78

Minutes

of

The Meeting of the FDIC Advisory Committee on Economic Inclusion

of the

Federal Deposit Insurance Corporation

Held in the Board Room

Federal Deposit Insurance Corporation Building

Washington, D. C.

Open to Public Observation

December 2, 2009 - 8:45 A.M.

The meeting of the FDIC Advisory Committee on Economic

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

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

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

Company, L. L. C., New 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; Ester R. Fuchs, Professor,

School of International and Public Affairs, Columbia University;

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,

Executi ve 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; Robert K. Steel, Chairman of the Board of Trustees,

The Aspen Institute; Peter Tufano, Sylvan C. Coleman Professor of

Financial Management, Harvard Business School, and Senior

Associate Dean for Planning and University Affairs; and Deborah

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

Inc., New York, New York. Rev. Dr. Floyd H. Flake, Senior

Pastor, Greater Allen AME Cathedral of New York, participated in

the meeting by telephone. Committee members Lawrence K. Fish,
79

Former Chairman and CEO, Citizens Financial Group, Inc.; 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 Uni versi ty; and

Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard Law

School, were absent from the meeting.

Members of the Federal Deposit Insurance Corporation's

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

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

Chairman, and Thomas J. Curry, Director (Appointive). Roberta K.

McInerney, Designated Federal Officer for the Committee and

Deputy General Counsel, Consumer and Legislation Branch, Legal

Division, was also present at the meeting. Corporation staff who

attended the meeting included Ruth R. Amberg, Heather L. Basnett,

Michael W. Briggs, Luke H. Brown, Susan Burhouse, Patricia I.

Cashman, David Chapman, Karyen Chu, Timothy Critchfield, Patricia

Devoti, Tiffany K. Froman, Ryan M. Goodstein, Heather Gratton,

Leneta G. Gregorie, Angelisa M. Harris, William F. Harral, Sally

Kearney, Ellen W. Lazar, Alan W. Levy, Rae-Ann Miller, Skip

Miller, Tariq A. Mirza, Janet V. Norcom, Yazmin E. Osaki, Barbara

A. Ryan, Luke W. Reynolds, and Katherine Samolyk. William A.

Rowe, III, from the Office of the Comptroller of the Currency

also attended.

Committee Chairman Taylor opened and presided at the

meeting. After Committee Chairman Taylor welcomed ComE-IN

members and provided an overview of the meeting agenda, Chairman

Bair underscored the importance of the just-issued FDIC National

Survey of Unbanked and Underbanked Households ("Household

Survey"). She suggested that the survey results demonstrate a

great deal of work is yet to be done to achieve the goal of

economic inclusion and emphasized the importance of addressing

the issue of overdraft fees to ensure that, as people are brought

into the banking system, they are brought into the right kinds of

products. Chairman Bair also expressed an interest in hearing

Committee members' thoughts on several topics, including the

recent amendments to the Board of Governors of the Federal

Reserve System's ("FRB") Electronic Funds Transfer regulation

("Regulation E") restricting overdraft charges for ATM and debit

card transactions; the potential for more robust enforcement

under existing guidance issued by the FDIC and other federal

banking agencies in 2005 on overdraft programs; and how best to

build on the success of the Corporation's Small-Dollar Loan Pilot

Program ("SDL Pilot") by expanding it and making ita staple

product for banks. Vice Chairman Gruenberg, noting that the

Household Survey report is concise and readable, hailed it as

December 2, 2009
80

groundbreaking work that would inform the Corporation's and the

Commi ttee' s work going forward and complimented the survey team,

led by Barbara A. Ryan, Deputy to the Vice Chairman.

Ms. Ryan, after introducing the members of the survey team,

briefed the Committee on antecedents to the Household Survey, the

survey planning process, and the survey methodology.

Next, as a prelude to her presentation of the survey

results, Ms. Ryan provided the definitions of "unbanked" and

"underbanked," noting that respondents who indicated they did not

have a checking or savings account were identified as unbanked

and that respondents who indicated they did have a checking or

savings account, but also relied on alternative financial service

providers at least once or twice during the preceding year, were

identified as underbanked. She further provided the definition

of "householder," indicating that such references in the survey

report are intended to identify the person who rents or owns the

dwelling.

In her presentation of the survey results, Ms. Ryan focused

on high-level findings, advising that an estimated 7.7 percent of

u. S. households, or approximately 9 million with at least 17

million adults, are unbanked; that an estimated 17.9 percent of

households, or approximately 21 million with at least 43 million

adults, are underbanked; and that the Household Survey findings

are not too far out of line with results of the FRB Survey of

Consumer Finances, last conducted in 2007, indicating that 7.9

percent of U. S. families did not have a bank transaction account,

and the Center for Financial Services Innovation Underbanked

Consumer Study, published in 2008, indicating that there were an

estimated 40 million unbanked and underbanked households.

Further elaborating on unbanked households, Ms. Ryan advised

that such households are more likely to be black, Hispanic nonblack, American Indian/Alaskan minorities; speak only Spanish at

home; be foreign-born non-citizens; be headed by unmarried

females or males; earn less than $30,000 per year; have less than

a high school degree; or have a householder under the age of 45,

with unbanked households almost evenly split between those that

were previously banked, 28 percent of which became unbanked

wi thin the past year, and those that have never been banked.

With regard to regional and state differences in the unbanked,

she advised that the percentage of unbanked households is highest

in the South; that there is notable variation in the proportion

of unbanked households across states, both overall and for

certain racial and ethnic groups; and that unbanked households

are more prevalent in urban and rural areas than in suburban

areas. Addressing the reasons never banked and previously banked

December 2, 2009
81

households are unbanked and the likelihood of their opening an

account in the future, she advised that frequently cited reasons

among the never banked for being unbanked were not having enough

money to feel they need an account, not writing enough checks,

high minimum balance requirements, and not seeing the value of

having an account; while frequently cited reasons among the

previously banked for being unbanked were not having enough money

to feel they need an account, high service charges, bouncing too

many checks, or having too many overdrafts, with previously

banked households indicating a greater likelihood of opening an

account in the future to write checks and pay bills. Finally,

she touched on the use of alternative financial services ("AFS")

by the unbanked, noting that two-thirds of such households

reported using at least one such service, suggesting a strong

reliance on cash transactions by one-third of unbanked

households; that transaction services such as money orders and

check cashing were used more frequently than credit services such

as payday loans; and that previously banked households were more

likely to use AFS than never-banked households. She also

reported that 16.4 percent of underbanked households use prepaid

debit cards, versus 18.8 percent of previously banked households,

suggesting that such cards are increasingly being used as an

alternative to a traditional bank account by those who are unable

to maintain a successful relationship with the traditional

banking system.

Next turning to findings on underbanked households, Ms. Ryan

indicated that, although they are similar in some ways to

unbanked households, there are also differences, with underbanked

households more likely to be black, American Indian/Alaskan, or

Hispanic non-black; have incomes up to $50,000; have a high

school degree; be headed by an unmarried female or male

householder; or have a householder under the age of 55. She then

noted that, similar to the geographic distribution of unbanked

households, underbanked households are more concentrated in the

southern region, exhibit variations across states and for certain

races and ethnici ties, and are more prevalent in urban and rural

areas than in suburban areas.

In conclusion, Ms. Ryan stated that the survey findings

suggest a strong opportunity and imperative for government and

industry to work together to expand mainstream financial access

to underserved populations and, in doing so, to take into account

the differences between unbanked and underbanked households when

designing economic inclusion policies. She also noted the

Corporation's intent to further mine the Household Survey data to

conduct additional analysis of AFS use, with a focus on state

variations and the extent to which such variations may be related

to differences among state laws, to better inform the

December 2, 2009
82

Corporation's next survey of bank efforts to serve the unbanked

and underbanked ("Bank Survey"), and to identify lessons learned

in preparing to conduct the second Household Survey in June 2011.

In particular, after enumerating some of the findings of the Bank

Survey, she observed that one of the recommendations arising from

that survey was to define as a shared government and industry

goal the lowering of the number of unbanked and underbanked

households and suggested that measuring progress toward such a

goal could be based on periodic estimates of the size of the

groups obtained through the Household Survey.

Having completed her overview of the Household Survey

results, Ms. Ryan announced the Corporation's launch of a new web

site, w~w~economic~~~l~sion~gov, to facilitate access to the

survey report and results, provide a mechanism to compare results

by region, metropolitan statistical area ("MSA"), and state, and

highlight initiatives currently being undertaken to promote

access to mainstream banking.

During the discussion that followed, Committee members were

universally complimentary of the Corporation's work in conducting

the Household Survey and reporting on the findings and raised a

number of questions regarding survey results. In response to a

question from Mr. Steel as to whether the results presented any

unexpected surprises, Ms. Ryan expressed surprise that about half

of unbanked households were previously banked and that of the

previously banked households, 28 percent had become unbanked

during the previous year, the reasons cited for using AFS, and

the significant variations in the number of unbanked,

demographically and by MSA; Yasmin Osaki, Special Assistant to

the Deputy to the Vice Chairman, indicated surprise at the

finding that previously banked households were more likely to

open a bank account in the future; and Vice Chairman Gruenberg

expressed surprise at the reasons given by previously banked

households for not currently having an account, noting that the

bottom line was the issue of cost and affordability.

Committee Members also offered a number of comments and

suggestions. One of the central themes of comments, expressed in

one form or another by Ms. Wright, Messrs. Ryan and Grzywinski,

Professor Tufano, Committee Chairman Taylor, and Vice Chairman

Gruenberg, was that consumers tend to act in a manner consistent

wi th their best interests; that survey results clearly show that

financial reasons are the ones most often cited as an explanation

for AFS use by the unbanked and underbanked, and therefore, being

in the banking system may not be the best fit based on their

finances; that banks, which also act in a manner consistent with

their best interests, have cited regulatory burden and cost as

factors in offering services and products that meet the needs of

December 2, 2009
83

the unbanked; and that perhaps the solution to providing

efficient, cost -effecti ve products and services to the unbanked

and underbanked lies in moving away from a bank-centric approach

and toward development of a system that meets their financial

needs, which mayor may not include banks, and more uniform

regulation of all financial services providers. However, Mr.

Boston observed that the issue was not merely having a bank

account, but having an account that increases in size over time,

and that insured financial institutions are more uniquely

positioned to provide savings products than non-bank entities, an

observation with which Vice Chairman Gruenberg agreed.

Vice Chairman Gruenberg also indicated that there were two

issues with respect to the unbanked and underbanked: one related

to access for unbanked households, and the other related to how

banks service existing accounts for households that are fully

banked or underbanked. Viewing the issue from another

perspecti ve, Committee Chairman Taylor said that it was important

to determine how the previously banked and underbanked actually

use the banking system. Addressing the issue of bank costs, Mr.

Beck suggested that perhaps the Committee should look at the cost

basis of various products to determine which products banks can

offer on a competitive basis, and Mr. McDonald suggested that, in

his opinion, removing regulatory impediments and developing

regulatory incentives, such as the Community Development

Financial Institution ("CDFI") Program, would reduce the costs to

banks of offering products and services to the unbanked and

underbanked.

Among the suggestions offered were those by Mr. Boston to

brief national and state policymakers, including members of the

Congressional Black Caucus, the Latino Caucus, and state

legislators, on the survey results to better inform policy

decisions related to this segment of the population, with Mr.

Boston and Professor Fuchs expressing particular concerns about

state policies that place restrictions on savings as a condition

of publ ic assistance; by Professor Tufano to review research

conducted by the Consultative Group to Assist the Poor to

identify alternatives to traditional financial products that may

better meet the needs of the unbanked and underbanked; and by

Professor Fuchs to explore in future surveys the extent to which

rules applicable to recipients of public assistance contribute to

being unbanked and ways to encourage banks to provide services

needed by the unbanked and underbanked.

Chairman Bair, having I istened to the discussion, expressed

confidence in the Committee's unique qualifications to assist the

Corporation in identifying accounts for lower income households

that are cost effective from the perspective of both consumers

December 2, 2009
84

and insured financial institutions. She also expressed a

willingness to determine whether there exists the flexibility to

address any regulatory costs and obstacles identified by the

Commi t tee. Acknowledging that a bank account may not be

economically sui table for everyone, she nevertheless offered the

opinion that the banking industry could do a better job of

bringing the unbanked into the banking system in a way that is

mutually beneficial, a process that would be facilitated by

looking at what works for the significant majority of individuals

who do have banking relationships. Finally, she underscored the

desire to further explore the extent to which technology, such as

cell phones, could be utilized to increase access to the banking

system and lower costs.

Committee Chairman Taylor then announced that the meeting

would briefly recess. Accordingly, at 10:41 a.m., the meeting

stood in recess.

* * * * * * *

The meeting reconvened at 11:05 a.m. that same day, at which

time Ms. Ryan briefed the Committee on the key findings of the

two-part FDIC Study of Bank Overdraft Programs ("Overdraft

Study"), released in November 2 008, the first part of which

involved on- si te surveys on the characteristics, features and

fees of overdraft programs at 462 FDIC-supervised institutions

(out of a study population of 1,171 such institutions) and the

second part of which involved the collection of 12 months of

micro-data account- and transaction-level data from a subset of

39 of the institutions. She identified some of the findings of

the survey of overdraft programs as follows: 41 percent of all

surveyed institutions had automated overdraft programs as

compared to 77 percent of large banks (those with assets more

than $1 billion); three-quarters of banks with automated

overdraft programs enrolled customers automatically; most banks

(73 percent) established limits on overdraft advances, with a

median limit of $500; the median fee charged for overdrafts was

$27, ranging from $25 for small banks (those with assets under

$250 million) to $30 for larger banks, in contrast to a median

fee of $5 for a linked account overdraft; and most (81 percent)

banks allow overdrafts for ATM and point of sale ("POS") /debit

transactions, with over half only notifying customers of ATM

overdrafts after completion of the transaction and 86 percent

only notifying customers of POS/debit overdrafts after completion

of the transaction. With respect to transaction processing

practices and bank earnings from fees, she indicated that one

quarter (24.7 percent) of all surveyed banks process transactions

in the order of largest to smallest, with 54 percent of large

banks processing transactions in that manner; and that almost

December 2, 2009
85

three quarters (74 percent) of service charges on deposit

accounts were related to fees for non-sufficient funds ("NSF"),

with 90 percent of NSF-related fees attributable to banks with

automated overdraft programs.

Turning to key findings of the micro-data collection, Ms.

Ryan advised that the order of transactions leading to overdraft

fees, from highest to lowest, were POS/debit transactions (41

percent), checks (30 percent), automated clearinghouse ("ACH")

payments (14 percent), and ATM transactions (7.8 percent); that

the median size of transactions leading to overdraft fees was $20

for POS/debit transactions, $56 for checks, $60 for ATM

transactions, and $78 for ACH payments; that 25.7 percent of

accounts in the micro-data banks had NSF acti vi ty during the 12-

month reporting period; and that 68 percent of overdraft fees

were paid by customers who had overdrawn their accounts 20 or

more times, 90 percent were paid by customers who had overdrawn

their accounts at least 10 times, and 95 percent were paid by

customers who had overdrawn their accounts at least 5 times. She

then pointed out that customers who overdrew their accounts 20

times or more per year, 10 to 19 times per year, and five to nine

times per year, paid overdraft fees in the aggregate of $1,610,

$451, and $215, respectively.

Concluding her briefing on the Overdraft Study, Ms. Ryan

noted that by linking customer account zip codes to Census tract

income information, the study team was able to discern that those

living in lower income areas were more likely than others to have

repeat overdraft activity, with 30 to 40 percent of such

customers having at least one overdraft, compared to 20 to 26

percent for those in higher income areas. She further noted that

young adults were more likely (46 percent) to have at least one

overdraft than those aged 26 to 61 (32 percent) and those over 62

years of age (31 percent) .

Next, Roberta K. McInerney, Deputy General Counsel, Consumer

and Legislation Branch, Legal Division, provided an overview of

regulatory activity related to overdraft programs, advising that

the Corporation and other Federal banking agencies in 2005 issued

Joint Guidance on Overdraft Protection Programs, which was still

in effect, to encourage banks to engage in responsible

administration and disclosure practices related to such programs

and that the guidance set forth a number of expectations

addressing safety and soundness considerations and legal risks,

in addition to a prescribed set of best practices related to

marketing and communications with consumers and program features

and operation; that the FRB, in November 2009, had issued a final

rule amending its Regulation E to limit the ability of financial

institutions to assess overdraft fees for paying ATM and one-time

December 2, 2009
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point of sale transactions that overdraw a consumer's account,

with an effective date of July 1, 2010, for new customers and

August 15, 2010, for existing customers; and that the FRB, in

January 2009, had amended its Truth in Savings regulation to

require all banks to disclose on each periodic statement the

total dollar amount of all overdraft fees imposed on a deposit

account, including disclosure of the fees for the calendar year

to-date. With respect to the 2005 guidance and the more recent

regulations, she stated that the Corporation expects banks to

follow the practices identified as integral to prudent risk

management of overdraft program activity, to comply with

applicable consumer protection laws and regulations, and to

operate overdraft programs in a manner that does not jeopardize

safety and soundness. She then provided an overview of recent

legislative developments related to overdraft programs, informing

the Committee that Senator Christopher Dodd, Chairman of the

Senate Banking Committee, had in October 2009 introduced

legislation, The Fairness and Accountabili ty in Receiving (FAIR)

Overdraft Coverage Act (S. 1799), to prohibit depository

institutions from charging more than one overdraft coverage fee

per month to an account and more than six such fees in a calendar

year and to prohibit a non-sufficient fund fee for any ATM or

debit transaction, and that Congresswoman Carolyn Maloney had,

also in October 2009, introduced similar legislation, the

Overdraft Protection Act of 2009, that includes an opt - in

requirement for all overdraft coverage.

Chairman Bair observed that there is a clear connection

between regulatory policies on overdraft programs and the

Corporation's efforts to encourage small -dollar lending, noting

that under the 2005 Joint Guidance on Overdraft Protection

Programs, institutions should be monitoring for excessive use of

such programs and explaining to customers the availability of

lower-cost credit alternatives.

A discussion followed in which Committee members discussed

regulatory compl iance costs for new overdraft program rules, with

Mr. McDonald and Ms. Wright particularly noting that many

communi ty banks know their customers and do not have a formal

program that charges for overdrafts on a per check basis; the

need for financial education programs, with Mr. Boston suggesting

that consumers, part icularly young consumers, seem unaware of the

long-term, adverse impact on financial stability resulting from

bounced checks or loan default, and Professor Fuchs and Mr. Eakes

suggesting in the short-term, until consumers are educated about

certain products and the potential cost to their long-term

standing, one solution would be to return to rej ecting overdrafts

at the point of service; and the Committee's general goal of

bringing the unbanked and underbanked into the mainstream

December 2, 2009
87

financial system, with Chairman Bair, Vice Chairman Gruenberg,

and Mr. Eakes expressing agreement that the goal needs to be

defined within the context of affordable and responsible products

and in a way that addresses the inappropriateness of excessive

overdraft fees.

Committee Chairman Taylor then announced that the meeting

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

stood in recess.

* * * * * * *

The meeting reconvened at 1: 35 p. m. that same day, whereupon

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

Policy, before introducing the next panel, provided an

opportunity for Committee members to offer any additional

thoughts regarding earlier panel discussions. In response, Mr.

Grzywinski offered for consideration the following three

suggestions: that the FDIC develop a standard brochure, required

to be offered by all banks, outlining the potential abuses of

overrel iance on overdraft programs; that the regulatory agencies

require in the written materials provided to consumers who elect

to participate in overdraft programs some type of warning,

analogous to the warning on cigarettes, alerting consumers to

potential pitfalls; and that there be a requirement for a peeloff sticker on newly issued debit cards, referring consumers to

written materials that detail the potential costs of overdraft

programs. Ms. Lazar, after thanking Mr. Grzywinski for his

suggestions, identified as the goal of the afternoon session the

development of a strategic plan for the Committee to help achieve

the broader goal of decreasing the numbers of unbanked and

underbanked in the U. S. and increasing participation in the

mainstream financial system. She then opened the floor for

reports on the acti vi ties and recommendations of the various work

groups.

Mr. Barr, Chairman of the Transactional Accounts Work Group,

noted that the objective of the group is to identify sound

financial products and services to meet the needs of low- and

moderate-income ("LMI") consumers, with a particular focus on the

sui te of transactional needs, such as receiving salary payments,

storing funds, paying bills, and short-term emergency savings

vehicles. He then shared some of the potential policies and

proj ects on which the group was able to reach consensus,

including identifying existing financial sector innovations, both

domestically and internationally, that could be more widely

employed to serve the needs of LMI households; developing a set

of best practices or a prototype suite of LMI transactional

products; holding a forum to consider ways of partnering with

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other federal and state government agencies to expand electronic

benefit programs beyond the function of merely delivering

benef i ts into a more functional suite of products and services;

and identify initiatives that the Corporation can undertake,

under its own authority or jointly with other agencies, to

improve the way that financial services are offered to LMI

households.

During the ensuing discussion, Ms. Lazar expressed interest

in the possibility of research regarding potential delivery of

financial services via mobile phones and prepaid cards and

Committee Chairman Taylor expressed interest in research into the

products and services that are actually useful to and used by LMI

households and which kinds of institutions are best situated to

provide those products and services. Mr. Beck, reiterating a

recurring theme, stated that embedded in the research should be

the need to achieve a balance between determining which products

and services represent a good deal for consumers and are

sustainable for suppliers. Mr. Grzywinski suggested the

possibility of a competition to generate innovative ideas on ways

to marry banking and technology to deliver financial services to

the unbanked and underbanked. Mr. Eakes expressed interest in

determining the feasibility, particularly with respect to any

regulatory barriers, of a bank acquisition of a check casher,

with the goal being to deliver FDIC-insured savings products

directly through an established system that has already worked

out how to process transactions for the target population

profitably and conveniently, which led into a discussion of

lessons learned from the acquisition of Nix Check Cashing

(Carson, California) by Kinecta Federal Credit Union (Manhattan

Beach, California).

Next, Mr. Boston, on behalf of Professor Tufano, Chairman of

the Savings Work Group, advised that the obj ecti ve of the group

is to provide consumers, particularly those who are LMI and

underserved, with convenient and safe ways to save that are also

attractive to and feasible for mainstream financial institutions

to offer, with the group deciding to focus primarily on shortand mid-term savings. He further advised that the group had

identified the following potential policies and proj ects:

launching a research proj ect to determine a "base level" of

savings, particularly for LMI households; creating and promoting

national savings goals; defining and promoting a template for

desirable savings products and conducting a symposium to

highlight results; developing benchmarks for the costs incurred

by banks in offering savings products to LMI households; and

considering guidance to make CRA more meaningful to banks that

offer appropriate savings products to LMI savers. In reaction,

Professor Fuchs reiterated the need to take into consideration

December 2, 2009
89

any prescribed limits on savings for LMI individuals receiving

state assistance benefits.

Mr. Shepherd, on behalf of Mr. Fish, Chairman of the

Financial Literacy Work Group, the objective of which is to

examine current financial education delivery and research efforts

and consider recommendations to improve dissemination of existing

financial education resources and strategies, then reported on

the outcome of the group's collaboration, advising that the group

had devised a three-part strategy: collection and dissemination

of information, identification of opportunities for further

research to target gaps in existing information, and

identification of specific recommendations within the

Corporation's jurisdiction. He then enumerated specific

potential policies and projects agreed to by the group, including

determining the feasibility of calculating the return on

investment for financial education acti vi ties; examining

education efforts over the past 25 years to determine best

practices beyond the banking industry; exploring the possibility

of disseminating financial education best practices not just to

the financial services industry, but to a broader array of

practi tioners; considering development of a certification program

for those providing financial education; and exploring the

possibility of assigning credit or greater weight for financial

education activities during CRA examinations.

During the discussion that followed, Committee members,

Board members, and staff touched on a number of topics, including

the need to identify core financial competencies, with the FDIC

and other government agencies working in concert to promote a

nationwide campaign; the need to include mandatory financial

education in school curricula, with appropriate teacher training;

the importance of developing a standard set of criteria against

which to assess the qual i ty of financial literacy programs; and,

with respect to any CRA credit offered for bank development and

implementation of financial education programs, the importance of

allowing such credit only for outcome-based efforts rather than

for the number of participants enrolled in such programs.

Chairman Bair and vice Chairman Gruenberg expressed particular

support for the suggestion that the Corporation follow up with

the Department of Education and the Treasury Department to

spearhead efforts to place more emphasis on inclusion of

financial education in the nation's school systems.

Then, Mr. Grzywinski, Chairman of the Incentives Work Group,

reported that the group's objective is to encourage banks to lend

and invest in LMI communities and to offer responsible loan and

deposit products to LMI individuals and families, and that

potential policies and projects identified by the group include

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the following: enhanced CRA incentives through possible changes

to CRA test criteria and adj ustments to CRA assessment areas;

support for CDFIs, including CRA credit and bank adoption of

CDFIs; and a possible FDIC Chairman's Award Program. Regarding

enhanced CRA incentives, he suggested that there be an increase

in the weight on the lending test of affordable short-term small

dollar loans; that a change be made to the large bank service

test to focus more attention on community development services

such as asset building and transaction services, particularly

those performed in partnership with non-profits; that the

intermediate small bank community development test be clarified

by adding specific factors to cover low-income asset building;

that the small bank rating criteria be changed to explicitly

include a performance factor that considers asset building and

affordable lending in savings products in LMI customers; that

standards be adopted to ensure that CRA credit is given only for

beneficial products, with a penalty for harmful products; and

that the CRA Q&As be expanded to make it clear that institutions

will get little or no CRA consideration for products that may be

inconsistent with helping to meet the convenience and needs of

community service areas. As examples of products that do not

seem beneficial or help meet credit needs in a responsible

manner, he cited loans to individuals without the capacity to

repay or loans resulting in repeated renewals, extensions, or fee

payments. Regarding specific recommendations for adjustments to

CRA assessment areas, he suggested that consideration be given to

requiring large institutions to include more than the area around

their headquarters in their designated assessment areas, and that

consideration be given to community development, investments,

loans, and services outside of a bank's assessment area if they

are especially tailored to meet the needs of LMI individuals.

Observing that CDFIs are organizations that are really working in

LMI neighborhoods, Mr. Grzywinski indicated that it would be

extremely helpful to provide CRA credit for banks that invest in

such organizations and encouraged banks' adoption of CDFIs

through provision of financing, lending expertise, and other

support. Elaborating on the recommendation for a Chairman's

Award, he suggested that such awards might be presented at an

annual awards dinner and could recognize noteworthy activities in

a variety of CRA categories as well as banks that are involved

wi th CDFIs. Finally, he recommended exploring new incentives for

banks with outstanding ratings, citing as an example the

possibility of encouraging the Treasury Department to make an

award under its Bank Enterprise Award Program for excellence in

serving the most difficult LMI segments of the community.

Ms. Lazar, not ing that the CRA was enacted in 1977 and last

underwent a maj or review in 1995, with the market having changed

significantly since then, stated that the recommendations made by

December 2, 2009
91

the Incentives Work Group offered great potential for a more

current CRA review to determine how to more effectively address

the issues associated with economic inclusion.

Ms. Lazar then announced that the meeting would briefly

recess. Accordingly, at 2: 56 p. m., the meeting stood in recess.

* * * * * * *

The meeting reconvened at 3 :23 p.m. that same day, whereupon

Ms. Lazar requested a report from the last of the working groups,

the Affordable Credit Work Group.

Mr. Murphy, Chairman of the group, advised that its

objective was to attempt to identify a way to stimulate the

availability of affordable credit in a responsible way and to

ensure that it is, in fact, profitable for financial

institutions. He noted that the group had reviewed the results

of the Corporation's SDL pilot and met with several of the pilot

participants to discuss their successes. He then asked Rae-Ann

Miller, Special Advisor , Division of Insurance and Research, to

provide an overview of the group's October 22, 2009, meeting and

the subsequent policies and practices identified by the group for

presentation to the larger Committee.

Wi th respect to the October 22 meeting, Ms. Miller reported

on a summary of the SDL pilot results and that participants in

the meeting included financial institutions involved in the SDL

pilot, state and federal agencies, nonprofit organizations, and

small-dollar loan companies. These participants provided

information regarding their loan features, underwriting and

processing guidel ines and program results; reports included

summaries of the CreditPlus product offered by BankPlus, Jackson,

Mississippi; small-dollar loan programs offered by Main Street

Bank, Kingwood, Texas, Amarillo National Bank, Amarillo, Texas,

and Liberty Bank, New Orleans, Louisiana; ; the Credit Union

Bet ter Choice program sponsored by the Pennsylvania Credit Union

Association; the Employee Loan Benefit Program proposed by

Employee Loan Solutions; the Clear Card product, implemented by

eDuction; the Virginia State Employee Loan Program offered

through a partnership between the Virginia State Employee

Assistance Fund and Virginia Credit Union; the Common Sense

Financial Initiative implemented by nonprofit group MACED; the

microlending platform implemented by nonprofit group ACCION

Texas; small dollar kiosk lending implemented by Progreso

Financiero; and the peer-to-peer lending platform, Prosper. com.

Addi tionally, she reported on the Department of Defense's

presentation about their holistic approach to improving the

financial well -being of service member households to ensure

December 2, 2009
92

mili tary readiness. She further reported that, after considering

the various programs and products, meeting participants

identified several potential strategies to scale the availability

of small dollar credit. She identified those strategies as

increasing the scale of small -dollar loans by, among other

things, disseminating the results of the SDL Pilot, with

particular emphasis on the finding that default rates for program

loans were almost identical to those for unsecured loans

generally; testing new models as al ternati ves to existing

relationship-building models, particularly models that result in

cost reductions, such as employer-based models; encouraging

partnerships between banks, government agencies, and non-profit

organizations; promoting the use of guarantees to offset bankers'

fear of costs of entry and default; and exploring more flexible

regulatory treatment of small -dollar loans. Mr. Murphy then

advised that the work group had developed the following potential

policies and proj ects to stimulate the availability of affordable

credit to LMI consumers: build a national effort to acknowledge

and brand existing programs by establishing an acceptable

prototype for small dollar lending and developing a promotional

campaign, leveraging existing funds, whether philanthropic or

government, to provide loan guarantees for small -dollar loan

programs, and publicly closing out the SDL Pilot in a celebratory

way that is supportive of participants; consider a pilot smalldollar loan program using federal employees to test an innovative

business model; perform research on issues related to affordable

credit; and provide positive CRA consideration for affordable and

responsible small -dollar loan programs. He acknowledged,

however, that it would be inappropriate for the FDIC to endorse

specific companies or products for conducting a pilot program

using federal employees.

Professor Fuchs suggested that, in closing out the SDL Pilot

and identifying a standard for acceptable small-dollar loan

programs, consideration should be given to analyzing the

characteristics of the program itself as well as the

characteristics of the institutions to determine whether there

are certain commonalities to indicate which type of institutions

value which programs.

Chairman Bair, summarizing her thoughts on the meeting

presentations and discussions, noted that the SDL Pilot and the

work of the Committee and work groups have provided a number of

successful models for small -dollar loan programs; that the 2005

Joint Guidance on Overdraft Protection Programs is fairly

explicit that institutions should be monitoring usage of such

programs; and that, in instances of chronic use, if it becomes

necessary on a case-by-case basis for institutions to provide

customers with alternatives, the Corporation has identified a

December 2, 2009
93

number of existing and proposed models. She also observed that

some of the models appear to provide the potential to be

profi table, with low risk of default, particularly the employerbased programs that provide loans as a benefit to employees and

the programs that require large deposits of loan proceeds

securi ty for the loan.

Vice Chairman Gruenberg expressed his opinion that the

meeting had been very productive, with the Committee having

identified a set of issues that are consistent with the resul ts

of the Household Survey, such as the need for appropriate and

affordable transaction accounts, savings and asset building

products, and financial education programs for LMI consumers and

incentives for financial institutions to meet those needs. He

stated that it was his hope that the Committee could move forward

to identify specifics in each of those areas and an action plan

that could be implemented over the next year or so.

Ms. Lazar then advised that the next step was for

Corporation staff, in conjunction with the individual work

groups, to refine the conclusions of the meeting into a single

document, share it with Committee members by mid-January 2010,

and begin operating from a strategic plan that better aligns some

of the suggestions to ensure that the work groups are operating

in a uniform manner.

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

Robert E. Feldman

~

Executive Secretary

Federal Deposit Insurance

Corporation

And Committee Management Officer

FDIC Advisory Committee on Economic

Inclusion

December 2, 2009
Minutes

of

The Meeting of the FDIC Advisory Committee on Economic Inclusion

of the

Federal Depqsi t Insurance Corporation

Held in the Board Room

Federal Deposit Insurance Corporation Building

Washington, D. C.

Open to Public Observation

December 2, 2009 - 8:45 A.M.

,

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

minutes are accurate and complete.

r' \ ~ I JI,iÂ '- ~ \or ~ Diana L. Taylor ~

Chairman

FDIC Advisory Committee on Economic Inclusion

Dated: D'3(1 ~ I~ol 0