111

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

June 24, 2010 - 8 :49 A.M.

The meeting of the FDIC Advisory Committee on Economic

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

Sheila C. Bair, 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¡ Kelvin Boston, Executive

Producer and Hos t of PBS' Moneywi se wi th Kel vin Bos ton;

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

Group, Inc.; Rev. Dr. Floyd H. Flake, Senior Pastor, Greater

Allen AME Cathedral of New York; Ester R. Fuchs, Professor,

School of International and Public Affairs, Columbia University;

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¡ John W. Ryan, Executive Vice President,

Conference of State Bank Supervisors; J. Michael Shepherd,

President and CEO, Bank of the West and BancWest Corporation; and

Robert K. Steel, Chairman of the Board of Trustees, The Aspen

Inst i tute . Commi t tee Chairman Diana L. Taylor and Committee

members Michael S. Barr, Assistant Secretary for Financial

Institutions, Department of the Treasury; Martin Eakes, CEO,

Self -Help/Center for Responsible Lending, Durham, North Carolina;

Wade Henderson, President and CEO, Leadership Conference on Civil

Rights, and Counselor to the Leadership Conference on Civil

Rights Education Fund; Manuel Orozco, Senior Associate at the

Inter-American Dialogue, and Senior Researcher, Institute for the

Study of International Migration, Georgetown University;
112

Rebecca W. Rimel, President and CEO, The PEW Chari table Trusts;

Peter Tufano , Sylvan C. Coleman Professor of Financial

Management, Harvard Business School, and Senior Associate Dean

for Planning and University Affairs; Elizabeth Warren, Leo

Got tl ieb Professor of Law, Harvard Law School; and Deborah C.

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

York, were absent from the meeting.

Members of the Corporation's Board of Directors present at

the meeting were Sheila C. Bair, Chairman, Martin J. Gruenberg,

Vice Chairman, and Thomas J. Curry, Director (Appointive).

Michael W. Briggs, Acting Designated Federal Officer for the

Committee and Supervisory Counsel, Consumer/Compliance Section,

Corporate, Consumer, Insurance, and Legislation Branch, FDIC

Legal Division, was also present at the meeting. Corporation

staff who at tended the meeting included Lisa D. Arquette,

Heather L. Basnett, Valerie J. Best, Michelle M. Borzillo,

Luke H. Brown, Leah E. Bullis, David W. Chapman, Glenn E. Cobb,

Christine M. Davis, Nancy DelCastillo, Patricia B. Devoti, Sandra

K. Fletcher, Ralph E. Frable, Janet R. Gordon, Leneta G.

Gregorie, Tray Halverson, Sally J. Kearney, Ellen W. Lazar,

Alan W. Levy, Rae-Ann Miller, Skip Miller, Barry A. Mills, Tariq

A. Mirza, Robert Moss, Christopher J. Newbury, Janet V. Norcom,

Yazmin E. Osaki, Sylvia H. Plunkett, Luke W. Reynolds, Sherrie

Rhine, Barbara A. Ryan, Kimberly Stock, Eloy A. Villafranca,

John F. Vogel, and Bucky Wells. William A. Rowe, III, from the

Office of the Comptroller of the Currency also attended, as well

as Charlotte M. Bahin, from the Office of Thrift Supervision.

Chairman Bair opened and presided at the meeting. She began

by welcoming ComE-IN members, including in absentia, Ms. Rimel,

the newest member of the Committee; congratulating Mr. Steel for

his recent appointment as Deputy Mayor of Economic Development

for New York City; and providing an overview of the meeting

agenda. She then thanked Vice Chairman Gruenberg and Mr. Murphy

for coordinating the previous day's meeting of the Strategic

Planning Subcommittee ("Subcommittee") on the FDIC Small-Dollar

Loan ("SDL") pilot Program; noted that staff would shortly

present the SDL Pilot results to Committee members, including the

key features of a feasible, safe, and affordable small-dollar

loan that is easily duplicated and does not require a major

investment of funds or infrastructure; and indicated that she

would like to hear Committee members' views on the pilot results

as well as their recommendations for release of the findings.

Chairman Bair concluded her opening remarks by expressing

gratitude to pilot participants for their public service and

commitment to their communities, many of whom she noted were

present at an awards ceremony the previous evening and some of

whom had stayed over to attend the Committee meeting.

June 24 i 2 010
113

Mr. Murphy, after adding his thanks to the bankers and

insti tutions that participated in the SDL Pilot, expressed his

pleasure with the outcome of the pilot and identified as

presenters for the first panel discussion on the Subcommittee's

meeting regarding the final results of the SDL Pilot and Case

Studies Rae-Ann Miller, Special Advisor to the Director, FDIC

Division of Insurance and Research; Lilia Escajeda, Public

Relations Consultant, Amarillo National Bank, Amarillo, Texas;

Cassandra Slade, Vice President, Community Development Officer,

Lake Forest Bank & Trust, Lake Forest, Illinois; and Alden J.

McDonald, Jr., Committee member and President & CEO, Liberty

Bank, New Orleans, Louisiana.

Ms. Miller began by also thanking the pilot participants and

Corporation staff who worked on the pilot. She then launched

into an overview of the purpose, design, and size of the pilot,

advising that its purpose was to determine whether banks can

profitably offer SDLs as an alternative to high-cost credit

products; that it ran for two years, from February 2008 to

February 2010, starting with 31 banks and ending with 28 banks,

operating in 27 states and ranging in size from approximately $28

million to $10 billion in assets; and that the Corporation had

initially established general guidelines for the loans offered as

part of the pilot, including loan amounts of $1,000 or less,

interest rates of 36 percent or less, low or no origination fees,

streamlined underwriting, and prompt processing of applications.

Regarding loan amounts, however, she stated that bankers had

determined that the loan maximum of $1,000 was not sufficient to

meet the SDL needs of the target population, resulting in a shift

during the second year of the pilot to track two types of loans,

SDLs of $1,000 or less and nearly SDLs ("NSDLs") which ranged

from over $1,000 up to $2,500.

Next summarizing the results of the SDL Pilot, Ms. Miller

advised that, over the course of the pilot, participating banks

made more than 34,000 loans, totaling approximately $40 million.

With respect to SDLs, she indicated that the average loan amount

was about $700; the loan terms ranged from 10 to 12 months, with

an average interest rate of 13 to 16 percent; and, although

delinquency rates ran about three and a half times higher than

the industry average, charge-offs were generally comparable to

those for unsecured loans to individuals. With respect to NSDLs,

she indicated that the average loan amount was approximately

$1700; the loan terms ranged from 14 to 16 months, with an

average interest rate of 13 to 16 percent; and charge-off rates

were 8.8 percent, comparable to rates for unsecured loans to the

general population. She further noted that only about one-half

of pilot banks charged an origination fee, but that, even when

June 24, 2010
1.14

accounting for fees, none of the loans exceeded an APR of 36

percent.

Ms. Miller then enumerated lessons learned from the pilot,

reiterating that loans made under the pilot were no less likely

to default than those in the general population, and advising

that bankers viewed SDLs and NSDLs primarily as a relationshipbuilding tool. She identified as program elements associated

wi th success long-term board and senior management support;

having an engaged champion, preferably with lending and/or

policy-making authority, who is excited about the product; and

availability of a large population of low- and moderate-income

("LMI") individuals, military personnel, or immigrants, which tends to generate greater demand. She further identified as

product elements associated with success loan repayment terms

longer than a few pay periods and strong, but streamlined

underwriting. Regarding the impact on program success of linked

savings and financial education, Ms. Miller reported that the

respective charge-off rates for programs that mandated or

encouraged savings were 1.6 and 6.4 percent, compared to a

charge-off rate of 11.4 percent for programs with no linked

savings component, and that the charge -off rate for programs with

a financial education component was 5.7 percent, compared to a

charge-off rate of 12 percent for programs that did not feature a

financial education component. She noted, however, that bankers

were fairly evenly split on whether such features should be

mandated, with some believing the features should be hard-wired

into the loan products to break the cycle of reliance on high

cost credit and others believing that such features unnecessarily

complicate the loan process and act as a deterrent to borrowers.

Concluding her presentation, Ms. Miller advised that best

pract ices and lessons learned from the pilot resulted in the

creation of a replicable template for safe, affordable, and

feasible SDLs that the Corporation hopes will become a staple

product for mainstream financial institutions.

Next, Ms. Escaj eda provided background information on

Amarillo National Bank, noting, among other characteristics, that

it is a family-owned community bank in existence since 1892, with

a main off ice, 12 branches, and 92 ATMs; that it has been

offering SDLs since it first opened; and that, rather than

focusing on immediate profit, it views SDLs as providing the

basis for establishing long-term relationships with customers,

offering an opportunity to cross-sell other bank services and

products to them as well as their family and friends. As to how

the bank interacts with its customers and the products and

services it provides, she indicated that bank employees are

engaged in the community, providing financial education,

including the FDIC's Money Smart curriculum, in partnership with

June 24, 2010
1.15

schools, not-for-profit organizations, churches, and workplaces;

that the bank does not have an automated phone system, preferring

the personal touch; that its branches are strategically placed

throughout the city; and that its product line includes free

checking accounts for all customers, free debit card access to

accounts at the bank's ATMs, and on-line banking. With respect

to the bank's participation in the SDL Pilot, Ms. Escaj eda

advised that her bank was responsible for $8 million of pilot

loans, that the charge-off rate for those loans was about three

percent, and that the purposes for the loans varied from paying

off medical bills or other small debts to paying for vacations.

Ms. Slade then provided background information on Lake

Forest Bank & Trust, advising that it is one of 15 banks in a

holding company and that, although the core business of the bank

was traditionally in a very high wealth area in the suburbs of

Chicago, it had recently expanded its operations to a LMI area of

northern Chicago. She further advised that, with a homeownership

rate of just 36 percent, there are not very many customers for

home loans in the northern section of Chicago, but that loans

offered through the SDL pilot were responsive to a real need in

the community, allowing customers to consolidate smaller bills

and pay for medical bills, auto repairs, citizenship fees, and

entry-level school fees. Ms. Slade reported that the bank's

strategy was to form partnerships with local non-prof i t

organizations, including a transitional housing shelter for a

domestic violence program, and that, although senior bank

officials had initially expressed skepticism regarding the

viability of the SDL program, its success was such that the

program is currently being rebranded and replicated in the other

14 banks in the holding company. Concluding her remarks, she

stated that the charge-off rate for the SDL Pilot was in the

range of nine to 10 percent which she indicated, at $5,000, was

minimal and well below what was expected by the bank's senior

management.

Beginning his presentation, Mr. McDonald advised that

Liberty Bank was formed in 1972 and, prior to Hurricane Katrina,

had about $300 million in assets and about 35,000 customers, many

with impaired credit. He also advised that the bank's preKatrina business model was one based on high volume, low dollar

transactions, including small loans from $500 to $1,000; that

after Hurricane Katrina many of the bank's customers moved out of

the area, giving rise to the need to identify a new customer

base; that one strategy was to target the typical payday lender

customer, with the aim of regaining the bank's pre-Katrina

volume; and that the SDL pilot fit perfectly with the bank's

strategy. After noting that Liberty Bank made $250,000 in loans

under the pilot, with the loans being used for auto repairs,

June 24, 2010
116

deposits on new apartments, medical bills, and the like, Mr.

McDonald said that included among the lessons learned by the bank

were that most customers who need small loans need a loan larger

than $500, that credit scores are not necessarily predictive of

repayment ability, that lower income customers were more likely

to repay their loans i and that marketing to payday lender

customers is difficult and costly. He emphasized the importance

of partnerships with community organizations and employers in

reaching economies of scale for SDLs as well as the importance of

identifying al ternati ve revenue sources to offset the higher

costs of providing such loans. Closing his remarks, Mr. McDonald

noted the tremendous enthusiasm of pilot participants for the SDL

program and congratulated FDIC staff for their work on the

proj ect.

Mr. Murphy, after noting that the presentations by Ms.

Escaj eda, Ms. Slade, and Mr. McDonald reflected the personal

commitment expressed by all of the pilot participants to their

communities and clients during the previous day's meeting of the

Subcommittee, summarized some of the themes that emerged during

that meeting. Among the themes he identified were the need to

encourage partnerships , giving as examples the "Bank-On"

campaigns in various cities and states around the country, the

FDIC's Alliance for Economic Inclusion, and pooled funding models

such as Baltimore's "Borrow and Save" program; the need to study

the feasibility of creating loan guarantees through linked, lowcost deposits, such as the Illinois Micro Loan Program, or

through loan loss reserves, such as those provided in connection

wi th the Virginia State Employees Loan Program ("VSELP") and the

Wilmington Trust/West End Neighborhood House¡ and the need to

embrace new business models such as employer-based lending

programs and employer-based platform providers, citing the VSELP

and the United Way Working Bridges program as examples of the

former and Employee Loan Solutions as an example of the latter.

A discussion then ensued, during which staff and Committee

members addressed a variety of topics, including the differences

in charge-off rates for the SDL pilot as compared to the United

Way Working Bridges program and the VSELP; the extent to which

borrowers in the SDL Pilot migrated to other products and

services offered by participating banks; and marketing efforts to

raise awareness of the SDL program. With respect to the

disparity in charge-off rates, Mr. Fish suggested that staff

exercise care in how the pilot results are presented, noting that

it is confusing to represent that charge-off rates for the SDL

Pilot are comparable to those for the general population while,

at the same time, presenting data for other SDL programs that

show significantly lower charge-off rates; Professor Fuchs

suggested that the United Way and VSELP programs reflected

June 24, 2010
117

different target populations than the SDL pilot data and that,

rather than confusing the issue, it would be best to include

their data in an appendix to any articles on the pilot results;

and Mr. Boston suggested highlighting some of the more successful

SDL Pilot programs, particularly those that generated a

significant amount of new deposits. Regarding the extent to

which borrowers migrated to other products offered by pilot

insti tutions, Ms. Miller reported that approximately one-half of

participants indicated that borrowers opened checking accounts,

with Mitchell Bank indicating that 75 percent of its participants

kept funds in their accounts after paying off their loans, in a

few cases increasing their balances to five figures. Ms. Slade,

offering another perspective, advised that applicants come into

the bank for SDLs, but that during the application process, bank

staff will determine that their needs are better met by a

mortgage refinancing or home equity loan. As for marketing and

next steps, Professor Fuchs and Mr. Boston emphasi zed the

importance of more prominently connecting the SDL as a mechanism

for getting consumers into the mainstream banking system to gain

access to products that payday lenders and check cashers are

unable to provide; Reverend Flake suggested that word of mouth is

the best means of advertisement and that any marketing and

outreach needs to engage organizations within the community that

is being targeted; Mr. Ryan and Mr. McDonald suggested the need

for continued discussion and information sharing among bankers,

particularly the pilot participants, about effective programs and

practices ¡ and Vice Chairman Gruenberg, after noting that the

pilot proj ect had demonstrated the viabil i ty of SDLs and the

genuine need and demand for such products, stated that it was the

Corporation's intent to explore a variety of ways, including

possible CRA incentives, to encourage more institutions to offer

such programs. Mr. Steel asked whether there were any legal

impediments to discussions among bankers on SDL products,

pricing, and costs, in response to which Michael W. Briggs,

Supervisory Counsel, Consumer /Compl iance Section, Corporate,

Consumer, Insurance, and Legislation Branch, FDIC Legal Division,

advised that discussions among bankers about pricing of products

could raise anti trust concerns, but that it is certainly

permissible to share experiences with respect to any number of

other related issues such as marketing successes and failures,

reaching certain constituencies, and generally what works and

what does not work.

Then, at Mr. Murphy's request, Ms. Miller briefly summarized

some of the recommended incentives to encourage SDL programs,

noting that possible incentives included CRA credit, an exemption

or safe harbor from the Electronic Funds Transfer Act prohibition

on requiring auto-payment on loans, loss sharing in the form of

June 24, 2010
1.18

guarantees to offset loan losses, and using SDLs as an

alternative product to fee-based overdrafts.

There then followed a brief discussion on the viability of

SDL programs for larger banks. Mr. Murphy indicated that KeyBank

planned to launch a program in the second quarter of 2011 in

response to the needs of the bank's community and that it would

be similar to, but not exactly replicate, the SDL template. Mr.

Murphy suggested that one way to get the attention of larger

institutions would be to include a reference to SDLs in Community

Reinvestment Act ("CRA") regulations, and Mr. McDonald suggested

that including some measure of what percentage of a bank's loans

must be categorized as SDLs to obtain CRA credit would be

meaningful for larger banks. Vice Chairman Gruenberg indicated,

and Mr. McDonald agreed, that employer-based SDLs, because of the

potential for scale, might make such loans very attractive to l~rge institutions.

Then, on motion of Mr. Fish, seconded by Mr. Boston, the

Commi ttee unanimously recommended that the Corporation adopt the

SDL template and recommended that the Corporation take steps,

including publication of an article on the pilot results, to

endorse the SDL program.

Mr. Murphy then announced that the meeting would briefly

recess. Accordingly, at 10: 44 a. m., the meeting stood in recess.

* * * * * * *

The meeting reconvened at 11:02 a.m. that same day, at which

time Mr. Murphy turned the meeting over to Ellen W. Lazar, Senior

Advisor to the Chairman for Consumer Policy who, acting as

moderator for the discussion on "Transactional and Savings

Account Proposed Templates," introduced fellow panelists Barbara

A. Ryan, Deputy to the Vice Chairman; Mr. Briggs; Ms. Miller; and

Sherrie Rhine, Senior Economist, FDIC Division of Insurance and

Research. Ms. Lazar then recalled that at the April 1 Committee

meeting members discussed the potential benefits of safe, lowcost transactional and savings accounts for LMI consumers;

listened to presentations about successful low-cost product

offerings; and received recommendations for sample templates for

such products developed by the Committee's strategic planning

sessions, noting that the templates were based on certain guiding

principles, namely that the accounts should have low and

transparent fees, be FDIC- insured and subj ect to consumer

protection laws, regulations, and guidelines, be simple to use,

have easily understandable terms and conditions, and create

sustainable product offerings for financial institutions. She

further recalled that Committee members had unanimously

June 24, 2010
119

recommended that the Corporation solicit public comment on the

sample templates and reported that, on May 6, 2010, the templates

were published for comment, resulting in receipt of 46 comments

from a mix of financial institutions, state banking and community

affairs departments, financial services industry and trade

associations, consumer groups and nonprofit organizations, and private citizens.

Ms. Ryan then provided a brief overview of comments received

on the transactional account templates, noting that there was

broad support for the idea of low-cost accounts for LMI

consumers; that a number of banks indicated they already offer

similar products, with some banks sharing examples of their

current offerings and a few state or local government agencies

sharing examples of instances where they were successful in

encouraging banks to offer such products; and that consumer

groups supported the template concept, tempered with the caveat

that the products must be carefully structured in a manner that

addresses existing barriers, such as hidden and unexpected fees,

to LMI account ownership. She next identified as common themes

among the comments on the transactional account template the role

of technology, with consumers and bankers agreeing, albeit for

different reasons, on a preference for checkless, electronic

accounts; the target population, with consumer groups and bankers

agreeing that the template accounts should be available to all

consumers, not just LMI consumers; the treatment of overdrafts,

with consumer groups clear that overdraft features should be

prohibi ted and industry groups indicating that such a prohibition

would be problematic for accounts with check-writing capability

and less problematic for accounts without such capability;

inclusion of ancillary services, such as money orders, check

cashing and on-line banking, with many commenters in favor of

including such services as standard features as long as they were

reasonably priced; minimum balances and fees, with consumer

groups supporting lower balances and fees and industry groups,

based in part on an assumption that the accounts would include

check writing and paper statements, supporting higher balances

and fees; and incentives, including CRA credit, and marketing,

with commenters from most categories supporting CRA incentives

and a number of comments suggesting that active marketing would

be necessary to attract unbanked and underbanked customers.

Ms. Ryan identified two areas of concern raised by some

commenters, mostly industry groups, with the first concern being

that regulators would mandate the templates, thereby stifling

innovation, rather than offer the templates as guidance, and the

second concern being that the templates would require flexibil i ty

in account opening procedures beyond what is currently permitted

by applicable rules. Addressing the first concern, she clarified

June 24, 2010
120

that the templates are intended to be optional, not mandatory,

and that the Corporation believes that offering products based on

the templates would enhance competition between banks and

nonbanks. Addressing the second concern, she stated that the

Corporation's intent was to convey that current rules already

provide for acceptable alternative forms of identification, such

as Matricula Consular cards or Individual Taxpayer Identification

Numbers (ITINs).

Concluding her overview, Ms. Ryan advised that staff had

identified areas of common ground among commenters and developed

a list of broad features that might be included in a revised

transaction account template. Elaborating on the transaction

account features on which there was general agreement, she listed

them as a paperless, debit-based account with electronic delivery

of services; direct deposit capability that would not be

required; no overdrafts, which would go hand-in-hand with

electronic delivery ; universal availability, though the account

would largely appeal to LMI and younger consumers and new

Americans; clearly and succinctly stated eligibili ty criteria; a

simple, clear, predictable, and affordable fee structure; and

reasonably priced ancillary services, including money orders,

check cashing with quick access to funds, money transfers, and

free on-line banking.

Next, Ms. Miller briefly summarized comments received on the

savings account template, noting that the goal of encouraging

savings was shared by banks, community groups, and industry

associations and that many of the comments on the savings account

mirrored those offered with respect to the transaction account

template, including assertions by a number of banks that they are

already offering similar products; an expressed preference for

discretionary, versus mandatory, guidance; and support for the

use of technology to encourage direct deposit and automatic

savings to reduce expenses. wi th respect to products currently

being offered by banks, she noted that, when cited, balances

required to open and maintain the accounts tended to be higher

than what was envisioned in the original template and than the

maximum balances recommended by consumer groups. She further

noted that, as with the transaction account, there was evidence

of some confusion regarding acceptable forms of identification

for account opening purposes under current rules and regulations,

and regarding eligibility for the accounts, specifically whether

the accounts would be restricted to the target population or

available to the general public.

In the area of product innovations, Ms. Miller advised that

several commenters offered specific suggestions, such as lowering

or waiving prices for other products or outright cash bonuses, to

June 24, 2010
121

encourage consumers to keep money in the accounts, and specific

suggestions for disincentives for taking money out of the

accounts, such as limiting point of sale transactions or charging

a small fee for withdrawals exceeding a certain predetermined

number. She then recapped the areas of broad support among

commenters, identifying them as indicating strong agreement that

automated savings in general, and direct deposit in particular.

are an effective way to build good savings habits for consumers

and to reduce costs for banks; and agreement, when mentioned,

that the savings accounts should be interest -bearing.

Ms. Lazar then stated that, based on comments received,

staff had redrafted the transaction and savings account

templates. She identified the common features of the revised

transactional and savings account templates, noting that they

would both be electronic card-based deposit accounts and

available to all consumers, with low opening and minimum balance;

have low, transparent and predictable fees; offer direct deposit;

and provide paperless, electronic statements. After reiterating

that the transaction account template would exclude overdrafts

and that the savings account template would earn interest, she

invited comments and questions from Committee members.

In the discussion that followed, Committee members and staff

touched on a number of topics, including the extent to which some

banks may already be offering products based on the templates,

the viability of products based on the templates for large banks,

the problem the templates are designed to address and the extent

to which products based on the templates might erode a bank's

more profitable customer base, the Subcommittee's consideration

of whether the templates should be presented as principles or

guidance, and the extent to which the features of the templates

are considered essential. In response to a question from

Professor Fuchs as to whether any banks are currently offering

products that coincide with the templates, Mr. Murphy advised

that KeyBank offers products that, although not identical, have

many of the template features; Mr. McDonald advised that Liberty

Bank offers no-fee checking accounts, both with and without paper

statements, with all of the template features except money

orders; and Ms. Ryan and Ms. Rhine advised that a number of banks

offer products with features similar, but not identical, to those

in the templates. In response to Chairman Bair's question

regarding the viabili ty of the products for large banks, Mr.

Shepherd, noting the attractiveness of the products to the target

audience, expressed his opinion that the products can be costeffective, particularly if done on a certain scale; and Ms.

Rhine, noting the industry trend toward an electronic platform,

observed that moving from check-writing to debit-based

June 24, 2010
122

transactions essentially converts what was once an expense into a

revenue stream for banks.

Mr. Fish suggested that, by offering products based on the

templates, banks could erode their more profitable customer base

if a significant number convert to no- and low-fee accounts, and

asked exactly what problem the templates are intended to address.

In answer, Ms. Miller, observing that more profitable customers

have come to expect certain services, such as check-writing and

interest on high balances, which features are not included in the

bare bones templates, expressed doubt that the number of

conversions would be significant; and Chairman Bair, noting that

8 percent of U. S. households are unbanked and approximately 25

percent are underbanked, advised that the templates are designed

to provide those households with accounts that provide a safe

place to keep their money, with easy access to funds, the ability

to get money orders to pay their rent and utility bills, and

transparent costs.

Regarding the Subcommittee's consideration of whether the

templates were more appropriately issued as principles or

guidance, Ms. Miller indicated that the Subcommittee had

identified two reasons that support a preference for guidance.

Elaborating, she stated that the first reason would be the

benefit arising from consistency of product offerings which,

because their standard features could be easily identified by the

target population, would by virtue of their predictability

generate some measure of trust among consumers. She offered as a

second reason the benefit that would arise from having standard

products that are easily recognizable by bank examiners for

purposes of providing CRA incentives. She noted, though, that

there would still be some flexibility with regard to pricing.

Director Curry then asked whether it would be possible to

identify certain of the template features as core features, with

the others comprising a menu of additional optional features from

which institutions could choose to reflect their product

framework, and still allow the core product offerings to qualify

for CRA credit. Supporting the idea of identifying certain core

features, Vice Chairman Gruenberg pointed out that there did seem

to be a meeting of the minds between consumer and industry groups

on the desirability of a card-based, paperless electronic account

wi th no overdrafts. In a follow-up question, Professor Fuchs

asked whether, using the idea of a template with core and

optional features, it would be possible to do a small pilot to

test the viability of the projects. Chairman Bair, agreeing with

the concept of a tiered approach to the template features, also

supported the idea of a small pilot to allow banks, including a

couple of larger institutions, to decide for themselves whether

June 24, 2010
123

the products are viable, to determine whether the bare bones

accounts would cannibalize a bank's pre-existing account

relationships, and to obtain data on account performance. She

directed staff to develop a pilot proposal for circulation to

Commi t tee members.

Chairman Bair then announced that the meeting would recess

for lunch. Accordingly, at 11:51 p.m., the meeting stood in

recess.

* * * * * * *

The meeting reconvened at 1 :29 p.m. that same day, whereupon

Ms. Lazar introduced as presenters of status reports on the

strategic plan proj ects Ms. Miller; Ms. Ryan¡ Luke H. Brown,

Associate Director, Compliance Policy Branch, Policy, FDIC

Division of Supervision and Consumer Protection ("DSC"); and

Luke W. Reynolds, Chief, Outreach & Program Development Section,

Community Affairs Branch, Consumer Protection and Community

Affairs, DSC.

Ms. Miller, providing updates on the work of the Savings and

Affordable Credit Work Groups, advised that staff had reviewed

child savings account programs available in the United States and

internationally as a preliminary step in determining how best the

Corporation can support such programs; that, on the issue of

emergency savings, staff had begun to sift through the wide range

of literature on appropriate levels and likely would need to

perform additional research before deciding on a direction; and

that, on the issue of affordable credit, a press release on the

resul ts of the SDL Pilot had been issued immediately after the

Committee concluded its morning session, with background

information on the pilot and that the full report was now

accessible from a link on the FDIC's home page, and the pilot

information was also accessible from a link on the home page of

the www. economicincl usion. gov web site. As to next steps in the

area of affordable credit, she advised that the Corporation had

initiated discussions with a number of groups, including

representatives from the General Accountability Office, about the

possibility of a Federal pilot of an employer-based small dollar

loan program, provided the legal and ethical issues can be

resolved; that staff would be looking into how best to support

roundtable discussions between bankers on their SDL experiences;

and that staff was also working on a paper on microlending for

small businesses in the United States that it hoped to share with

the Committee in the near future.

Commenting on Ms. Miller's update on microlending, Mr. Fish

noted that reports are beginning to emerge that sheds some doubts

June 24, 2 010
124

on the desirability of microlending because of its potential to

burden borrowers with permanent debt and expressed hope that

staff would be able to share some of the more recent research on

the pitfalls of microlending. Mr. Beck also indicated his

pleasure that staff was looking into the issue and offered to

share some of the research that had come to his attention.

Next, Ms. Ryan noted that the Committee had received updates

on the efforts of the Transactional Accounts Work Group during

the morning session and indicated that, in accordance with the

Committee's earlier directive, staff would be moving forward on a

small-scale pilot to assess the viability of products based on

the revised template. She then advised that, in response to a

recommendation arising from the April 1, 2010, meeting of the

Committee, a Safe Mortgage Products Work Group had been formed

and was being chaired by Mr. Eakes, with Messrs. Ryan, Beck, and

Boston, and Professor Fuchs as members; and that the group would

focus on ways that banks can encourage successful and sustainable

homeownership for LMI households, would likely summarize and

document any mortgage related provisions once pending legislative

reform efforts are completed, and would also undertake an

empirical study of the appropriate variables banks should

consider when lending to LMI households in a sustainable way.

Observing that the group was just beginning its work, she further

advised that it would have more to report at the next Committee

meeting. Mr. McDonald stated that his institution had done quite

a bit of mortgage lending to LMI households and volunteered to

also work with the group.

Mr. Brown then reported on the Incentives Work Group,

advising that its objectives were to develop a high profile

Chairman's Award for creative programs that support the financial

needs of LMI consumers, to determine how best to encourage banks

to partner with Community Development Financial Institutions

("CDFls"), and to examine ways in which CRA credit can be used to incenti vize banks for providing safe and affordable products and

services to the LMI community. Regarding the Chairman's Awards,

he stated that the plan was to provide recognition to groups and

depository institution employees that develop affordable,

transparent, and successful programs targeting LMI consumers,

with emphasis on innovation in transaction accounts, innovation

in savings accounts, and excellence in affordable credit; and

that, he hoped, it would be made public in late summer, with the

receipt of applications in the fall, followed by the evaluation

process, and culminating with the announcement of award

recipients in early 2011. Regarding the plan to encourage

bank/CDFI partnerships, he advise that staff thought it would be

helpful to host a webinar that would include a variety of

stakeholders to discuss the work being done by CDFls and the

June 24, 2010
125

impact of the work and to address some of the concerns, such as

underwriting, that have been raised with respect to bank/CDFI

partnerships. With regard to CRA, he indicated the work group

was looking forward to seeing what comments were received from a

series of public hearings jointly sponsored by the Federal

banking agencies to solicit feedback on how best to revise

regulations to better serve the goals of CRA. At Chairman Bair's

request, Mr. Brown then provided a brief summary of the extent to

which CRA currently provides incentives for SDLs and for simple,

no- frills accounts for LMI consumers.

Providing an update on the efforts of the Financial Literacy

Work Group, Mr. Reynolds reported that the group had been working

on four core areas, which he identified as recommendations on how

the Corporation can promote youth financial education;

development of a financial certification program; exploring

potential regulatory changes to promote outcome-based financial

education; and examining education efforts, determining best

practices and resources, and evaluating how the resulting

information can be more broadly disseminated. He elaborated on

the promotion of youth financial education, advising that the

work group had received a number of recommendations, including

recommendations to explore new partnership al ternati ves, with

emphasis on leveraging bank involvement; a recommendation to

update a non-profit guide on school-based bank branches and, at

the same time, have the FDIC adopt a school and also engage in

broader discussions of the various ways in which banks can work

wi th schools to promote financial education and savings; a

recommendation to rebuild the capacity of teachers to provide

financial education, perhaps by establishing a blog for teachers,

pursuing opportunities to train teachers, and otherwise

facilitating sharing among educators of successful delivery

mechanisms for financial education; a recommendation to highlight

ways in which school districts and systems can teach core

competencies, such as English and mathematics, while also

incorporating financial education; and a recommendation to

facilitate broad research on the topic by, among other things,

developing an article setting forth practical examples of

successful delivery of youth financial education, leveraging the

Corporation's work with historically black colleges and

universities, and leveraging opportunities to share and

disseminate the Treasury Department's core financial education

competencies once they are released.

Wi th respect to development of a financial education

certification program, Mr. Reynolds indicated that input from Mr.

Beck suggested that a certification program might encounter

resistance from teachers and states and that the group's time

might be better spent working with organizations that are

June 24, 2010
126

developing teacher training programs to ensure that the programs

for educators are of high quality. Although he indicated that

not much work had been done on exploring other regulatory changes

to promote outcome-based financial education and examining

education efforts to determine best practices and resources and

mechanisms for broad dissemination, he advised that staff would

look at putting together a quick reference guide on the various

ways financial education currently qualifies for CRA credit and

at whether the www. economicinclusion. gov website could be

utilized to highlight research conducted by other agencies in the

area of financial education best practices.

There then ensued a discussion, during which Committee

members offered a number of comments and suggestions regarding,

among other things, best practices, teacher training and

certification, identifying high quality financial education

programs, partnerships, and CRA incent i ves for financial

education programs. On the topic of best practices, Mr. Beck

commented that there are a number of existing programs from which

the Corporation could draw best practices, including the KeyBank

program and the Junior Achievement Program; Professor Fuchs

suggested that the ComE- IN portal might be a good place to post

best financial education practices and resources; and Mr. Ryan,

noting that the National Governors Association ("NGA") has a Best

Practices Division, suggested that the FDIC could work with NGA

to adopt best practices in a number of areas such as financial

education and small dollar lending and, at the same time, gain

traction from promotion of those practices by state governors.

With respect to teacher training and certification,

Professor Fuchs and Mr. Boston were both supportive of the idea,

Mr. Murphy advised that KeyBank had developed for its employees a

financial education certification program, the core of which is

Money Smart, and Mr. Beck suggested that, rather than focus on

teacher training, it might be better to allow teachers to bring

into their classrooms volunteers from organizations that already

have effective financial education training programs. With

respect to identification of high quality financial education

programs, Mr. Boston offered his opinion that the FDIC's Money

Smart program is one of the premier financial literacy programs

in the country, and both Mr. Boston and Mr. Beck suggested that

the Corporation should be more proactive in marketing the

program; and Professor Fuchs agreed and, arguing that Money Smart

creates a standard against which to measure quality, suggested

that the FDIC should take a leadership role in identifying highly

effective financial education programs. In response to the

suggestion that the FDIC be more proactive in advertising the

Money Smart programs, Ms. Lazar indicated that perhaps staff

might give some thought to how best to take advantage of Money

June 24, 2010
127

Smart's upcoming 10-year anniversary to more actively promote the

program.

Regarding partnerships, Mr. McDonald observed that he had

yet to hear any mention of coordination with the Department of

Education ("DOE") and suggested that an FDIC-DOE partnership on

financial education would be beneficial, in response to which Mr.

Reynolds indicated that staff had met with DOE representatives

and that there may be future opportuni ties to work closely with

that agency. In addition, Mr. Boston suggested that there might

be an opportunity for the Corporation to link its financial

education efforts with the Public Broadcasting Service's Right to

Read program.

Finally, regarding CRA, Mr. Beck suggested that once core

financial competencies have been identified, it would serve as a

starting point for evaluating the merits of financial literacy

programs and determining which should be recognized for CRA

credit. Chairman Bair expressed concern that, by not having

qualitative standards against which to measure financial

education programs for purposes of CRA credit, regulators may be

spurring banks to unnecessarily create even more curricula. She

indicated that it was an interesting issue and one which required

additional thought and perhaps research.

Ms. Lazar then advised that Mr. Briggs; Janet R. Gordon,

Senior Policy Analyst, Compliance Policy Branch, Policy, DSC¡ and

Mr. Brown would provide an issues update to the Committee.

Mr. Briggs provided a brief overview of the financial

services reform legislation pending in Congress, addressing some

of the key consumer protection features of the legislation,

including creation of an independent consumer protection entity

and its rulemaking and enforcement responsibil i ties, part icularly

with respect to unfair, deceptive and abusive acts and practices

in connection with consumer financial transactions, possible

limi tat ions on debit card interchange fees, and changes to the

standard for preemption. He also discussed proposed changes to

the regulatory structure, possible grants for SDL programs, and

provisions related to mortgage reform. Upon conclusion of the

overview, Chairman Bair requested that, once the bill is

finalized, staff prepare and circulate to Committee members a

summary of its provisions.

Ms. Lazar then advised that, on June 17, 2010, the

Corporation, the Board of Governors of the Federal Reserve

System, the Office of the Comptroller of the Currency, and the

Office of Thrift Supervision issued a joint press release

announcing they would be holding four hearings around the country

June 24, 2010
128

to gather testimony and comments from interested parties on

modernizing CRA regulations and that the agencies would be

issuing a proposed CRA rule to encourage depository institutions

to support the Neighborhood Stabilization Program funded by the

Department of Housing and Urban Development. She then turned the

floor over to Mr. Brown, who discussed some of the reasons the

agencies were revisiting CRA.

Mr. Brown noted that the last maj or change to CRA occurred

in 1995 and that the financial industry had changed significantly

since that time. Specifically, he stated that depository

institutions have changed the way they do business, with a

complete shift in the concentration of lending and deposit-taking

activity and the impact of technology. He indicated that

community needs have also changed during that period,

particularly the needs of LMI communities and, since CRA focuses

on meeting the needs of communities, it made sense to take a

fresh look at the regulations. He concluded by stating that all

of the regulators were looking forward to the hearings and the

public dialogue on CRA modernization and that staff would keep

the Committee apprised going forward.

Providing more specifics on the logistics and content of the

CRA hearings, Ms. Gordon reported that the four hearings would

take place over the summer, in Arlington, Virginia in July; and

in Atlanta, Georgia, Chicago, Illinois, and Los Angeles,

California in August. She further reported that stakeholders

could submit a request to participate through the Federal

Financial Institutions Examination Council web site; that the

reference documents governing CRA could also be accessed through

the site; and that written comments could be submitted to any of

the agencies through August 31. After noting that the hearings

were the first phase of a process that would likely involve

issuance of a notice of proposed rulemaking, with an additional

comment period, and, ultimately, issuance of a final rulemaking,

Ms. Gordon advised that the agencies were inviting testimony and

comments on the geographic coverage of CRA¡ CRA performance

tests, asset thresholds and designations¡ affiliate activities;

small business and consumer lending evaluations and data; access

to banking services; community development ¡ ratings and

incentives; the effect of evidence of discriminatory or other

illegal practices on CRA performance evaluations ¡ and CRA

disclosures and performance evaluations. She also advised that

the agencies agreed to take concerted action, apart from the

broad CRA reform effort, to more quickly respond to the

particular concern about high foreclosure areas; and that,

because the Neighborhood Stabilization Program focused on and

identified high foreclosure areas, the agencies had piggybacked

on what was already in place and issued a proposal, with a 30 -day

June 24, 2 010
129

comment provide, to provide expanded CRA consideration for

financing neighborhood stabilization program activities.

Staff then responded to a few follow-up questions from

Committee members on statutory versus regulatory changes to CRA,

the extent of the changes being considered by the agencies, and

whether the Committee could submit a comment independent of the

Corporation. Vice Chairman Gruenberg pointed out that the record

created from testimony and comments would in large measure serve

as the foundation for the rulemaking process to follow and that,

therefore, the more comments received the more helpful the

hearing process would be.

Recapping the action items from the meeting, Chairman Bair

noted that the Committee had recommended that the Corporation

adopt the SDL template and that Ms. Miller would be taking the

lead on promoting such loans more broadly; that staff was to

circulate to Committee members a proposal to do a pilot on the

core transactional and savings account templates, with the

flexibility of adding on optional features; that staff would be

looking into working with the Committee on whether the FDIC could

play a role in adopting a school; that staff would also be

looking into and working with the Committee on what the FDIC can

do to facilitate certification of financial literacy programs;

and that Committee members would discuss among themselves about

the possibility of independently weighing in on the CRA

regulatory reform effort.

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

Robert E. Feldman

Executive Secretary

~¿L

Federal Deposit Insurance

Corporation

And Committee Management Officer

FDIC Advisory Committee on Economic

Inclusion

June 24, 2010
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 i D. C .

Open to Public Observation

June 24 i 2010 - 8: 49 A. M .

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

minutes are accurate and complete.

Chairman

Sheila C. Bair

~c &

Board of Directors

Federal Deposit Insurance Corporation

And

Presiding Officer

June 24, 2010, Meeting of the

FDIC Advisory Committee on Economic Inclusion

Dated: September 30, 20 i 0