three factors

information on something the user has, something the user knows, 

and something the user isbut that, with mobile technology, a 

fourth authentication factor, the user’s physical location, is 

added; and Ms. Landers advised that banking capability through 

mobile devices is more limited than it is online and that 

information provided through text messages does not contain 

account numbers or other identifying information. 

With respect to financial implications, Mr. McDonald 

questioned the cost to financial institutions to implement mobile 

banking technology, in response to which Ms. Landers acknowledged 

that Keybank’s investment in its mobile banking infrastructure 

was significant, but noted that there was a good business case 

for making the investment, with the bank already having recovered 

its investment because text messaging costs pennies to support as 

compared to costs of more than $1 to support an interactive voice 

response system and $6 to provide live telephone assistance; 

Professor Fuchs suggested that, as long as mobile banking 

services are less expensive than other banking services and banks 

are making a profit from it, it should benefit efforts to provide 

greater access to the unbanked and underbanked because it 

relieves banks of the need to address the unbanked and 

underbanked as separate consumers; Mr. Eakes, predicting an 

accelerating loss of smaller institutions because of the initial 

investment required to remain competitive by providing mobile 

banking services, suggested that perhaps some economy of scale 

could be derived from establishing cooperative structures that 

December 1, 2011 
211 

would spread the costs among a number of institutions; and Mr. 

Cunha suggested that, since most institutions no longer do their 

own core processing, the issue is not one of scale, but really 

whether there is a willingness to innovate and to push their 

service providers to develop solutions for a bank’s existing 

customers. In response to Mr. McDonald’s question as to whether, 

in efforts to promote mobile banking to increase access for 

unbanked and underbanked consumers, anyone had taken into 

consideration the costs to consumers for mobile devices, Ms. 

Landers advised that, while mobile devices may be somewhat 

expensive, many consumers use mobile phones in lieu of paying the 

costs for land lines, home computers, and internet connections 

and, with mobile devices, they can make calls to anywhere at any 

time and have unlimited data plans for a flat fee and that, with 

mobile banking, consumers gain the convenience of getting 

immediate access to their account information from wherever they 

are without having to wait in a queue of calls or until the call 

center reopens. 

Regarding the need for additional research, Mr. Orozco 

indicated that there appears to be a need for additional 

information on the value to the unbanked and underbanked of 

applying mobile technology to banking, on distinguishing between 

needs and wants, and on how to mitigate some of the existing and 

future risks posed by mobile banking. Professor Fuchs suggested 

that perhaps the Corporation could help to identify what mobile 

banking services would be valuable to unbanked and underbanked 

consumers by conducting surveys or convening focus groups. Mr. 

Van Dyke advised that Javelin is the largest research company in 

the industry and, like many other research companies, publishes 

only about 20 percent of its data; that it has gathered huge 

amounts of data on underbanked consumers; but that, because no 

one is asking for the data, it’s just not being used. 

Acting Chairman Gruenberg thanked panelists for their 

presentations. He stated that as a follow-up to the 

extraordinary discussion, perhaps staff could outline a set of 

options on the issue of mobile banking that might include 

potential research efforts and engagement with financial 

institutions and industry leaders, which would be presented to 

the Committee for consideration at the Committee’s next meeting. 

He emphasized the FDIC’s particular interest in the role of 

community banks in the financial industry and indicated that as 

part of the FDIC’s initiative on the future of community banks, 

staff would certainly be looking closely at the impact of 

technology, especially from the perspective of expanding access 

to the financial system. He then announced that the meeting 

would recess for lunch, during which Shaun Donovan, Secretary, 

U.S. Department of Housing and Urban Development, would speak on 

December 1, 2011 
issues in the current mortgage market. Accordingly, at 11:53 

a.m., the meeting stood in recess. 

* * * * * * * 

The meeting reconvened at 2:08 p.m. that same day, whereupon 

Acting Chairman Gruenberg introduced Mr. Miller as moderator of 

the afternoon panel on "The Consumer Protection Issues Posed by 

Prepaid Cards." 

Mr. Miller began by laying out a few basic facts, noting 

that the world of general purpose prepaid cards is growing 

rapidly; that while the number of transactions on prepaid cards 

is still relatively small, with $87 billion in transactions as 

compared to $1.5 trillion in debit transactions, prepaid card 

transactions are increasing 50 percent faster than debit 

transactions; that the retail presence of large prepaid companies 

is growing rapidly, with one such company advertising that it has 

nearly as many retail outlets and ATM access points as several of 

the largest insured depository institutions combined; and that, 

as can be determined from their marketing materials, prepaid 

companies are targeting younger, lower income, immigrant and 

other households they identify as being disconnected from 

traditional financial institutions, the very same segments of the 

population that are the focus of the Committee’s economic 

inclusion efforts. He then introduced as fellow panelists, Bob 

Hunt, Director, Payment Cards Center, Federal Reserve Bank of 

Philadelphia; Lauren Saunders, Managing Attorney, The National 

Consumer Law Center; Ardie Hollifield, Project Manager, Safe 

Checking in the Digital Age, The Pew Charitable Trusts; and 

Deyanira Del Rio, Associate Director, Neighborhood Economic 

Development Advocacy Project ("NEDAP") 

Mr. Hunt, after indicating that the views presented were his 

own and not those of the Federal Reserve Bank of Philadelphia or 

the Federal Reserve System, stated that he would present some of 

the preliminary findings of research he conducted with two of his 

colleagues, Stephanie M. Wilshusen and James Van Opstal, on how 

consumers use prepaid cards. He reported that, on the basis of 

the data collected, he could begin to answer a few basic 

questions such as how long consumers use their network branded 

prepaid cards; how frequently they transact with their cards; how 

often they reload their prepaid cards; whether they schedule 

repeated reloads of their cards; how frequently they withdraw 

cash from their cards; where they use their cards; how much 

revenue is earned from consumer fees; the frequency and 

composition of consumer fees; and what share of card revenues 

comes from the interchange paid indirectly from merchants to card 

issuers. Before addressing the preliminary answers to some of 

1) 1 

December 1, 2011 
213 

the questions, he first provided information on the source of the 

data, indicating that it was furnished by Meta Payment Systems; 

that the data set contains more than 300 million transactions on 

more than 3 million prepaid cards in more than a dozen different 

types of prepaid card programs; that the data span a five-year 

time period, with most of the transactions occurring in the last 

two years; that the data is weighted toward payroll programs and, 

because it is data from only one company, is not necessarily 

representative of the entire industry; and that the data include 

transaction type, amount, and merchant category code, but do not 

include any demographic or financial data for the cardholders. 

With respect to the distribution of cards by program type and 

enrollment method, he advised that, for the most part, consumers 

are getting reloadable prepaid cards for most program types 

through the mail, with the exception of financial institution 

programs, in which case consumers obtain the card from a branch 

office of the institution. 

Mr. Hunt then presented some of the preliminary findings on 

card activity, purchase activity, and load activity. Regarding 

card activity, he reported that the median length of card 

activity for prepaid cards, with length of activity determined by 

the date of first load or transaction to the date of the last 

load or transaction, varied from approximately two months for 

retail cards to about nine months for financial institution 

cards, with web and payroll cards each having a six-month median 

length of activity. Regarding purchase activity, he reported 

that the median dollar amount of transactions on prepaid cards 

for the total time the consumer uses the card is $120 for retail 

cards, $460 for web cards, and almost $500 for payroll cards; and 

that the median number of purchases ranged from four for retail 

cards to 14 for web cards to 19 for payroll cards, with more than 

50 percent of retail cards showing five or fewer purchases as 

compared to approximately one-third of web cards, and only 12 

percent of retail cards showing more than 50 transactions as 

compared to more than 25 percent of web cards, indicating that 

while some cards are not used much and do not last very long, 

others have frequent transactions and are used for a long time. 

Finally, regarding load activity, he advised that the median 

dollar amount of loads over the life span of the card is $200 for 

retail cards, $700 for web cards, and $1200 for payroll cards, 

although the data for most of the programs may be missing the 

initial load, and that the median number of loads is one for 

retail cards, with more than one-third having one load, but 30 

percent having eight or more loads, as compared to 44 percent of 

payroll cards with eight or more loads. He further advised that 

whether or not the consumer has regularly scheduled loads on the 

card can be inferred from the data and reported that preliminary 

data shows that regularly scheduled loads could be detected on 45 

December 1, 2011 
214 

percent of payroll cards; that direct deposit transactions 

represent the vast majority of transactions on payroll cards; 

that the median length of activity on payroll cards is 10 months; 

that the median number of purchases for such cards is 63; that 

the median number of loads is 14; and that the median load and 

purchase volumes are approximately $4300 and $1700, respectively. 

Comparing the direct deposit data on payroll cards to that for 

web and retail cards, he stated that direct deposit activity was 

detected on 16 percent of web cards and 4 percent of retail 

cards, but noted that the median length of activity for web and 

retail cards was nearly one year, that the median number of 

purchases for web and retail cards was more than 100, and that 

the median dollar volume of purchases for web and retail cards 

was approximately $4500 and $3,000, respectively, with these 

cards beginning to look like basic transaction accounts. 

Next, Mr. Hunt provided information on estimated revenues, 

cautioning that the estimates reflected only fees charged to 

consumers by prepaid card issuers and not interchange revenues or 

costs; may be missing the card origination fee and some fees for 

reloads; and may exclude some fees that occur after the last 

consumer-initiated transaction. He advised that when fees earned 

on cards by program type are divided into quintiles, from those 

with the lowest to the highest revenues, the data show that the 

median revenue per card is almost $90 for retail cards in the 

fifth quintile, over $185 for web cards in the fifth quintile, 

and $76 for payroll cards in the fifth quintile, with median 

monthly revenue ranging from $4 to $12, in contrast to a median 

revenue per card over the life of the card for those in the first 

quintile of $1 for retail cards, $10 for web cards, and zero for 

payroll cards in the first and second quintiles. Mr. Hunt then 

noted, regarding the composition of fees for payroll cards, that 

the two most frequent fees are for ATM withdrawals and PIN POS 

fees, with the two fees together accounting for two-thirds of the 

number of fees and about 63 percent of the value of all fees; 

that ATM balance inquiry fees account for about 12 percent of 

revenue; and that maintenance fees account for about 8 percent of 

revenue. 

In summary, Mr. Hunt reiterated that the typical prepaid 

card exhibits just a few months of activity, although there is 

variation across cards within the same program type; that average 

behavior is informative, but does not reveal the entire story; 

that direct deposit is a very important attribute for cards that 

are going to be active for longer periods and have more 

transactions and loads; and that prepaid cards are used primarily 

for making purchases of non-durable goods and services. 

December 1, 2011 
215 

After briefly discussing a blurring of the line between 

prepaid cards and bank accounts on a number of fronts and the 

federal laws that govern various aspects of some prepaid cards, 

Ms. Saunders identified what she considers the seven essential 

features for safe prepaid cards, listing them as choice, 

conspicuous disclosures, security, protection from errors and 

unauthorized transfers, ample access to account information, no 

unfair or unreasonable fees, and no embedded credit features. On 

the feature of choice, she stated that, while choice is not an 

issue for prepaid cards purchased by consumers, it can be a 

concern in the areas of wage and public benefits payments where 

consumers should be allowed a choice of whether to receive funds 

by prepaid card or, if they have a bank account, direct deposit; 

that, despite the EFTA requirement for such a choice, there is 

not always compliance in disbursement of public benefits, with 

some states only issuing benefits payments on prepaid cards; and 

that, as more companies move into the mobile payments arena, 

there exists the possibility that consumers will be steered to 

certain products, which also raises implications for consumer 

choice. With respect to disclosures, she stressed the importance 

of clear and conspicuous information about fees and key terms; 

advised that, with the exception of the basic rule that fees 

should be disclosed, there is little existing law on the issue; 

and suggested there exists a need for much more transparency, not 

with just a list of fees, but with information disclosed in a way 

that makes it easy to see and that utilizes a single number, 

similar to an annual percentage rate, that makes it easier to 

make product comparisons. 

Next addressing the issue of security, Ms. Saunders 

emphasized the importance of FDIC or NCUA pass-through insurance, 

noting, among other things, that although it is the industry 

standard, not every card is in compliance; that a new regulation 

issued by the U.S. Treasury Department provides that any prepaid 

card accepting direct deposit of federal payments must meet the 

requirements for pass-through insurance; and that compliance also 

makes the funds custodial, which can provide consumer protection 

in the event a nonbank program manager becomes insolvent. 

Turning to the issue of protection from errors and unauthorized 

charges, she advised that, currently, the EFTA covers only 

payroll cards and non-needs tested government benefits cards, and 

suggested that the EFTA should be amended to include chargeback 

rights and that Regulation E should be extended to all prepaid 

cards. Regarding ample free access to account information, Ms. 

Saunders indicated that it is one of the biggest differences 

between prepaid cards and bank accounts, with no automatic paper 

statements for prepaid cards and often no option for such 

statements, and the possibility, especially when a consumer has 

no internet access to monitor transactions, that the time allowed 

December 1, 2011 
’9 

q, I 

to dispute a transaction will run before the consumer becomes 

aware of it. She also indicated that there can be fees for 

contacting customer service, even when using the automated menu; 

fees for ATM balance inquiries; and fees for using a teller. She 

expressed fear that bank accounts are moving in the same 

direction and suggested a need to have incentives in the 

regulatory structure to encourage card issuers to offer 

information that consumers can easily access and will actually 

use. 

Regarding the need for prepaid cards with no unfair or 

unreasonable fees, Ms. Saunders suggested that fees that impede 

access to information needed to manage the account should be 

forbidden or strictly limited as to costs; that penalty fees and 

fees that impede the exercise of legal rights should likewise be 

forbidden or strictly limited; that there should be as few other 

fees as possible, with the adoption of incentives to minimize 

such fees; that there should be an option for a single monthly 

fee or a pay-as-you-go model; and that there should be no tricks 

or traps so that the consumer’s expectations are met with respect 

to how the card works and how much it costs. She then explained 

that the interchange rules in the Durbin Amendment to the DoddFrank Wall Street Reform and Consumer Protection Act have an 

impact on fees in that they exempt prepaid and government benefit 

cards from the cap on interchange fees, if the bank issuing the 

card has assets of under $10 billion or, if the bank issuing the 

card is a larger bank and it allows one free ATM withdrawal per 

month, has no overdraft or shortage fees, and the card has no 

bill payment, ACH, or check features, with the exemption making 

prepaid cards less useful or serving to drive prepaid cards to 

small bank issuers that will likely not offer the same 

protections against fees. Finally, addressing the importance of 

prepaid cards that do not have embedded fees, she noted that 

overdraft fees and problems with credit are among the reasons 

many consumers do not have bank accounts and that prepaid cards 

should not follow that model, that certainly there should be no 

overdraft fees, and that there should be no credit features tied 

to mandatory automatic repayment which, she suggested, leads to 

sloppy underwriting and the ability of creditors to take a cut of 

cardholders’ incomes before they can pay rent or purchase food or 

medicine. 

After briefly summarizing legal limits on overdraft fees and 

credit features, including the Durbin Amendment, the EFTA, 

Regulation E and the Treasury rule on direct deposit of federal 

payments, Ms. Saunders ended her presentation by advising that 

there have been instances of payday loans on prepaid cards, with 

the Office of Thrift Supervision having shut down one model, the 

iAdvance line of credit on MetaBank’s NetSpend cards; that for a 

December 1, 2011 
217 

while, there was an absence of such programs, but that they are 

starting to reappear; that the 0CC, in July 2011, proposed 

guidance on "account advance" products, which could legitimize 

bank payday loans and lead to a return to prepaid cards; and that 

payday loans can be sold by payday lenders to avoid state laws. 

Ms. Hollifield, after providing background information on 

The Pew Charitable Trusts, advised that the focus of her 

presentation would be on two reports issued by Pew earlier in the 

year and on focus groups with prepaid borrowers during the week 

of November 14. She stated that the first of the two reports was 

titled "Hidden Risks: The Case for Safe and Transparent Checking 

Accounts," noting that it had analyzed the checking accounts 

offered by the 10 largest banks in the U.S.; that, surprisingly, 

these 10 banks offered 265 distinct online accounts; and that the 

review found disclosure of terms and conditions for checking 

accounts to be a maior concern, with the median length of 

disclosures at 111 pages. To counter the problem of poor 

disclosures, she advised that Pew had developed a model 

disclosure box for checking accounts that would allow customers 

to really be able to see and understand the basic account terms 

and conditions and enable them to comparison shop for accounts; 

that Pew had been discussing with the CFPB options for requiring 

such a disclosure; and that a couple of credit unions had already 

voluntarily adopted Pew’s model, with interest from smaller 

community banks across the country. She then presented Pew’s 

findings on checking account overdraft fees, reporting that the 

median overdraft penalty was $35 which, if treated like a shortterm loan on the median transaction amount of $36, with a 

repayment period of seven days, would represent an interest rate 

of over 5,000 percent. She provided an example, using the 

California case of Guiterrez vs. Wells Fargo, to show the 

difference in fees when banks reorder transactions from high to 

low to maximize overdraft fees rather than ordering them 

chronologically, showing that the fees for reordered transactions 

were $88 instead of the single $22 fee that would have been 

imposed if the transactions had been posted chronologically, and 

suggested that the obvious solution to the reordering of 

transactions is to prohibit the practice. 

Ms. Hollifield then discussed the second report, "Slipping 

Behind: Low-Income Los Angeles Households Drift Further from the 

Financial Mainstream," explaining that it was a longitudinal 

(2009 and 2010) household survey of 1,000 unbanked and 1,000 

banked, low-income Los Angeles households and advising that, 

among its findings was that 67 percent of the banked actively 

save at least some of the time, as compared to only nine percent 

of the unbanked; and that 32 percent of households cited hidden 

or unexpected fees as the reason they had left the banking system 

December 1, 2011 
218 

as opposed to 27 percent, who cited lack of funds or 

unemployment. She suggested that the takeaway from the two 

reports is that although checking accounts pose problems and 

present a number of issues that need addressing, ultimately a 

relationship with a bank is beneficial to consumers. 

Turning to the focus groups, Ms. Hollifield advised that Pew 

held four focus groups in two cities, Chicago and Houston, to 

look at prepaid cards as a substitute for checking accounts or 

why consumers use them as a substitute for or in addition to 

checking accounts; that most of the individuals in the focus 

groups had incomes between $25,000 and $75,000; and that the 

research was qualitative and, while the findings were not 

statistically significant, they were nonetheless interesting. 

She explained that, on the basis of participant word associations 

for "credit card," "checking account," "check casher," and 

"prepaid card," it was evident that consumers are not fans of 

credit cards and check cashers, are not yet completely turned off 

by checking accounts, with many still aspiring to have such 

accounts, and generally have positive associations with prepaid 

cards; and that, among all focus groups, overdraft fees were 

found to be driving prepaid card use, although seven of 40 

participants indicated they would like to be able to overdraft 

and 15 of 40 participants indicated that they would like to be 

able to access a line of credit. Delving further into specifics 

on prepaid cards, she advised that some of the benefits cited for 

the cards were spending control, budgeting, anonymity, and 

security of funds; that some of the negatives cited included 

volume of fees such as reloading, monthly, and ATM fees, and 

holds on funds; that the average fee paid to purchase the cards 

was $3.38, the average reloading fee was almost $4.00, and the 

average ATM fee was almost $3, with most incurring ATM fees for 

debit-like transactions rather than to withdraw cash from an ATM; 

and that the average load at purchase was $255, with average 

reloads of $272 and the frequency of reloads occurring about 

every three weeks. 

In closing, Ms. Hollifield recommended that banks be 

prevented from reordering transactions to increase overdrafts; 

that a one-page disclosure box be adopted for checking accounts; 

that overdraft fees be limited to a reasonable size; that an 

effort be made to speed up funds availability; and that banks 

provide a comprehensive suite of products such as money orders, 

bill pay services, and personal loans to bring the unbanked into 

the mainstream banking system. 

Next, Ms. Del Rio noted that NEDAP is a resource advocacy 

center based in New York City and works with neighborhood-based 

groups, legal services offices, community development financial 

December 1, 2011 
219 

institutions, and others working in low-income neighborhoods and 

communities of color to promote community economic justice and 

eliminate discriminatory economic practices. As a backdrop for 

her discussion on prepaid cards, she provided demographic and 

other information on the communities served by NEDAP noting, 

among other things, that there are relatively few bank branches 

in the neighborhoods; that they instead contain a proliferation 

of money transfer companies, pawn shops, check cashers, and other 

alternative financial services providers; that, although they 

have high rates of home ownership, low credit scores, sub-prime 

mortgages, and high foreclosure rates are prevalent; and that 

debt buyer lawsuits have been a growing trend in recent years. 

With respect to prepaid cards, she advised that NEDAP first began 

working on the issue with the advent of electronic benefits 

transfer cards and that the organization’s work in that area has 

given rise to a number of concerns with prepaid debit cards, many 

of which had already been addressed by the other presenters. She 

identified several concerns, however, that she felt had not been 

adequately addressed, including whether prepaid cards actually 

provide an equitable substitute for a bank or credit union 

account; whether prepaid cards are bringing people into the 

mainstream, regulated system or instead reflecting and 

reinforcing existing inequities; whether the starting point to 

addressing the issues posed by prepaid cards should be reforming 

the already existing product or taking a step back and asking how 

best to meet people’s needs; whether an outcome that supports the 

steering of low-income consumers to prepaid cards, while offering 

traditional accounts to other others, should be considered an 

adequate resolution of the issues; whether those who argue in 

favor of prepaid cards would be willing to close their accounts 

to switch to prepaid cards; and whether there is an abandonment 

of the idea of holding banks accountable to low-income 

individuals and their communities. She concluded by stating that 

she hoped that the answer to the last concern is a resounding, 

A brief discussion followed, during which Mr. McDonald 

recommended that staff prepare a matrix comparing the regulatory 

burden for prepaid cards issued by financial institutions and 

those issued by non-financial companies to determine whether 

there is a real or perceived burden for bank-issued cards, in 

response to which Acting Chairman Gruenberg indicated that he 

would have staff prepare a matrix. Ms. Wright, after thanking 

panelists for what she considered a legitimate debate, suggested 

that the cost burdens for bank operations are fundamentally 

different than for non-regulated entities and that the disparity 

has gotten considerably worse in the past year or two, in 

response to which Ms. Saunders stated that gaps in regulatory 

coverage were the primary reason for the creation of the CFPB, 

December 1, 2011 
( ’) 

4 

with the projected outcome being that financial products would be 

regulated on the basis of the product itself and not who issues 

it. Mr. Beck suggested that there should be some disclosure 

consistency across all products involving a financial contract, 

including those for credit cards, student loans, checking 

accounts, and prepaid cards, which also would facilitate consumer 

financial education efforts, in response to which Ms. Hollifield 

agreed that a standard disclosure box is critical, but pointed 

out that it also is important to have a safe product and to 

ensure that regulators develop the appropriate incentives. 

Committee members and panelists also touched on the reasons 

underlying consumer use of prepaid cards, prepaid card revenues, 

the lack of any current vehicle for savings with prepaid cards, 

and the challenge going forward of how to serve segments of the 

population who do not generate a lot of revenue, yet still 

provides them with products that offer full functionality and 

entry into the mainstream. 

Bringing the meeting to a close, Acting Chairman Gruenberg 

reiterated that the presentations and discussion had been very 

helpful, especially in terms of developing an agenda for the next 

Committee meeting. He reminded Committee members that the FDIC’s 

National Survey of Unbanked and Underbanked Households is 

conducted on a biennial basis, announced that the second 

administration of the survey had recently been completed, and 

indicated that staff will be prepared to share the results of 

that survey later in 2012. 

There being no further business, the meeting was adjourned. 

Robert E. Feldman 

Executive Secretary 

Federal Deposit Insurance 

Corporation 

And Committee Management Officer 

FDIC Advisory Committee on Economic 

Inclusion 

December 1, 2011 
Minutes 

of 

The Meeting of the FDIC Advisory Committee on Economic Inclusion 

of the 

Federal Deposit Insurance Corporation 

Held in the Board Room 

Federal Deposit Insurance Corporation Building 

Washington, D.C. 

Open to Public Observation 

December 1, 2011 - 8:55 A.M. 

I hereby certify that, to the best of my knowledge, the attached 

minutes are accurate and complete. 

Martin J. Gruenberg 

Acting Chairman 

Board of Directors 

Federal Deposit Insurance Corporation 

Dated: February 28, 2012