J 68

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

July 3D, 2009 - 8:53 A.M.

The meeting of the FDIC Advisory Committee on Economic

Inclusion ("ComE-IN" or "Committee") was called to order by ComEIN Chairman Diana L. Taylor.

The members of ComE- IN present at the meeting were: Diana L.

Taylor, ComE- IN Chairman and Managing Director, Wolfensohn &

Company, L.L.C., New Yorki New York; i Martin Eakesi Chief

Executive Officeri Self-Help Credit Union, Durham i North

Carolina; Lawrence K. Fish, Former Chairman and Chief Executive

Officer, Citizens Financial Group, Inc.; Ester R. Fuchs,

Professor i School of International and Public Affairs i Columbia

University; Ronald Grzywinski, Chairman, Shore Bank Chicagoi

III inois; Wade Henderson, President and CEO, Leadership

Conference on Civil Rights; Alden J. McDonaldl Jr., President and

Chief Executive Officer, Liberty Bank and Trust, New Orleans,

Louisiana; Bruce D. Murphy, Executive Vice President and

President, Community Development Banking i KeyBank National

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

of International Migration, Georgetown Uni versi ty; John W. Ryan,

Executive Vice President i Conference of State Bank Supervisors;

J. Michael Shepherd, President and Chief Executive Officer i Bank

of the West and BancWest Corporation; Peter Tufano i Sylvan C.

Coleman Professor of Financial Management and Senior Associate

Dean, Harvard Business School; and Elizabeth Warren, Leo Gottlieb

Professor of Law, Harvard Law School. Committee members Rev. Dr.

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

York, and Robert K. Steel, Chairman of the Board of Trustees, The

Aspen Institute, participated in the meeting by telephone.
69

Commi t tee members Michael S. Barr, Assistant Secretary for

Financial Institutions, Department of the Treasury; Ted Beck,

President and Chief Executive Officer i National Endowment for

Financial Education; Kelvin Bostoni President, Boston Mediai

L.L.C.; and Deborah C. Wright, Chairman and Chief Executive

Officer, Carver Federal Savings Bank, New York, New York, were

absent from the meeting.

Members of the Federal Deposit Insurance Corporation's

("Corporation" or "FDIC") Board of Directors present at the

meeting were Sheila C. Bair, Chairman, and Martin J. Gruenberg i

Vice Chairman. Corporation staff who attended the meeting

incl uded Ruth R. Amberg, Valerie J. Best i Michael W. Briggs,

Elizabeth Boudris i Lee Bowman, Luke H. Brown, Susan Burhouse i

Karyen Chu, Christine M. Davis, Tiffany K. Froman, Heather

Grattoni Leneta G. Gregorie, William F. Harral, Ellen W. Lazari

Alan W. Levy, Rae-Ann Miller, Skip Miller, Tariq A. Mirza, Robert

W. Mooney, Janet V. Norcom~ Luke W. Reynolds, Claude A. Rollin,

Barbara A. Ryan, Andrew B. Stirling i Jesse o. Villareal i

Christina Whatley i Cathy Wright i and Nann E. Wright.

william A. Rowei III, Deputy Chief of Staffi Office of the

Comptroller of the Currency; Gary E. Barnoff, Vice President of

Branch Operations i Slavie Federal Savings Banki Baltimore i

Maryland; Mark J. Cavanagh, Executive Directori Massachusetts

State Lottery; Margaret R. DeFrancisco, President & CEO i Georgia

Lottery Corporation; Gordon Medenica, Director, New York State

Lot tery; Kevin Miller i Senior Vice President i Deposit Product

Manager - Keep the Change and Tradi t ional Savings i Bank of

America, National Association, Charlotte i North Carolina;

Stephanie B. Mudick, Executive Vice President, Head of Global

Retail Strategy i JPMorgan Chase & Co. i New Yorki New York; Connie

Laverty 01 Connor, Senior Vice President i Chief Marketing Officer,

GTECH Corporation; and Joel Roseni Consultant, Doorways To Dreams

Fundi Boston, Massachusetts, were also present at the meeting.

Committee Chairman Taylor opened and presided at the

meeting. After Committee Chairman Taylor welcomed ComE- IN

members and provided an overview of the meeting agenda, Chairman

Bair provided an update on the status of initiatives arising from

previous meetings of the Committee, including progress on the

Corporation's affordable small dollar loan pilot, which she said

was performing well with 31 participating banks originating over

19,000 new loans; progress on the Corporation's survey of banks

serving the unbanked and the underbanked, which will be a focus

of the next ComE-IN meeting and has been championed by Vice

Chairman Gruenberg; and progress on the Prize-Linked Savings

("PLS") subcommittee, which held a meeting on July 29, 2009.

July 30, 2009
70

Chairman Bair went on to introduce Ellen W. Lazar, the FDIC's new

Senior Advisor to the Chairman for Consumer Policy, and indicate

that Ms. Lazar would lead the later discussion on recommendations

from the February 5, 2009, ComE-IN meeting and focus on setting

specific goals for reducing the level of underserved households

and exploring how lessons learned from the small dollar pilot

program and other potential innovations can be leveraged into

broader availability of small dollar credit.

After a brief introduction by Chairman Bair and Committee

Chairman Taylor i Committee Member Tufano, chairman of the PLS

subcommittee i began his summary of the July 29, 2009,

subcommittee meeting. The meetingi explained Professor Tufano,

covered many topics and featured a set of eclectic group of

speakers who he listed: Mr. Medenica, Mr. Cavanagh, Ms.

DeFranciscol Ms. O'Connor; and James C. Kennedy, Jr., Senior Vice

President, Sales and Global Marketing, Scientific Gam~s; from the

non-profit community: Mr. Rosen; from the technology community:

Michael Ferrari, President i Chief Operating Officer i and cofounder, SmartyPig, and from the banking industry: Mr. Barnoff,

Mr. Miller, Ms. Mudick, Robert Keipi Chief Executive Officer,

Investment Products, First National Bank - A Division of

FirstRand Banki Limited, South Africa; and William L. Koleszar,

Senior Vice President, Marketingi Citizenl s Financial Group/Royal

Bank of Scotland. Professor Tufano said that the speakers were

joined at the July 291 2009, meeting by Chairman Bair and Vice

Chairman Gruenberg, and PLS Subcommittee members Grzywinski,

Orozco, and Ryan as well as Committee Member Murphy.

The main topics of the PLS subcommittee meeting i as

summarized by Professor Tufano, were identifying the reasons why

savings initiativesi including PLS, are important, identifying the

purpose behind normal family savings i identifying technological

advances that can enhance and change family savings, developing a

method by which savings products can be delivered to struggling

families, deciding who should lead these savings initiativesi and

explaining how lotteries and PLS could further this goal. In

order to help explain why savings initiatives targeted at the

unbanked and underbanked are important i Professor Tufano described

a large scale survey that he conducted in conjunction with TNS

Global and Annamaria Lusardi i Professor of Economics i Dartmouth

Uni versi ty. The survey, Professor Tufano stated, asked

participants whether they could come up with $2/000 in emergency

funds within 30 days and, if emergency funds were neededi where

the money would come from. The results of this survey indicated

that 46 percent of Americans believed that they probably could not

come up with $2,000, and only 23 percent were absolutely certain

that they could, numbers that Professor Tufano described as both

startling and deeply depressing.

July 30 i 2009
71

Professor Tufano went on to explain that, while savings is a

financial decision for families, it also embodies their hopes,

dreams i and aspirations. With this in mind, Professor Tufano

introduced a continuum of methods that could be used to increase

savings and working examples of each method. First, he gave

examples of how to force consumers to save: Social Security and

the United Kingdom's Child Trust Fund. Second, he gave examples

of how to make it hard for consumers not to save: Auto-IRA plans

and bundled products such as Bank of America's Keep the Change

program. Thirdi Professor Tufano gave examples of how to make it

easy for consumers to save: fee-loaded stored value cards with

savings pockets that allow holders to transfer funds from the noninterest bearing part of the card to the interest -bearing part of

the card and tax-time savings programs. Fourthi Professor Tufano

gave an example of bribing consumers to save: Citizens Bankl s

CollegeSaver and embedded financial incentives in 401 (~) s or

Individual Retirement Accounts. Fifth, he gave an example of

providing social support for consumers to save: SmartyPig, an

"online piggybank" to help people save money for specific goals in

their lives. Finally, Professor Tufano introduced the concept of

PLS i as a method of encouraging consumers to save by making

savings fun.

Professor Tufano described a PLS product as a way of mixing a

traditional savings tool with a lottery, creating a product that

would protect principal while providing something more exciting

than ordinary interest. He stated that many families prefer a

small chance of a life-changing event i winning the lottery, over a

large chance at a non-event, nominal interest from a small bank

deposit. To support this notion, Professor Tufano explained that

70-80 percent of all Americans play the lottery, and the average

family spends $514 a year on lottery tickets. Moreover i according

to a study by the Consumer Federation of America, 38 percent of

people with incomes under $25/000 believe that the most practical

way to accumulate several hundred thousand dollars is through the

lottery, making lottery a savings strategy in the minds of those

individuals.

Professor Tufano described several working examples of PLS

products in other countries: Premium Bonds in the United Kingdomi

no-interest accounts that provide the holder with a monthly chance

of winning between 50 and 1 million pounds; Swedish Lottery Bonds;

and, in South Africai First National Bank's now defunct Million a

Month Account, an account that yielded nominal interest and had no

fees to enroll, but provided one entry per 100 rand deposited for

the monthly prize drawings for up to 1 million rand. Each of these

products had positive resultsi especially the Million a Month

July 30, 2009
72

Accounts that were purchased by 1.1 percent of South Africa's

unbanked and 7.1 percent of the population as a whole.

Prompted by a question from Committee Member Eakes,

Professor Tufano addressed the legality of PLS products in the

u. S. He explained that under most state laws , private lotteries

are illegal, and federal law prohibits banks from running

lotteries. However, he explained further i banks can create

sweepstakes as long as entry is not based on consideration.

Professor Tufano provided three examples of sweepstakes PLS

programs: Maryland's Roll in the Dough where everyone making a

deposit or who filled out a form was entered in a sweepstakes to

win a fixed prize; JPMorgan Chase's Double Your Deposit where

entry occurred prior to deposit and those chosen in the

sweepstakes had their new deposits doubled; and Michigan's Save to

Win, which was very similar to the Million a Month Account from

South Africa but operated under a special Michigan law allowing

"savings raffles" in credit unions. Professor Tufano described

all three programs as successful.

Finally i Professor Tufano introduced the concept of No-Lose

Lottery Tickets, an idea discussed in the July 291 2009, PLS

subcommittee meeting. This concept would allow already existing

state lotteries to sell tickets that allow holders to remain

enrolled in a periodic lottery drawing or that could be redeemed

for face value at any time. Professor Tufano also highlighted the

challenges of creating such a product including: providing proper

regulatory oversight, structuring the program in a way that it

would be profitable, and marketing the program such that it would

not reduce earnings from normal lottery sales.

Professor Tufano ended his presentation with a reminder of

the need to foster family savings and encouragement for the

Committee in pursuing this goal. Theni Professor Tufano asked

the members of the PLS subcommittee to give their comments about

the July 291 2009, meeting.

As the PLS subcommittee and other Committee members gave

their comments and opinions on the July 29, 20091 meetingi most

expressed their thanks to Professor Tufano for his concise

summary of the topics covered. Alsoi most of the members stressed

the importance of promoting savings to the unbanked and asset

poor segments of the population as well as the role that ComE- IN

should play in such an endeavor. Committee Members Ryan and

Grzywinski stressed the national importance of savings i with Mr.

Grzywinski framing it as a possible national security issue.

Committee Member Murphy praised the suggested programs that would

allow consumers to place money directly into a savings product

when cashing checks.

July 301 2009
73

Committee Chairman Taylor posed a question regarding the

national savings equilibrium. Professor Tufano responded by

pointing out the difference between the macro and micro

approaches. Professor Tufano explained that the macro approach

balances the national growth effects of the savings rate while a

micro approach looks at the minimum level of savings needed by a

family.

Committee Member Orozco discussed the need to match the type

of product encouraged to the type of savings that is to be

needed, concluding that the Committee should focus on small loans

and small savings accounts, including PLS products. Committee

Member Fish pointed out the difficulty in marketing small

accounts. He explained that most banks believe that fully loaded

savings accounts with balances under $2/000 are not profitable.

He also asked if the Community Reinvestment Act ("eRA") could be

adjusted to help incentivize small savings accounts. -He was

joined in his interest in adjusting the CRA by Committee Member

Henderson.

With respect to the CRA discussion, Mr. Grzywinski commented

that direct incentives might not be the best long-term option.

Rather, Mr. Grzywinski suggestedi it would be more helpful to

create an ongoing obligation on the part of banks to increase

personal savings or to incentivize the research and adaptation of

new technologies that could lower the cost of administering

accounts. In response i Chairman Bair asked for comments on new

technologies and administration costs associated with the

programs that had been discussed at the PLS subcommittee meeting.

Professor Tufano responded that new technologies had aided in the

creation of the previously mentioned savings programs,

particularly Keep the Change and SmartyPig.

In addition to general comments on encouraging savings i the

Commi t tee members' discussion focused on lotteries and related

savings products, the principal focus of this ComE- IN meeting.

Mr. Fish asked whether the stereotype that lotteries take

advantage of low- and moderate-income families and represent a

regressive tax is accurate. Professor Tufano called on Gordon

Medenicai Director of the New York State Lottery, to help answer

this question. Mr. Medenica responded that lotteries are

mainstream activities that are enjoyed by all segments of the

population. Additionally i Mr. Medenica pointed out that most

state lottery earnings are earmarked for specific public

programs i such as K- 12 education in New York. A subsequent

discussion among Mr. Medenica i Mr. Ryan, and Chairman Bair

pointed out that lotteries are only regressive with respect to

percentage of income, not gross spending. Another subsequent

July 301 2009
74

discussion between Mr. Medenica, Committee Member Fuchs i and

Chairman Bair pointed out that money from lotteries earmarked for

social programs is not normally a percentage of lottery earnings

but rather a fixed amount. Professor Fuchs explained that this

kind of earnings allocation made the lottery earmarks more like a

general state expenditure and the lottery earnings more like any

other part of the state budget, diminishing the social value of

the programs.

In response to a question by Professor Fuchs, Professor

Tufano explained that lottery related savings products, and PLS

products generally i are most often used by asset poor individuals

and families. He also explained that the target demographic of

any PLS product could be adjusted by reducing prize potential and

adding a normal interest rate to the product. Additionally, Mr.

Murphy pointed out how similar running a lottery can be to

banking in terms of delivering products, asset management i and legislative difficulties. -

Committee Member Warren expressed her concerns that PLS

products would make comparison of savings products more difficult

and thereby reduce the effect of competition. She explained

that i when shopping for an account with the best interest rate,

it is relatively simple to compare the products of different

banks i but, when trying to compare a normal interest rate to a

product offering a lottery or sweepstakes compensationi product

comparison would become extremely complicated. Professor Tufano

responded by suggesting a mandatory rate reporting requirement i

similar to the Prize Rate system in the United Kingdom.

Chairman Bair then called for a recess. Accordingly, at

10: 52 a. m., the meeting stood in recess.

* * * * * * *

The meeting reconvened at 11:08 a.m. that same dayi

whereupon Chairman Bair introduced Ellen W. Lazar to moderate a

discussion on the next item of the Committee's business. Ms.

Lazar opened with a discussion on the adoption of a June 51 2009,

report, summarizing the business of ComE-IN/s February 51 2009,

meeting. She gave the Committee some time to review the fivepage report and then asked for comments on whether it fairly

represented the Committee's prior discussion and business.

Professor Warren suggested that the report should indicate

the Committee's adoption, rather than just considerationi of a

measure for the creation of an entity to protect consumers from

harmful financial products. Mr. Henderson concurred with

Professor Warren, and Mr. Ryan suggested adding language to make

July 30, 2009
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clear that any such Federal entity would serve as a regulatory

floor to the states. Professor Fuchs suggested that the same

adoption language should be added to the section on instituting a

universal curriculum of financial education in schools. She also

suggested that language concerning the use of new technologies

should be added to the section suggesting that banks offer

products that make savings automatic. Mr. Fish suggested that

the section recommending incentives to banks should include

recommendations of both tax and non-tax incentives, andi finally,

Professor Tufano suggested adding a few sentences to the report

congratulating the FDIC on getting fact-based information on

these topics to the public.

Mr. Grzywinski asked for a method by which members of the

public could comment on the final report once posted to the

Committee's website. Committee Member McDonald recommended that,

if comments were receivedi the Committee revisit the report and

comments at a future meeting for further revision.

Ms. Lazar noted the necessary language corrections and

website recommendations and agreed to oversee the changes. Ms.

Lazar went on to summarize her view of the Committee's goal and

necessary course of action. She explained that the Committeel s

main concern is lowering the level of underserved households i

elaborating that the main areas of concern should be setting a

target level of underservedi developing a method for measuring

underserved households i ensuring reasonably priced and safe bank

accounts i ensuring access to fairly priced small dollar credit i

and revising the CRA services test. Ms. Lazar then began a new

discussioni asking what should be done about the Committeel s

goals, how it could work together with the FDIC, and how it could

more effectively use subcommittees.

Commi ttee Member Orozco commented on the ambition embodied

in this list of goals. He explained that many of these concerns

were outside the scope of the Committee's ability and authority.

He also commented that tackling so many problems might not be

possible and suggested focusing on one or two of the most

important issues.

Mr. McDonald asked about the general authority of the

Committee and how far it could go in making recommendations and

setting policy. Chairman Bair explained that the Committee/s

role is to advise the FDIC on matters concerning economic

inclusion in the banking industry. She pointed out that the FDIC

could rely on the Committee's finding when setting its own policy

and regulationsi and when recommendations are outside the scope

of the FDIC iS authority, the agency could foster the

communication necessary to carry the Committee's recommendations

to the appropriate government agency.

July 30, 2009
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Committee Member Eakes expressed a concern that the

Committee should focus on overdraft protection issues before

encouraging savings among underbanked consumers. Mr. Eakes and

Vice Chairman Gruenberg discussed some of the worrisome

statistics regarding overdraft protection including: most

overdrafts occur among people with five or more overdrafts per

year, 50 percent of overdrafts occur during point of sale and ATM

transactions, in 2004, 80 percent of banks didn't allow

overdrafts at all, and today, 80 percent of institutions allow

overdrafts and charge fees associated with them. Mr. Eakes

stated that encouraging consumers to increase use of banks

without first addressing overdraft protection would compromise

the Committee's overall goal and serve to hurt low- to moderateincome families. He also reasoned that such overdrafts

constitute loans without bank oversight, possibly affecting bank

safety and soundness.

Ms. Lazar pointed out that the Board of Governors of the

Federal Reserve System ("FRB") was in the process of creating

overdraft protection rules. She said that these rules should be

enacted by the end of the year. Mr. Eakes expressed his

displeasure with the FRB' s proposed rule, saying that it was too

limited. He also expressed his frustration with finding an

agency with both the authority to act and the willingness to listen.

Chairman Bair indicated that the FDIC would have liked to

see more assertive rules on overdraft protection in the FRBI s

proposal i and she pointed out that the FDIC had commented on the

proposed rules. Chairman Bair stated that the FDIC had been and

would continue to be a strong advocate against abusive overdraft

protection. She went on to point out that regulating overdraft

protection was not a traditional role of the FDIC, but she

reasoned that it could possibly be tied to the FDIC's safety and

soundness guidelines.

vice Chairman Gruenberg suggested that, even without a

solution to overdraft protection issues, the Committee should

still move forward with its goals and include overdraft fee

reform as a part of its overall recommendation on ways to help

unbanked and underbanked individuals. Chairman Bair agreed with

the need to move forward with the Committee's goals and indicated

that overdraft protection would be an issue with which the

Committee would continue to grapple.

As its final item of business, Chairman Bair created a

subcommittee to come up with specific recommendations for

reducing the level of underserved individuals. Ms. Lazar

July 30, 2009
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suggested the creation of the subcommittee and suggested that new

technology be part of its focus. Committee Member Shepherd

agreed with Ms. Lazar's suggestion. Chairman Bair asked Vice

Chairman Gruenberg to head the subcommittee, and Mr. Fish

suggested that it have a number of bankers among its members.

Chairman Bair outlined the purpose of the subcommittee as

creating goals for bringing people into banking in an appropriate

way and determining how to measure achievement of that goal. Ms.

Lazar indicated that she would set up an agenda and contact

individual members to participate on the new subcommittee.

There being no further business, the meeting was adj ourned.

R~

Executive Secretary

Federal Deposit Insurance

Corporation

And Committee Management Officer

FDIC Advisory Committee on Economic

Inclusion

July 30, 2009
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

July 30, 2009 - 8: 53 A.M.

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

minutes are accurate and complete.

~~k

Diana L. Taylor

Chairman

FDIC Advisory Committee on Economic Inclusion

Dated: October 29, 2009