October 8, 2009 

Report of FDIC’s Advisory Committee on Economic Inclusion February 5, 2009 Meeting 

On February 5, 2009, the FDIC’s Advisory Committee on Economic Inclusion (“Advisory 

Committee”) met to explore strategies to increase access to the financial mainstream. 

Improving access to banks and other mainstream financial institutions can enable households 

to safely conduct financial transactions at a reasonable cost and provides households with 

opportunities to save, build a good credit record, borrow, and invest. However, the Advisory 

Committee is concerned that current economic problems – record foreclosures, declining 

household net worth, the largest annual decrease in jobs since World War II, and what is 

emerging as a reshaping of our financial system – will force more households to leave the 

financial mainstream, and may discourage mainstream institutions from reaching out and 

serving unbanked and underbanked consumers. 

Estimates vary regarding the actual number of households that are not fully participating in the 

mainstream financial system. However, a commonly cited statistic shows that more than 10 

million U.S. households are “unbanked” because they do not have a bank account.1 Moreover, 

many more households are considered “underbanked” in that they continue to rely on nonbank, alternative financial services providers for their financial needs, often at a very high 

cost.2 There are underserved households at all income levels; however, a large body of 

research shows that lack of participation in the financial mainstream is more common for lowand moderate-income (LMI) households.3

 

During the meeting, the Advisory Committee examined the findings of the FDIC’s Survey of 

Banks’ Efforts to Serve the Unbanked and Underbanked, including the challenges to reaching out 

to the underserved, and policy and practical approaches to overcoming those challenges.4 

Additionally, the Advisory Committee heard from a number of experts from banks, community 

groups, and other organizations on specific products and strategies aimed at underserved and LMI 

consumers. Many of these experts are also active in the FDIC’s Alliance for Economic Inclusion 

(AEI), a grass roots initiative of organizations in 11 markets across the country that works to 

 

1

 Brian K. Bucks, Arthur B. Kennickell, Traci L. Mach and Kevin B. Moore, Changes in U.S. Family Finances from 

2004 to 2007: Evidence from the Survey of Consumer Finances, Federal Reserve Bulletin, vol. 95, pp. A1-A55 

(February 2009) available at http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf. 2

 “The CFSI Underbanked Consumer Study: Underbanked Consumer Overview & Market Segments Fact Sheet” 

Center for Financial Services Innovation, June 8, 2008, available at 

http://www.cfsinnovation.com/underbanked-study-detail.php?article_id=330525. This report indicates that 

unbanked and underbanked households together may total 40 million. 

3

 See, for example, The New York City Department of Consumer Affairs, Office of Financial Empowerment, 

“Neighborhood Financial Services Study: An Analysis of Supply and Demand in Two New York City 

Neighborhoods” (June 2008) available at http://www.nyc.gov/html/ofe/downloads/pdf/NFS_Compiled.pdf and Ellen 

Seidman, Moez Hababou, and Jennifer Kramer, The Center for Financial Services Innovation, “Getting to Know 

Underbanked Consumers: A Financial Services Analysis” (September 2005) available at 

http://www.cfsinnovation.com/managed_documents/seg.pdf. 4

 See http://www.fdic.gov/news/news/press/2009/pr09015.html for the survey’s executive summary. 
2

 

improve access to the financial mainstream. The AEI has been tremendously successful thus far, 

with nearly 1,000 members and over 85,000 accounts opened to date.5

The purpose of this report is to relay views of Advisory Committee members on the issues and 

challenges discussed at the February meeting. The Advisory Committee met on July 30, 2009 and 

received and approved this report. The Advisory Committee is aware that the FDIC does not have 

the ability to directly implement or influence all of the issues and challenges set forth below, 

particularly those related to legislation. Members of the Advisory Committee hope that this report 

will spark discussion of how best to serve underserved consumers who may be struggling, 

particularly in the current economy. The purpose of the Advisory Committee is to provide the 

FDIC with advice and recommendations on important initiatives focused on expanding access to 

banking services by underserved populations. As Advisory Committee members, we believe that it 

is crucial for policymakers and others to consider the impact on the underserved population as 

decisions are made regarding broader responses to this nation’s economic problems. We would 

like to take this opportunity to thank the staff at the FDIC, notably Rae-Ann Miller, Roberta 

McInerney, Ruth Amberg, Luke Reynolds and Bob Mooney, for their excellent support in moving 

this work forward. 

PRODUCT, POLICY, AND REGULATORY ISSUES 

1. Defining a national shared government/industry goal to lower the number of 

underserved households should be considered. A national task force comprised of 

representatives across the financial services industry as well as senior representatives of 

federal bank and thrift agencies could be charged with formulating and overseeing a 

broad national plan to decrease the level of underserved households. This effort would 

need to rely on reliable and readily reported statistics on the number of unbanked 

households in the U.S. The statistics can be based on the results of a new survey effort 

regarding underserved households that was conducted jointly by the FDIC and the U.S. 

Census Bureau as a supplement to the Census Bureau’s Current Population Survey in 

January 2009.6 To ensure reliable statistics going forward, collecting information about 

underserved households could be made a regular part of the Current Population Survey.

2. Mainstream financial institutions should be encouraged to provide safe and 

reasonably-priced alternatives to traditional bank accounts for underserved and 

LMI consumers. Charges associated with overdrafts can make traditional transaction 

accounts too costly for underserved and LMI consumers. Additionally, minimum 

balance requirements and limited functionality make traditional savings accounts 

unattractive to many underserved consumers. A more appropriate “starter” account for 

underserved individuals would likely restrict the writing of checks, not allow overdrafts, 

and be fee-based, rather than require a minimum balance. Ideally, the account should 

allow for direct deposit of paychecks and other income streams and provide an efficient 

 

5

 See http://www.fdic.gov/consumers/community/AEI/ for a summary of the FDIC’s AEI. 6

 The survey results are currently being analyzed. 
3

 

method for automatic savings. Banks, consumers, and others have reported that prepaid 

debit card technology is a useful platform for delivering starter accounts to the 

underserved.

3. Reasonably priced credit products that meet the emergency cash needs of 

underserved and LMI populations should be encouraged. Because underserved and 

LMI households often do not qualify for or are not aware of traditional bank loan 

products, they frequently turn to products offered by non-bank, alternative financial 

services providers for their short-term credit needs or incur substantial overdraft fees. 

Payday loans, car title loans, pawn loans, and similar products often cost much more than 

bank loan products, and repeated use of these products can lead to interest and fees that 

are much higher than the original amount borrowed. Similarly, some traditional bank 

loan products, such as high-rate credit cards or repeated use of fee-based overdraft 

protection programs, can be difficult for underserved and LMI consumers to manage. A 

more appropriate credit product for these consumers could be a reasonably priced, smallbalance bank loan. Ideally, these loans would also feature realistic repayment periods, 

longer than a pay cycle, and could be linked with savings products or delivery of 

financial education.7

4. Saving by LMI and underserved consumers should be encouraged, particularly 

through products that make saving automatic. LMI consumers not only have low 

incomes, but often have few or no assets because virtually all of their income is needed to 

support household expenses. Without even a small financial cushion, it is extremely 

difficult to overcome temporary setbacks, let alone build for the future. A simple, 

effective, and automatic way to encourage saving is to promote direct deposit of payroll 

or other income streams (such as tax refunds). Further, allowing consumers to split these 

deposits into multiple accounts enables LMI consumers to create a savings habit and 

build an emergency financial cushion by setting aside at least a small amount of their 

paycheck or other income. Incorporating emerging technologies – such as stored value 

cards, mobile phone technologies, or social networking applications – into automatic 

savings products should be encouraged where feasible and safe for consumers. 

5. More emphasis on the service test in Community Reinvestment Act (CRA) 

evaluations of banks that serve underserved and LMI populations should be 

considered. The way a bank receives positive consideration under CRA for serving LMI 

and underserved consumers in its assessment area is dependent upon the size of the bank. 

Currently, in general, consideration of service activities is only mandatory for institutions 

 

7

 To explore alternatives to costly short-term credit products, the FDIC is conducting a two-year pilot project to 

identify effective and replicable business practices to help banks incorporate affordable small-dollar loans into their 

other mainstream banking services. Banks participating in the pilot have reported that they believe their small-dollar 

loan programs are an important way to serve their communities and create goodwill for their banks. Most of the 

bankers view small-dollar loan programs as a long-term strategy intended to attract customers and create 

relationships. See the Small Dollar-Loan Pilot Program available at http://www.fdic.gov/smalldollarloans/ for a 

summary of the pilot. 
4

 

subject to large bank procedures under the CRA.8 For institutions subject to the 

“intermediate small bank” procedures, the extent to which the bank provides services 

under the community development test is evaluated for responsiveness to community 

development needs. Banks evaluated under small bank procedures that meet all of the 

standards for a “Satisfactory” rating under the lending test may request evaluation of the 

bank’s record of providing branches and other services to achieve an overall 

“Outstanding” rating. Mandating the service test for banks of all sizes may provide 

additional clarity and regulatory incentives to serve LMI and underserved consumers.

6. Better calibration of standard risk management tools and bank policies to measure 

the actual risk of serving underserved and LMI consumers should be strongly 

encouraged. Some banks have policies that prevent them from opening any accounts for 

consumers who do not meet certain criteria, such as a minimum credit score or who fail 

commercially available credit screens, like ChexSystemsTM.9 While these policies may 

be appropriate to limit risk in credit or transaction accounts, banks should review whether 

exceptions are appropriate for savings accounts and other bank products that foster assetbuilding, particularly for underserved and LMI consumers. 

LEGISLATIVE ISSUES 

7. Tax-based and other incentives for banks and others that serve underserved and 

LMI consumers should be considered. A common barrier banks and other companies 

cite for not doing business with underserved and LMI consumers is the lack of potential 

for profit. Unlike customers typically serviced by banks, underserved and LMI 

consumers are frequently unable to keep large account balances and often do not qualify 

for most mainstream credit products. Therefore, it can be difficult for banks to recapture 

the cost of acquiring and maintaining underserved and LMI consumers. One solution 

discussed could be a tax credit designed to offset at least a portion of these costs. This 

could be an important monetary incentive for banks and others to pursue these 

consumers. Other monetary incentives could involve reducing compliance reporting 

requirements for certain laws and regulations to reduce costs for service providers, while 

maintaining important safeguards for individual consumers and the financial system at 

large.

8. The unintended consequences of certain banking laws on underserved and LMI 

consumers should be reviewed. Funds availability laws, in particular, may adversely 

 

8

 12 U.S.C. § 2903(a). For purposes of CRA, a “large” bank is currently one with assets over $1.109 billion. 

Intermediate small bank means a small bank with assets of at least $277 million and less than $1.109 billion. 73 

Fed. Reg. 78153 (December 22, 2008). 

9

 “The Chex Systems, Inc. network is comprised of member Financial Institutions that regularly contribute 

information on mishandled checking and savings accounts to a central location. ChexSystems shares this 

information among member institutions to help them assess the risk of opening new accounts.” See The Consumer 

Debit Resource available at https://www.consumerdebit.com/consumerinfo/us/en/index.htm for more information. 
5

 

affect some consumers.10 These laws have been enacted to ensure the safety and 

transparency of the federal payments system. However, for some underserved and LMI 

consumers, funds availability laws may not be fully understood and curtail the ability to 

immediately access their funds, causing them in some cases to use check cashing services 

as an alternative to bank accounts. Carefully designed “carve-outs” to funds availability 

laws or other laws, as appropriate, might be considered to minimize adverse affects on 

underserved and LMI consumers.

9. Instituting a universal curriculum of financial education in schools should be 

adopted. Research has revealed that financial education programs can positively affect 

consumers’ money management attitudes and behaviors and improve their overall 

financial condition.11 Yet, most current financial education programs are “reactive” in 

that they are delivered after consumers have become financially troubled. Mandating 

financial education in schools, perhaps by conditioning promotion to the next grade level 

on its successful completion, could prevent many consumers from encountering financial 

difficulties. At the same time, it is important to remember that financial education should 

be provided at “teachable moments” over a person’s lifetime, as a single financial 

education course in school, while important in starting positive habits at an early age, is 

not sufficient to help consumers navigate the complex, changing financial marketplace as 

they make financial decisions years later. 

10. A distinct federal entity whose mission would be protecting all consumers, including 

underserved and LMI households, from potentially harmful financial products 

should be adopted. Similar to the U.S. Consumer Product Safety Commission, the 

government should establish an agency to set a floor for guidelines related to consumer 

disclosure, collect and report data about the uses of different financial products, review 

new products for safety (with a focus on those most likely to cause serious harm, such as 

major credit products), and require modification of problematic products before they can 

be marketed to the public. The agency should review credit, deposit, and other financial 

transaction products. It should also exercise jurisdiction over life insurance and annuity 

contracts. In effect, the agency will evaluate these products to eliminate the opaque 

practices that make some of them far more problematic than others, and ensure that none 

pose unacceptable risks to consumers. 

 

 

10 Federal funds availability laws and regulations are set forth at 12 U.S.C. §§ 4001-4010, 12 U.S.C. §§ 5001-5018, 

and Federal Reserve Board Regulation CC at 12 C.F.R. pt. 229. Some states also have funds availability laws. 

11 See Susan E. Burhouse, Angelisa M. Harris, and Luke W. Reynolds, FDIC Quarterly, Quarterly Banking Profile, 

Second Quarter 2007, “Banking on Financial Education,” Volume 1, Number 2 (June 2007), available at 

http://www.fdic.gov/bank/analytical/quarterly/2007_vol1_2/FDICQuarterlyV1N2_web.pdf.