.. .... '" 9il

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

April 1, 2010 - 8 :40 A.M.

The meeting of the FDIC Advisory Committee on Economic

Inclusion ("ComE-INII or "Committeell) 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, Wol fensohn &

Company, L. L. C., New York, New York; Michael S. Barr, Assistant

Secretary for Financial Institutions, Department of the Treasury;

Ted Beck, President and Chief Executive Officer, National

Endowment for Financial Education¡ Kelvin Boston, Executive

Producer and Host of PBS' Moneywise wi th Kelvin Boston; Martin

Eakes, Chief Executive Officer, Self -Help/Center for Responsible

Lending, Durham, North Carolina; Lawrence K. Fish, Former

Chairman and CEO, Citizens Financial Group, Inc.; Ronald

Grzywinski, Chairman, ShoreBank Corporation of Chicago; Alden J.

McDonald, Jr., President and Chief Executive Officer, Liberty

Bank and Trust, New Orleans, Louisiana; Bruce D. Murphy,

Executive Vice President and President, Community Development

Banking, KeyBank National Association; Manuel Orozco, Senior

Associate at the Inter-American Dialogue, and Senior Researcher,

Institute for the Study of International Migration, Georgetown

University¡ John W. Ryan, Executive Vice President, Conference of

State Bank Supervisors; J. Michael Shepherd, President and CEO,

Bank of the West and BancWest Corporation; Robert K. Steel,

Chairman of the Board of Trustees, The Aspen Institute; and Peter

Tufano , Sylvan C. Coleman Professor of Financial Management,

Harvard Business School, and Senior Associate Dean for Planning

and University Affairs. Committee members Rev. Dr. Floyd H.

Flake, Senior Pastor, Greater Allen AME Cathedral of New York;
95

Ester R. Fuchs, Professor, School of International and Public

Affairs, Columbia University; Wade Henderson, President and CEO,

Leadership Conference on Civil Rights, and Counselor to the

Leadership Conference on Civil Rights Education Fund; Elizabeth

Warren, Leo Gottlieb Professor of Law, Harvard Law School; and

Deborah C. Wright, Chairman and Chief Executive Officer, Carver

Bancorp Inc., New York, New York, were absent from the meeting.

Members of the Federal Deposit Insurance Corporation's

("Corporationll or "FDICII) Board of Directors present at the

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

Chairman, and Thomas J. Curry, Director (Appointive). Ruth R.

Amberg, Acting Designated Federal Officer for the Committee and

Senior Counsel, Consumer/Compliance Section, Consumer and

Legislation Branch, Legal Division, also was present at the

meeting. Corporation staff who attended the meeting included

Heather L. Basnett, Michael W. Briggs, Laura L. Brix, Luke H.

Brown, Sarah C. Butler, David Chapman, Glenn E. Cobb, Christine

Davis, Patricia B. Devoti, Robert E. Feldman, Ralph E. Frable,

Tiffany K. Froman, Janet R. Gordon, Leneta G. Gregorie, Tray

Hal verson, Sally Kearney, Ellen W. Lazar, Alan W. Levy, Cassandra

McConnell, Rae-Ann Miller, Skip Miller, Barry A. Mills, Tariq A.

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

Yazmin E. Osaki, Luke W. Reynolds, Lisa K. Roy,

Barbara A. Ryan, Kimberly Stock, Katherine Samolyk, and Eloy A.

Villafranca. William A. Rowe, III, from the Office of the

Comptroller of the Currency also attended.

Commi t tee Chairman Taylor opened and presided at the

meeting. She began by welcoming ComE-IN members; summarizing the

highlights of the FDIC's National Survey of Unbanked and

Underbanked Households ("Household Surveyfl), the results of which

were presented to Committee members at the meeting held on

December 2, 2009; and providing an overview of the meeting

agenda. Next, Chairman Bair thanked Vice Chairman Gruenberg for

his stewardship of the Strategic Planning Subcommittee as well as

Mr. Barr and Professor Tufano, chairs of the Transactional

Accounts and Savings Work Groups, respect i vely, for their roles

in the Subcommittee discussions held on March 31, 2010. She then

provided an update on the FDIC's Small Dollar Loan Pilot, noting

that the pilot had recently ended; that a total of 35,500 loans,

totaling $40.2 million, were made; that the rate of loan chargeoffs were in line with those for loans to the general population,

contrary to the commonly-held perception that small -dollar loans

are more costly and higher risk products; and that the pilot

resul ted in a simple, feasible template for small -dollar loans

that the FDIC would be promoting to the academic community,

bankers, and consumer groups. Enumerating the features of the

small -dollar loan template, Chairman Bair indicated that they

April 1, 2010
96

included amounts of $2,500 or less; terms of 90 days or more;

interest rates of 36 percent or less; streamlined underwriting,

requiring only proof of identity, an address, and a credit

report, with a loan decision made within 24 hours; and optional

features of mandatory savings and financial education. She

further indicated that the small-dollar loan template ties into

larger efforts to ensure that banks monitor customer use of

overdraft protection to make certain that the service is being

used for inadvertent overdrafts, rather than as a credit product.

Next, Professor Tufano, after thanking Committee Members

Barr, Beck, Boston, and Murphy for their participation in the

March 31, 2010, meeting of the Subcommittee, presented an

overview of the meeting discussion on savings products for lowand moderate-income ("LMIII) consumers. He advised that the

purpose of the session on savings was to identify the facts

regarding emergency savings, including the importance of such

savings and the ability of LMI households to establish emergency

savings; strategies to encourage emergency savings for LMI

households and to encourage banks to create emergency savings

programs; and the underlying principles for and features of LMI

emergency savings products.

As to the amount needed for an emergency savings account,

Professor Tufano noted that estimates vary widely, with the

America Saves Campaign, a program of the Consumer Federation of

America, recommending $500-$1,000; financial planners

recommending three to six months of expenses; responses to the

Board of Governors of the Federal Reserve System's 1995 and 1998

Survey of Consumer Finances ("SCFII) recommending 8 percent of net

worth; and responses to the 2007 SCF recommending $2,000. He

then reported that according to the results of a recently

conducted study on Households ~ Risk: US Households' Capaci ty to

Cope wi th Risk, approximately one-half of all Americans indicated

that they could not or they probably could not come up with

$2,000, if needed, within 30 days, with those having the least

amount of wealth, education, and income disproportionately and

significantly less able to cope with an unexpected expense, and

30 percent of Americans indicating they are I ikely to face an

unexpected expense with which they will be unable to cope. He

further reported that, when those with some capacity to cope with

an unexpected expense were asked to identify their top mechanisms

for doing so, the most frequently cited mechanisms after savings

were borrowing from family, more work, and credit cards, with

obtaining a bank loan falling further down the list. He also

described potential long-term effects of inadequate emergency

savings, noting that those who indicated a likely inability to

cope with an unexpected expense were also six percent less likely

to indicate they would get married, 10 percent less likely to

April 1, 2010
J 97

indicate they would have children, and 11 percent less likely to

indicate they would retire. With respect to lessons learned, he

stated that the data indicate that households are substantially

at risk; savings is the first, but not the only, line of defense;

and the ability to cope with unexpected expenses may have a

material impact on life decisions.

Professor Tufano then advised that the Subcommittee, after

identifying family circumstances and choices , private sector

disinterest in small dollar emergency savings, and policy

disinterest in emergency savings as some of the possible reasons

that households are substantially at risk, heard presentations

from representatives of large and small financial institutions,

regulatory agencies, consultants, government program managers,

academics, and non-prof i t collaborative partners regarding their

experiences and lessons learned with respect to LMI consumers in

an effort to determine the best approaches to making progress

toward development of savings programs to meet the needs of such

consumers. He advised that, as a result, the Subcommittee had

identified a three-pronged approach involving the consumer,

financial institutions, and policy.

wi th respect to the consumer, Professor Tufano indicated

that discussion participants had discussed the importance of

meeting the customers where they are as opposed to where one

would like them to be, whether it be where they are physically,

such as in the workplace or at tax preparation sites, or where

they are virtually, such as connected to their cell phones; and

understanding what they say, feel, do and do not do, how they

respond, their differences, and their needs, interests and

preferences. He also stressed the importance of engaging LMI

customers through the use of a variety of incentives, including

financial incentives such as Bancorp South's individual

development account (" IDAII) program and the $aveNYC programs,

both of which offer fund matching to induce savings; fun

incentives such as Save to Win, a savings vehicle offered in

Michigan by the National Credit Union Foundation's REAL Solutions

program using the principles of prize-based savings; community

incentives such as the Bank On and America Saves programs which,

through partnerships between public and private organizations,

promote savings on a community or nationwide basis; and local

incentives and support from friends and family such as SmartyPig,

the on-line platform that allows consumers to save for specific

financial goals.

Wi th respect to financial institutions, Professor Tufano

indicated that the previous day's discussion had focused on the

importance of making savings programs sustainable, with emphasis

on not just the product, but on how consumers use the product;

April 1, 2010
98

more effective customer acquisition that might support LMI

savings; development of products that are more eff icient and

efficient in the way they are used, or what he termed "productin-usell; and development of new revenue streams. He reported on

several means of acquiring customers effectively, including

leveraging community and regulatory partners to assist in

marketing savings programs; better targeting of customers and

segmentation of markets; forming coalitions with retail partners

to sell bank savings products and open accounts off-site; and

developing a marketing mix wherein customers are offered the

right product, at the right time, in the right place. Regarding

more efficient products, Professor Tufano advised that some

financial institutions reported changing product features to

retain only those features that customers want and use, using

technology in multiple ways to deliver products or for risk

management purposes, and trying to alter consumer behavior in a

way that lowers production costs, whether by encouraging direct

deposit, use of ATMs, or on-line delivery of account statements.

He then briefly touched upon revenue streams, noting that the

old revenue streams were net interest margin and fees, with new

revenue streams including interchange fees and breakage.

Moving to the issue of policy, Professor Tufano next

discussed the various roles that could be played by regulators

and lawmakers in promoting savings products for LMI consumers.

He advised that regulators could be standard setters , giving as

an example the Massachusetts Community and Banking Council, which

adopted a set of product attributes to which banks, in

conjunction with community groups, voluntarily agreed to adhere.

He further advised that regulators could provide forums for the

sharing of best practices , giving as an example the previous

day's meeting of the Subcommittee; provide incentives for savings

activities under the Community Reinvestment Act ("CRAil); review

regulations to ensure that compliance costs are consistent with

the goal of providing low-cost products for LMI families;

eliminate disincentives to save, citing the asset tests for

certain assistance programs; and provide financial institutions

wi th guidance on the creation of emergency savings vehicles.

Then, Professor Tufano reported that the Subcommittee had

identified as a set of underlying principles for emergency

savings products the need for simple, easy to understand terms; a

true emergency framework that encourages deposits, is

appropriately liquid, does not penalize account holders who

wi thdraw funds for an emergency, and encourages replenishment of

funds; uni versali ty, with low minimum balances and ease of

eligibility¡ low cost and high value; and sustainability. He

then provided an overview of a sample template, developed by FDIC

staff, for safe, low-cost emergency savings accounts with

April 1, 2010
99

features based on those principles. He stated that in

determining accountholder eligibility, institutions should be as

flexible as possible in verifying customer identity and assessing

risk and that accounts should have no or low minimum balance

requirements, no monthly maintenance fees, allow withdrawals with

no more than a week's notice, allow no-fee deposits, and offer

interest at competitive rates.

Next, Mr. Barr summari zed the Subcommi t tee proceedings

regarding safe transaction accounts for LMI consumers, noting

that the conversation started with an identification of the

transact ion needs of such consumers, such as receiving income,

paying bills, storing and saving funds, and making money

transfers, as well as the various methods for meeting those

needs, such as receiving income through direct depositor loading

funds on a card and paying bi i i s by purchas ing money orders or

wri ting checks. He then detailed some of the benefits to

consumers and financial institutions of having access to

mainstream financial markets, with benefits to consumers

including building assets and creating weal th, receiving

protection from theft of benefit checks, and having access to the

protection of Federal laws, such as those applicable to deposit

insurance and electronic funds transfers; and the benefits to

financial institutions including access to a broader range of

markets, improved market share, and enhanced reputations in the

communi ties where they do business.

Mr. Barr touched on strategies for improving the ability of

banks to reach LMI consumers with products geared to their needs,

indicating that one such strategy is through public-private

collaborations and providing as examples pilot programs launched

by the U. S. Department of the Treasury in a number of

communities, the FDIC's Alliance for Economic Inclusion ("AEIII)

program, and programs promoted by the National League of Cities.

He then expounded on the potential features and services to

consider in designing transaction accounts, including low cost,

transparency of costs and fees, and safety; the potential use of

transaction products as "second chancell accounts for certain

consumers; and expansion of the LMI customer base through

acceptance of al ternati ve forms of identification, such as

matricula consular cards; and discussed ways to improve safety,

reduce fees, and improve simplicity, including disallowing

overdrafts on check and debit cards, i inking savings accounts to

checking accounts to provide a mechanism to build an emergency

savings cushion, and encouraging direct deposit and on-line bill

payment. He also addressed the need to develop a set of

activities around transaction products, such as marketing and

outreach, personal financial management training, and financial

April 1, 2010
100

education; and ways to encourage bank participation, including

collaborations with trusted community groups.

Mr. Barr then provided an overview of a number of changes

within the financial services industry that could have an impact

on safe transaction products for LMI consumers and a summary of

some of the savings and transaction products specifically

targeting those consumers. He noted the gradual shift toward

electronic payments, card-based technology, such as pre-paid and

payroll cards, and mobile payments, which could be built upon to

provide greater financial services utility and a greater range of

flexibility to LMI households. Regarding products specifically

targeting LMI consumers, he described the basic features of the

SafeStart Account, a savings pilot program offered by New York

Ci ty through its Off ice of Financial Empowerment; and

transaction-based products and services developed by REAL

Solutions and offered through various credit unions, including

the Denver Community Credit Union and CoVantage Credit Union.

Concluding his remarks, Mr. Barr noted that there have been

many initiatives over the past decade through which lessons have

been learned about how to better serve the financial needs of LMI

households; that work still needs to be done to bring together

financial institutions, government, and consumers to provide safe

and transparent banking products; and that, in thinking about

what transaction products would look like, the Subcommittee had

developed a sample template of the basic features of safe and

transparent transaction accounts. He listed among those features

low minimum deposit and monthly balance requirements, no or low

monthly maintenance or service fees of no more than $9.95, no-fee

withdrawal of funds for a specified number of checks written on

the account or an unlimited number of electronic withdrawals, no

fee electronic access, direct deposit capability, no overdraft or

non-sufficient funds fees, an option for automatic fund transfers

into a savings account or bucket to encourage emergency cushions,

and low-cost built-in ancillary services such as money orders,

on-line bill payment, wire transfers, and remittances.

Vice Chairman Gruenberg asked whether in developing a

strategic plan, the Subcommittee was, as a general proposition,

moving toward a card-based strategy, in response to which Mr.

Barr indicated that it did appear, based on everything learned at

the previous day's meeting, that some type of card-based system

appeared useful to meeting the needs of the LMI demographic. In

the discussion that followed, Board and Committee members touched

on a number of different topics, including how to address the

security risk posed by lost or misplaced cards, the extent to

which financial literacy and education should be incorporated

into card-based savings and transaction accounts for LMI

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101

individuals, and the need to focus not only on product features,

but also on how to deliver the products and service. On the

issue of security risk, Messrs. McDonald, Grzywinski, and Fish

expressed concern about the cost and risk to consumers of lost or

misplaced cards. In answer, Mr. Barr advised, and Chairman Bair

agreed, that what was envisioned was a transaction account, with

debit card access and the consumer protections that typically

accompany such accounts. Regarding financial literacy and

education, both Mr. Steel and Mr. Boston were of the opinion that

simply making card-based accounts more accessible to LMI

consumers would be akin to treating the symptoms rather than

addressing the root cause and that it would be critical to

incorporate financial education into the core mission to ensure

that consumers understand how the cards work. With respect to

how to deliver products and services, having identified their

basic features, Mr. Grzywinski expressed his opinion that, as an

advisory group, part of the focus of the Committee should be on

recommendations for incentives that could be offered by the FDIC,

whether through existing regulatory authority or through

legislative change, and suggested that perhaps the FDIC could

provide top-rated banks that offer the types of products

envisioned by the templates with higher deposit insurance limits

or reduced insurance premiums; use CRA credit to provide market

incentives; use the eRA examination process to assess the status

of economic inclusion programs and perhaps as a mechanism for

providing short presentations to bank directors on programs

targeted at meeting the financial needs of LMI consumers; and

sponsor management seminars to share best practices. Director

Curry, pointing to the success of the Basic Banking for

Massachusetts Program that was launched in 1994, agreed that

active endorsement and participation by regulators is an

effective means of addressing the issue of how to advance safe

and affordable savings and transaction accounts for the LMI

demographic.

Chairman Bair expressed interest in having the Subcommittee

provide more clarification on how consumers would pay bills using

a card-based system and on the fee structure because with the

template allowing for a low maintenance fee, but an even lower

minimum balance requirement for transaction accounts, it would be

very easy for an account to quickly move into negative terri tory.

She suggested, in addition, that a next step may be to post the

savings and transaction accounts templates on the FDIC's website

to get feedback from financial institutions, consumers, consumer

advocacy groups, and community organizations. Vice Chairman

Gruenberg, citing the card product offered by CoVantage Credit

Union with a monthly fee of only $2 and a $10 charge to replace

lost cards, suggested that many of the features seem to address

April 1, 2010
102

some of the concerns raised during the discussion and would be

worth reviewing.

Committee Chairman Taylor then announced that the meeting

would briefly recess. Accordingly, at 10:46 a.m., the meeting

stood in recess.

* * * * * * *

The meeting reconvened at 11: 06 a. m. that same day, at which

time Committee Chairman Taylor turned the meeting over to

Ellen W. Lazar, Senior Advisor to the Chairman for Consumer

Policy who, acting as moderator for the discussion on "Strategies

for Offering Safe Financial Products Targeted to Underserved LMI

Consumers in a Competitive Market, II introduced panelists

Robert S. Kaplan, Baker Foundation Professor, Harvard Business

School, Boston, Massachusetts; Dorothy Bridges, Chief Executive

Officer, City First Bank, Washington, DC; Alan Branson, Chief

Operating Officer, Enterprise Corporation of the Delta/Hope

Community Credit Union, Jackson, Mississippi; and William Myers,

Senior Fellow, Aspen Institute, Economic Opportunities Program,

Washington, DC.

Mr. Kaplan began the panel presentations by providing

Commi t tee members with an overview of how to measure

profitability in the LMI customer segment of the population. He

advised that, in determining the profitability of products and

services, it is important to know what it costs the institution;

that costs can be traced down to the transaction level; that

costs are driven more by customer behavior than by product

characteristics; that computers make it surprisingly simple to

calculate costs at the transaction level; and that once cost

drivers become transparent, it is fairly easy to identify

opportunities to lower the transaction cost of serving a

particular consumer without abandoning high cost products or

customers, thereby encouraging innovation. After providing a

brief rundown of the various cost accounting formulas involved in

calculating product and customer profitability and the cost of

each customer's transaction, he ended his remarks by noting that,

once an institution understands customer needs and preferences

and product and customer costs, the LMI market can be made

profitable through a number of mechanisms, including reducing the

resources required to perform banking activities, improving

product and channel designs, changing or managing customer

behavior, and expanding customers' use of banking products and

services to achieve overall customer profi tabil i ty.

Next, Ms. Bridges, after noting that the business model of

City First Bank is driven by its mission to serve the LMI

April 1, 2010
103

community, discussed some of the strategies utilized by the bank.

She advised that the bank is located within a community that is

predominantly immigrant and Hispanic and that, to best serve that

consti tuency and ensure that customers feel welcome, the entire

staff is Spanish-speaking; that the bank studied the behaviors of

that community and, based on traffic patterns, rethought how to

del i ver products and services more efficiently; and that the bank

accepted other than state-issued forms of identification, such as

matricula consular cards, going so far as to house bank employees

at the local Mexican consulate office every other Saturday so

that those coming into the consulate to obtain cards could talk

to a bank representative about the bank' s offerings. As for

account products and features, she advised that the bank,

realizing that the Automated Clearinghouse wire transfer service

is relatively expensive, signed up for a Federal Reserve Bank

pilot, Directo Mexico, which allowed it to provide the service

more inexpensively; that the bank's accounts were completely

electronic with the bank, after verifying identification, issuing

its own identification cards with bar-coded matricula, ITIN, and

account numbers, which reduced the wait time for customers to

conduct in-bank transactions; and that the bank's accounts were

no-cost, debit-based, and had no check-writing capacity, except

in very limited circumstances. In conclusion, Ms. Bridges

indicated that developing products and services for the bank's

customer base was something of a learning process in terms of

studying their behavior, talking to individuals in the community,

and identifying their preferences.

Mr. Branson then spoke to the Committee about the

experiences of Hope Community Credit Union, advising that its

mission is to improve lives, build assets, and strengthen

communities; that 80 percent of members are minority, one-third

of members never had a bank account before joining the credit

union, that the average household income for mortgage

accountholders is $36,000; and that the default rate on its

mortgage portfolio is below one-half of one percent. He stated

that the credit union had found the following to be effective

strategies for expanding its membership wi thin the LMI community:

working with community groups, schools, nonprofits, churches, and

employers; offering a range of products, from a debit card-based

transaction account to more traditional accounts, including

accounts with the capacity to receive electronic disaster

assistance payments or insurance proceeds; and word-of -mouth

regarding its ability to qualify anyone who is legally eligible

for some type of account. Elaborating on the partnership

approach, he indicated that the credit union has actually trained

staff of various organizations on the institution's products;

that often these organizations understand better than the credit

union how the institution's products relate to their clients;

April 1, 2010
104

that community partners have provided the credit union with

valuable feedback on ways in which its products might better

serve the target population; and that customers' relationships

with the credit union's partners often serve to exert a certain

degree of peer pressure with respect to how they relate to the

credit union. Mr. Branson ended his remarks with the observation

that efforts to address the challenges of providing financial

services to low- income households in rural areas could, perhaps,

be informed by lessons learned with regard to ensuring publ ic

access to other services, such as electricity and phone service.

Concluding the panel presentations, Mr. Myers discussed the

importance of the product-to-program interface in providing

mainstream financial services to LMI individuals, explaining that

the interface revolves around four axes: choosing the appropriate

business model, account acquisition, developing a niche product,

and product migration. After listing several possible business

models, including the margin approach, relationship pricing, and

scored pricing, he indicated that his favorite model is life

cycle pricing, which instead of thinking that every product and

every customer has to produce a prof it every day, thinks more

along the lines of creating long-term relationships with a view

for overall profitability. With respect to account acquisition,

he advised that there are many ways to attract accounts, with

some of the more successful ways being to build partnerships with

nonprofit organizations and to offer products which mimic the

products and services, such as payday loans and check cashing,

the customers actually use. Finally, regarding product

migration, he stated that, after acquiring customers, it is

important to design a continuous pathway of products, such as

prepaid cards, checking accounts, and credit cards, to which

customers can appropriately migrate, and a marketing scheme to

facilitate the migration, with the ultimate goals being to have

multiple contacts with each customer, create potential profit

centers and, create a win-win situation.

During the ensuing discussion, Committee members shared some

of their takeaways from the presentations and asked a number of

questions on some of the more technical aspects of Mr. Kaplan's

cost accounting formulas, including their usefulness in

forecasting resource demand, managing losses, determining economy

of scale, and determining when to add capacity. Mr. Branson

asked whether the cost-accounting formulas could be used to

develop a model of the costs of particular products or transactions at one insti tution so that smaller institutions,

lacking the expertise to conduct the analyses, could have the

benefit of the cost data for their own products and services. In

response, Mr. Kaplan indicated that it is possible to develop a

template that could be replicated without each institution having

April 1, 2010
105

to complete the entire study, that it should be quite helpful in

helping small institutions understand the underlying economies of

what drives their costs, and ultimately enable them to be

profitable. Mr. Ryan suggested that one role for the FDIC would

be to act as a clearinghouse, pulling together information such

as that provided in Mr. Kaplan's presentation and other research

geared toward economic inclusion. Mr. Shepherd made a similar

recommendation and, noting that it would be another way to incent

financial institutions to provide products and services to LMI

consumers, asked whether there is any data on the long-term value

of such customers and the probability that they will graduate to

more profitable contacts with an institution. In answer, Mr.

Kaplan indicated that he believed there are some banks compiling

such data, although he could not say which ones; Mr. Meyers

indicated that the Center for Financial Services Innovation had

conducted related research with respect to the VITA product and

found the retention rate was only about 10 percent after two

years; and Ms. Lazar indicated that she was not aware of the FDIC

having any such data and that it could be an interesting area for

research. Professor Tufano then observed that the discussion had

brought focus to the need to manage customer relationships and

suggested that the sample savings and transaction templates

should be developed in such a way as to encourage retention.

Committee Chairman Taylor then announced that the meeting

would recess for lunch. Accordingly, at 12:19 p.m., the meeting

stood in recess.

* * * * * * *

The meet ing reconvened at 1: 33 p. m . that same day, whereupon

Ms. Lazar briefly summarized the morning session, then introduced

Cassandra McConnell, Associate Director, Community Affairs

Branch, Consumer Protection and Consumer Affairs , Division of

Supervision and Consumer Protection ("DSCII), and Eloy A.

Villafranca, Community Affairs Officer, Dallas Region, DSC, who

spoke about publ ic/pri vate partnerships for economic inclusion.

Ms. McConnell, noting that the FDIC Community Affairs

Offices have a broad range of experience in developing and

fostering partnerships, particularly through their work with the

regional AEI initiatives, advised that such strategic

partnerships are critical in promoting economic inclusion

programs because they aid in identifying community needs,

achieving community buy-in, and facilitating financial education.

In this regard, she advised that the FDIC has taken a leadership

role in working with the 14 regional AEIs across the country to

promote financial services for underserved communities and in

identifying local strategies to meet those goals and that,

April 1, 2010
106

through the efforts of the AEI coalitions, approximately 72,000

accounts have been opened and approximately 60,000 individuals

have received financial education.

Mr. Villafranca then began his presentation by identifying

the financial characteristics and behaviors of many LMI

individuals, including their use of alternative service

providers, payment of high fees or interest for financial

products, making questionable financial decisions, lack of a

noticeable budget, lack of access to "brick and mortarll bank or

credit union locations, limited financial knowledge, low or no

credi t scores, lack of credit cards, lack of aU. S. or state

identification, and payment in cash for all purchases and

obligations. He next identified as the elements of successful

programs the establishment of trust among partners and with the

underserved community; education, both financial education about

custom products and services; having the right kind of partners,

including community-based and faith-based organizations,

government agencies , private businesses, advisory boards, and

those who can provide professional and technical assistance;

understanding the partnership agendas and goals as well as those

of individual partners; taking an inventory of resources wi thin

the community; determining what assets are brought to the table

by partners; ensuring transparency with respect to goals,

measurements, operations, leadership, and issues; measurement of

short - and long-term outcomes; and celebration of successes.

Addressing some of the differences of working with public and

private partners, Mr. Villafranca advised that public partners

generally have very specific goals, many of which may be

legislative, have fairly strict boundaries wi thin which they must

operate, typically have budgetary constraints, have a connection

to the target population that is usually legislative, have

extensive historical knowledge, are general ly transparent, and

typical ly must navigate layers of management, whereas private

partners have goals that are more entrepreneurial in nature,

generally have less rigid boundaries, have more budgetary

resources, oftentimes with a philanthropic bent, in some

instances may have a weaker connection to the target population,

have to contend with fewer policy issues, and offer various and

unlimited possibilities.

Concluding his presentation, Mr. Villafranca provided an

overview of three successful economic inclusion partnerships:

the Texas New Alliance Task Force, a coalition of financial

insti tutions, community-based organi zations, government agencies,

and other stakeholders, the goal of which is to improve access to

the U. s. banking system for immigrants and take concrete steps to

carry out the Action Plan outlined in the U. S. -Mexico Partnership

for Prosperity Agreement; Raise Texas, a statewide network of

April 1, 2010
107

public institutions, the FDIC included, and private

organizations, the goal of which is to raise the financial

success of Texas residents through asset-building activities; and

Bank On California, a diverse statewide coalition of the Office

of the Governor, financial institutions, financial institution

regulatory agencies, community organizations, and mayors, the

goals of which are to raise awareness, boost financial education,

develop and market starter accounts, and help people make better

financial decisions. Elaborating on the Bank On California

campaign, he stated that most of the new accounts aretransaction

accounts, evidence that there is a high demand for such accounts;

that each account opening is accompanied by an offer of financial

education, with financial education mandatory for those listed in

ChexSystems; that the initial goal had been to open 100,000

accounts in two years; that the Governor had recently announced

that the campaign has exceeded 100,000 accounts in just one year

and, therefore, set a new goal of 200,000 accounts by year-end;

and that the success of the campaign was due in no small part to

media coverage via radio, television, and the internet and the

fact that a message of empowerment is one that resonates with

people.

Committee Chairman Taylor asked for more information on how

account openings are tracked for the Bank On California campaign,

in response to which Mr. ViI lafranca advised that individual

institutions report data by zip code on new demand deposit and

savings accounts opened by any individual who does not currently

have an account in a financial institutions, as well as data on

accounts that have been closed during the quarter, allowing

calculation of the net number of accounts, with information also

collected on a number of other data elements, including number

and dollar amount of waived or refunded non-sufficient fund fees

and average account size. Ms. McConnell, noting that the AEI

coalitions use voluntary data collections on the number of

accounts opened and that there are opportunities to capture

information at the time an account is opened, offered her opinion

on the importance of including a reporting mechanism in whatever

recommendation is made by the Committee.

A brief discussion followed, during which Committee members

were complimentary of Mr. Villafranca' s passionate approach to

the issue of economic inclusion and the leadership of FDIC and

its cadre of Community Affairs staff. Other topics touched upon

were the importance of partnerships, the need to expand the

effective use of technology and media in promoting programs to

meet the financial needs of the underserved, the value of

customer relationships, and the value of having a template with

common elements, yet allowing users to add features to tailor

products to the needs of their target populations.

April 1, 2010
108

Vice Chairman Gruenberg then indicated that the information

shared during the meeting and the previous day at the meeting of

the Strategic Planning Committee had focused his thinking on the

issue of economic inclusion and that, in his opinion, there are

two strategic questions that need to be answered: the "what, II as

in what is the product, and the "how, II as in how to get that

product disseminated. He further indicated that, increasingly,

his view is that the product should be a debit-based account with

a low monthly fee that provides the same benefits as a checking

account and also serves as a vehicle for savings or perhaps even

a line of credit. Regarding how to disseminate the product, he

stated that it was clear from Mr. Villafranca' s presentation that

there is a range of activities to facilitate dissemination. He

concluded that, if the Committee can develop a cost effective

product that meets the particular needs of the LMI community,

significant progress, significant progress will have been made.

Ms. Lazar then introduced Barbara A. Ryan, Deputy to the

Vice Chairman; Ruth R. Amberg, Senior Counsel,

Consumer/Compliance Section, Consumer and Legislation Branch,

Legal Division; Luke H. Brown, Associate Director, Compliance

Policy Branch, Policy, DSC; Luke W. Reynolds, Chief, Outreach &

Program Development Section, Community Affairs Branch, Consumer

Protection and Community Affairs, DSC; and Rae-Ann Miller,

Special Advisor to the Director , Division of Insurance and

Research, to discuss progress on development of the Committee's

Strategic Plan.

Ms. Miller began by summarizing the background, mission, and

vision sections of the Strategic Plan document, explaining that

background information on the unbanked and underbanked provides

highlights of the FDIC's Household Survey and addresses the

reasons it is important that people be banked; that the mission

statement primarily mirrors the Committee charter; and that the

vision of the Committee is to support research, demonstration

projects, and pilots and sound policies that are intended to

improve appropriate engagement with mainstream financial

institutions through its advice and recommendations. Ms. Ryan

then summarized the obj ecti ves section of the Strategic Plan

document, noting that the two basic objectives of the Committee

are lowering the level of underserved households and increasing

the supply of financial products and services targeted to

underserved households. Next, reporting on various work group

initiatives identified in the Strategic Plan document, Ms. Ryan

briefed the Committee on the progress of the Transactional

Accounts Work Group, Ms. Miller briefed the Committee on the

progress of the Savings and Affordable Credit Work Groups, Mr.

Reynolds briefed the Committee on the progress of the Financial

April 1, 2010
109

Li teracy Work Group, and Mr. Brown briefed the Committee on the

progress of the Incentives Work Group.

A discussion followed during which Professor Tufano noted

that previous meetings of the Committee had addressed several

issues, such as safe and affordable mortgages and consumer

protection issues, that despite not being included in the

strategic plan, still require attention. Expressing agreement,

Chairman Bair suggested that a sixth work group be formed to

develop initiatives specifically related to mortgages and,

voicing her particular interest in children' s savings accounts,

also requested that the Savings Work Group take a look at

developing an initiative addressing that topic. Included among

several suggestions made by Mr. Ryan were a suggestion that more

emphasis placed on a savings mechanism in connection with sample

template for the transaction account; a suggestion that, however

the products are structured, an effort be made to get local input

and buy-in at the implementation stage; and that it is important

to map out for financial institutions how they can offer the

products in a sustainable, profitable way. Chairman Bair agreed

on the importance of the need for grassroots buy- in and suggested

that, when public comment on the templates is solicited, the FDIC

should request feedback on how to build local support. Mr.

Boston, noting the success of the Small -Dollar Loan Pilot,

suggested that it is important to advertise that success and to

reward the pilot participants, in response to which Chairman Bair

said that the FDIC is def ini tely interested in expanding the

product and that CRA credit is offered for the small-dollar loan

product, with staff currently exploring ways to make the credit

more meaningful. Mr. Steel emphasized the importance of

quantifying the savings and benefits to LMI consumers resulting

from successful ini tiati ves, with Chairman Bair indicating

agreement on the development of metrics to measure program

success.

Then, on motion of Mr. Eakes, seconded by Mr. Steel, the

Committee unanimously adopted the Strategic Plan. Next, on

motion of Mr. Steel, seconded by Chairman Bair, the Committee

unanimously approved the solicitation of public comment on the

sample savings and transaction account templates.

April 1, 2010
110

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

R~

Executi ve Secretary

Federal Deposit Insurance

Corporation

And Committee Management Officer

FDIC Advisory Committee on Economic

Inclusion

April 1, 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, D.C.

Open to Public Observation

April 1, 2010 - 8:40 A.M.

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

minutes are accurate ánd complete.

D \£u__ \ =-9 k Diana L. Taylor \

Chairman

FDIC Advisory Committee on Economic Inclusion

ì

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Dated: July 22, 2010