300

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

May 16, 2013 - 9:08 A.M.

The meeting of the FDIC Advisory Committee on Economic

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

Martin J. Gruenberg, Chairman of the Board of Directors of the

Federal Deposit Insurance Corporation ("Corporation" or ~~FDIC").

The members of ComE-IN present at the meeting were Robert A.

Annibale, Global Director, Citi Microfinance and Community

Development; Michael Barr, Professor of Law, University of

Michigan Law School; Ted Beck, President and Chief Executive

Officer (CEO), National Endowment for Financial Education; Kelvin

Boston, Executive Producer and Host of PBS' Moneywise with Kelvin

Boston; Jose Cisneros, Treasurer, City and County of San

Francisco, California; Martin Eakes, CEO, Self-Help/Center for

Responsible Lending, Durham, North Carolina; Wade Henderson,

President and CEO, Leadership Conference on Civil Rights, and

Counselor to the Leadership Conference on Civil Rights Education

Fund; Andrea Levere, President, Corporation for Enterprise

Development, Washington, D.C.; Alden J. McDonald, Jr., President

and CEO, Liberty Bank and Trust, New Orleans, Louisiana; Bruce D.

Murphy, Executive Vice President and President, Community

Development Banking; KeyBank National Association; 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;

Peter Tufano, Peter Moores Dean and Professor of Finance, Said

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301

Business School, Oxford University and Founder and CEO of D2D

Fund; and John C. Weicher, Director, Hudson Institute's Center

for Housing and Financial Markets.

Rev. Dr. Floyd H. Flake, Senior Pastor, Greater Allen AME

Cathedral of New York; Ester R. Fuchs, Professor, School of

International and Public Affairs, Columbia University; and

Robert K. Steel, Deputy Mayor for Economic Development, The City

of New York were absent from the meeting.

Members of the Corporation's Board of Directors present at

the meeting were Martin J. Gruenberg, Chairman, and Jeremiah O.

Norton, Director (Appointive). Roberta K. McInerney, Designated

Federal Officer for the Committee and Deputy General Counsel,

Corporate, Consumer, Insurance, and Legislation Branch, FDIC

Legal Division, also was present at the meeting. Corporation

staff who attended the meeting included Willa A. Allen, Steven 0.

App, Michael W. Briggs, Luke H. Brown, Susan Burhouse,

Alexander S. Cheng, Kymberly K. Copa, Carolyn D. Curran,

Christine M. Davis, Patricia B. Devon, Dianne E. Dixon,

Doreen R. Eberley, Keith S. Ernst, Janet R. Gordon, Shannon N.

Greco, Leneta G. Gregorie, Marianne Hatheway, Matthew Homer,

Alan W. Levy, Christopher Lucas, Jonathan N. Miller, Arthur J.

Murton, Janet V. Norcom, Yazmin E. Osaki, Richard Osterman,

Sylvia H. Plunkett, Barbara A. Ryan, Luke W. Reynolds, Sherrie

Rhine, Richard M. Schwartz, Dominick P. Sciame, Jr., Kimberly

Stock, Mindy West, and James Yagley.

Chairman Gruenberg opened and presided at the meeting. He

began by expressing his interest in the scheduled presentations,

noting that some would build on work already underway, while

others would, he hoped, provide the basis for future work. He

then offered an overview of the meeting agenda, advising that the

first panel would discuss three innovative initiatives designed

to help individuals accumulate savings; that savings is an issue

of critical importance given the findings of recent studies

showing that only 52 percent of people in the U.S. were able to

save the previous year, that there has been a steady decline over

the past three years in key savings indicators, and, as indicated

in the FDIC's 2011 National Survey of Unbanked and Underbanked

Households ("Household Survey"), that nearly 30 percent of

American households do not have a savings account; and that one

of the desired outcomes of the panel presentations was the

identification of concrete work projects to promote savings.

Noting that the Household Survey also found that 10 percent of

U.S. households do not have a checking account, he then advised

that the second panel would provide an update on model safe

accounts offered by Citibank and KeyBank and discuss prepaid

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302

cards offered by PNC Bank (~~PNC") and JP Morgan Chase (~~Chase")

that largely comply with the FDIC's Model Safe Accounts Template;

concluding his agenda overview, Chairman Gruenberg advised that

the luncheon speaker, Sarah Rosen Wartell, President, Urban

Institute, would address the current state of mortgage lending in

the United States and projections for the future; and that the

final panel would provide an update on staff's work on mobile

financial services (`~MFS"), with an emphasis on the research

projects currently under consideration and identification of

possible additional projects in that area. He then turned the

meeting over to Keith Ernst, Associate Director, Consumer

Research and Examination Analytics, FDIC Division of Depositor

and Consumer Protection ("DCP"), moderator of the first panel.

Mr. Ernst began by reiterating a finding of the Household

Survey that 3 of every 10 U.S. households lack a savings account

at an insured institution, a finding that he suggested only adds

to the long string of evidence that U.S. households are saving

less than they would like and less than what is commonly

understood as necessary for a secure retirement, taking advantage

of opportunities for economic mobility, and even handling

emergency expenses. He then introduced the members of the

"Savings Initiatives" panel, noting that Michal Grinstein-Weiss,

Associate Professor, Center for Social Development, Washington

University in St. Louis (~~Washington University"), would discuss

an innovative project, of considerable scale, designed to get

Americans to save more of their tax refund; that Thomas Ng,

Senior Vice President and Chief Risk Officer, Wilshire State Bank

("Wilshire"), would discuss a contractual savings product that

had been found by Wilshire to work across a range of targeted

savings amounts, delivering value to customers and the

institution; and that Daniel Lau, Programs Manager, Mission Asset

Fund ("MAF"), would discuss MAF's work with a variety of

stakeholders to meet a particular consumer need, coming up with

the funds to place a security deposit on a rental unit, while

also helping consumers establish mainstream banking

relationships, build credit, and develop an asset. Encouraging

Committee members to think about the value of the savings

initiatives to consumers and institutions as they listened to the

presentations, Mr. Ernst advised that, after the presentations

and Committee discussion, he would ask Committee members to share

their thoughts about research and other activities the FDIC might

pursue to support savings more generally.

Dr. Grinstein-Weiss began by advising that the Refund to

Savings Initiative ("R2S"), the largest savings experiment ever

conducted in the United States, is a joint collaboration between

Washington University, Duke University, Dr. Dan Ariely, a

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303

behavioral economist, and Intuit, maker of TurboTax, Quicken, and

other software. She advised that the goal of R2S is to develop

and test a low-cost, low-touch universal and scalable savings

policy designed to promote savings at tax time and assist lowand moderate-income ("LMI") households build financial security.

Asking and answering the question, "Why tax time," she pointed

out that tax time is universal, permanent and recurring;

that it is a major financial event for households, including LMI

households, with the median refund for a median household of

about $2900; that, from a behavioral economics perspective, it

presents a golden opportunity for intervention; and that there

exists ample evidence from the assets building field that LMI

households anticipate using their tax refunds for savings or to

repay debt. Also asking and answering the question, "Why Intuit

as a partner," she advised that Intuit has existing

infrastructure, with 22 million of the approximately 45 million

returns filed online each year filed by TurboTax customers; and

that Intuit is a socially conscious organization that really

cares about such issues. She further explained that R2S includes

three primary components: an Intention Survey, conducted for two

years, in an effort to determine what plans taxpayers have for

their refunds and what kind of behavioral economics prompts might

work to get more people to save; a 2012 Intervention in Intuit

Tax Freedom Project ("Intervention") to test the effect of

anchors and prompts to promote splitting of tax refunds and

generating savings; and a Household Financial Survey, conducted

at the conclusion of tax season, with a follow-up scheduled in

six months, to determine if savings generated by the in-product

intervention persist and affect households' balance sheets.

Elaborating on the 2012 Intervention, Dr. Grinstein-Weiss

indicated that it was a randomized control trial of nearly

149,000 LMI households designed to test three different

behavioral economics techniques: introduction of motivational

prompts to save for emergencies or for a specific goal, such as a

home purchase, education, a child, a vacation, or retirement; use

of choice architecture to present options in a manner that would

most successfully influence a savings outcome; and use of

anchoring to suggest different amounts to save, in an effort to

determine whether motivating prompts increase savings, whether

default presentation affects savings performance, and which

combination of prompts and presentations of choice has the

largest impact on savings behavior. She further indicated that,

of the 149,000 households in the sample, slightly more than 30

percent elected to receive their refunds in the form of a check,

leaving approximately 107,000 households that went through the

actual intervention. With respect to data characteristics, she

underscored its reliability, noting that it was administrative

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data being collected by Intuit; explained that additional nonidentifiable information about filers was available from their

tax returns; and indicated that there were nine groups, one

control group and eight treatment groups receiving different

combinations of prompts and anchors. With respect to sample

characteristics, she advised that the mean adjusted gross income

("AGI") of the sample was $13,000 and the median AGI was

approximately $11,000; that the mean refund amount was about

$1,000 and the median refund amount was about $590; that an

estimated 10 percent have children; and, because the Intervention

was conducted between March 15 and April 17, the members of the

sample were late season filers.

Next addressing preliminary Intervention results, Dr.

Grinstein-Weiss reported that there was a one percent increase in

the rate of split refunds, with a doubling of the number of

people who split, although the research began with a very small

number of people who split; that there was a significant increase

in those electing to save any amount, with 9.8 percent of

treatment group members saving as compared to 7.7 percent of the

control group, although the results do not take into account

those who placed their full refund in a checking account and may

have later transferred funds to savings; that, compared to the

control group, those subject to 75 percent anchoring combined

with various prompts or no prompt saved statistically significant

higher amounts, as was the case for those subject to 25 percent

anchoring combined with various prompts or no prompt, with the

amount saved by those subject to 25 percent anchoring slightly

lower than the amount saved by those subject to 75 percent

anchoring; and that, compared to the control group, those subject

to 75 percent anchoring combined with various prompts or no

prompt saved significantly higher proportions of their refunds,

as was the case for those subject to 25 percent anchoring

combined with various prompts or no prompt, with the proportion

of refund saved by those subject to 25 percent anchoring slightly

lower than the proportion saved by those subject to 75 percent

anchoring. She noted that, while statistically significant, the

impact of the Intervention might not seem huge but that, because

it is delivered on a large scale and is very low-cost, it is

nevertheless meaningful. However, she advised that interesting

results emerge when comparing the amount and proportion of

refunds saved by the control group to that saved by self-selected

splatters, with the Intervention increasing the amount of savings

by self-selected splatters by almost $800 over the control group

and the proportion of refund saved, with the control group saving

10 percent of their refund as compared to self-selected splatters

subject to 75 percent anchoring saving over 60 percent of their

refund.

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305

After noting that the big take-away from the Intervention is

that behavioral economics techniques do impact savings behavior,

anchoring definitely works, and that it is possible to have an

effect of a large magnitude on a small percentage of people, Dr.

Grinstein-Weiss shared next steps for the R2S initiative. She

indicated that the initiative was being tested over the full 2013

tax season, with more automatic splitting; that the 2013

Intervention would yield a sample size of 1.2 million households;

and that the 2013 Household Financial Survey, which involved indepth interviews with some households, yielded a sample size of

20,000 households, and was being considered for expansion to

examine new and innovative products.

Next, Mr. Ng introduced Committee members to the Rainbow

Savings Account offered by Wilshire, which he indicated

encourages individuals to set aside a fixed amount each month and

to accumulate a meaningful sum that can be used for a particular

purpose, such as college tuition, a vacation, a wedding, or a

down payment on a house. He noted that the Rainbow account is

similar to many club accounts offered by credit unions and banks,

but that it differs from typical club accounts in that it earns a

higher interest rate; encourages consumers to think ahead of time

to determine the amount they need for their particular purpose

and when they will need it, which factors determine how much must

be saved each month to meet the goal; and, to ensure that

customers are meeting their commitment to monthly payments,

encourages them to make the payments automatically from a

Wilshire checking account to earn extra interest.

Mr. Ng then provided an overview of Rainbow account

characteristics, advising that contract amounts range from $1,000

to 5100,000, with contracts between $1,000 and $10,000 accounting

for 40 percent of the 3900 accounts; that the maximum term ranges

from three years for a $1,000 contract to five years for a

$100,000 contract, with an average maturity term ranging from 22

to 33 months; that the minimum amount required to open an account

and obtain the annual percentage yield for each term of maturity

is the initial monthly installment payment; and that the bank has

been fairly successful in establishing automatic transfers to

savings from Wilshire demand deposit accounts, noting, as an

example, that approximately two-thirds of their $10,000 contracts

have automatic transfers from such accounts. He observed that,

because the accounts offer a higher interest rate than the bank's

regular savings accounts, there is a need, as would be the case

for any institution, to balance the cost with non-interest

bearing deposit accounts, with the hope of establishing long-term

relationships with customers. Noting that certain mechanisms are

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306

built into the account to ensure that customers develop a savings

habit, he pointed out that any delays in monthly deposits would

reduce the amount available for withdrawal at maturity, that

failure to make three consecutive monthly payments in a quarter

results in closure of the account or transfer to a regular

savings account with lower interest, and that a $10 fee is

applied to every deposit in excess of three payments in a

quarterly cycle.

Next, addressing the effects of account closings, Mr. Ng

advised that accrued interest is not paid if the account is

closed before interest is credited at the end of the quarterly

cycle and that there is no early withdrawal penalty for accounts

closed before the maturity date. He indicated that the bank has

noticed a couple of patterns with regard to account closings, one

of which being that, due to the higher interest rate tier for

longer maturity, many accounts closed before maturity had the

longest term at account opening; and another that accounts with

smaller contract amounts and shorter terms exhibit higher rates

of early withdrawal. As for the frequency of early withdrawals,

he reported that there was a very high level of early withdrawal

at 12 months for $1,000 contract amounts, and at 12 and 36 months

for $5,000 contract amounts, with the withdrawals for the

remainder of contract amounts spiking at 36 months.

In conclusion, Mr. Ng summarized the benefits of the Rainbow

account, stating that installment savings was viable for shortor medium-term goals and for all depositors, including LMI

depositors; that the low initial and monthly payments encourage

` first-time savers to open a bank account; that the required

monthly payments help to form a savings habit and, hopefully,

over time result in the opening of more savings accounts for

other individuals in the household and more long-term

relationships; and that the money is available for emergency

purposes with no early withdrawal penalty. He expressed his

opinion that the account was a good model for adoption by other

banks interested in promoting products for LMI individuals.

Mr. Lau began his presentation by sharing background

information on MAF, advising Committee members that it is a

nonprofit organization based in San Francisco's Mission District,

that it was founded in 2007 through a seed grant from the Levi

Strauss Foundation, and that its mission is to support asset

building and wealth creation opportunities in low-income and

recent-immigrant communities and to empower participants to

become active consumers when accessing the financial marketplace.

After characterizing the work of MAF as transforming barriers to

opportunities and explaining that its philosophy is that

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financial product plus financial education equals financial

capabilities, he briefly described two of its programs, Lending

Circles for Citizenship and Lending Circles for Dreamers,

indicating that they specifically assist legal permanent

residents or Dreamers apply for citizenship or for deferred

action, in each instance allowing for increased benefits and

access to services. Referring to the results of a two-year

evaluation study of the Lending Circles program, which involves a

group of people lending and borrowing to and from one another in

a rotational format, he reported that the Lending Circles had

made over $1.8 million in loans, that participants had seen a 35-

point net increase in credit scores and a nearly $4,000 net

decrease in debt, and had resulted in a savings of over $1.8

million in fees and interest that would have been paid for loans

in the traditional lending marketplace. He stated that the

success of the Lending Circles had motivated MAF to continue

accessing new populations that were not necessarily being served

by the Lending Circles and had led to development of the Security

Deposit Loan Program.

Mr. Lau advised that the Security Deposit Loan Program is

targeted to foster youth, about 65 percent of which are at risk

of homelessness after emancipation from the foster care system

and who have a larger prevalence of being victims of identity

theft and fraud, and that it is designed to help foster youth

overcome the significant financial barrier of obtaining the funds

required to make a security deposit on their first apartment.

Explaining the mechanics of the program, he indicated that it

involves three parties - the renter, MAF, which plays the role of

loan servicer, and the landlord, which is a partner nonprofit

organization in Oakland; that the renter applies and, once

approved, signs loan documents; that the renter then receives a

loan voucher, which the landlord accepts as completed payment of

the security deposit, and makes monthly repayments on the loan;

that MAF collects the monthly payments, which are essentially

savings, and reports them to the credit bureaus to help the

renter build credit; and that at the end of the lease, all of the

accumulated savings are paid to the landlord and, in the absence

of property damages or other items needing settlement, ultimately

returned to the renter. He then addressed the financial

education aspects of the high-touch, high-tech program, noting

that MAF provides a Web-based curriculum with progressive online

content including activities and quizzes to keep the youth

engaged; that it includes a variety of topics, including budgets

and investments; that it is linked to social media, allowing

participants to, among other things, share their goals and

progress and build a support network; and that it includes a

certificate of program completion.

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1:

Regarding the Security Deposit Loan Program timeline, Mr.

Lau advised that MAF has partnered with First Place For Youth,

New Economics for Women, Rubicon Programs, and Larkin Street

Youth Services to launch the program, that training had been

completed the previous month, that implementation and expansion

would occur over the next year, and that an evaluation report was

scheduled for April 2014. He then identified as the key takeaways from his presentation MAF's creation of programs and

services that meet people where they are, not where MAF wants

them to be, nor where MAF thinks they ought to be, and that build

on what they have, no matter what shape, form, or size that may

be; its focus on transforming barriers into opportunities; its

philosophy of embedding financial products into program services;

and its use of technology to lower the cost of services. In

closing, he stated that the work of MAF is facilitated by its

partnership model, which seeks to build capacity and enhance

current program services and leverage technology to keep in touch

with partners. He specifically thanked Mr. Annibale and Citi

Community Development for their generous support of MAF's work,

particularly the Security Deposit Loan Program.

Mr. Ernst observed that a few common themes had emerged

during the presentations, including finding ways to interact with

existing systems that already touch the targeted populations, the

value of automation and technology, and the value of helping

customers identify a goal and a strategy to meet that goal that

can be immediately available to them. He then opened the floor

to Committee member questions and comments.

During the discussion that followed, Committee members asked

and staff answered a number of questions, and Committee members

offered suggestions to panel members on possible ways to enhance

their respective programs and shared their thoughts on research

and other activities the FDIC might employ to complement its

existing economic inclusion efforts. Ms. Levere and Mr. Annibale

both emphasized the need for pre-tax time intervention to enhance

the success of the R2S initiative and Ms. Levere asked whether

any thought had been given to interventions prior to the tax

filing season, in response to which Dr. Grinstein-Weiss

acknowledged that their point was valid and indicated that Intuit

is giving thought to year-round interventions, perhaps through

mobile technology, in an effort to get consumers to pre-commit to

saving a portion of their tax return, and possibly offering

incentives for saving at tax time, introducing infrastructure to

extract a commitment from those who elect not to save at tax time

that they will begin a small direct deposit on a monthly basis

following tax season, and obtaining savings and checking

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i 1 '~

information at the beginning of the tax return process so that

split refund screens can be pre-populated at the end of the

process. Regarding incentives for saving a portion of tax

refunds, Mr. Fakes asked whether any thought had been given to

sweepstakes or rewards for those who elect to save 75 percent of

their refund or offering some sort of match, perhaps two or three

percent, for the amount saved, in answer to which Dr. GrinsteinWeiss advised that thought had been given to use of sweepstakes

and matching as savings incentives, but that sweepstakes posed

legal issues in some states and matching, if done on a nationwide

scale, posed funding problems. Mr. Fakes also asked whether the

R2S initiative was building a database of Intuit customers to

allow it to measure whether the in-product intervention makes a

difference over time. Dr. Grinstein-Weiss answered in the

affirmative, noting that the Household Financial Survey can be

connected to in-product responses to behavioral prompts and

anchors. Professor Barr, noting the significant impact of

anchoring, asked whether any thought had been given to

development of smart defaults where the most effective anchor is

presented to the appropriate subgroup, to which Dr. GrinsteinWeiss responded that, although thought had been given to

personalizing prompts, Professor Barr's question raised an

interesting point that should be given some consideration.

Mr. Ernst next asked, given the Committee's familiarity with

the FDIC's economic inclusion research and initiatives, how those

resources could complement efforts to help build household

savings. The suggestions offered by Committee members addressed

several areas, including incentives, easing regulatory

restrictions, and information sharing. With respect to

incentives, Mr. Beck, noting that institutions can be incepted in

many ways, suggested that the FDIC explore the possibilities for

public recognition and/or examination rewards for successful

savings initiatives; Ms. Levere suggested exploring which

incentives have the most impact and leveraging policy in a way

that aligns with and supports those incentives; and Mr. McDonald,

noting the incredible amount of work done by the Committee and

the FDIC to identify efforts that promote community savings and

underbanked initiatives, suggested that the FDIC take a

leadership role among regulators to identify and offer

incentives. With respect to easing regulatory burden, Professor

Barr suggested that the FDIC has the regulatory authority to make

a difference by reducing burdens associated with account

acquisition and monthly costs; Mr. McDonald suggested that the

financial regulatory agencies look into ways of easing existing

regulations that impact savings products and loan programs and

not be too aggressive with regulations in progress, paying

particular attention to the impact of regulations on community

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310

banks; Mr. Murphy suggested that, to the extent that agencies can

make regulations less burdensome and challenging, the more

willingness there will be for institutions to invest more time in

innovative programs to meet the needs of LMI consumers; and Ms.

Levere suggested the creation of some sort of regulatory safe

harbor to spur innovation. On the issue of information sharing,

Mr. Beck suggested distribution of best practices to the entire

banking community and Mr. McDonald suggested that with

development of appropriate mechanisms for sharing information on

how institutions can reach out to the unbanked and underbanked,

the efforts of successful programs could be multiplied many times

over.

Professor Barr, noting the significant sample size for and

uniqueness of R2S, also suggested that staff stay engaged to see

how the initiative unfolds and explore opportunities for FDIC

involvement. Mr. McDonald, noting the importance of having an

education component to economic inclusion efforts, also suggested

that the FDIC find a way to partner with the educational system

at all levels and develop a partnership with the Department of

Education to begin systematizing financial education. Finally,

Mr. Cisneros emphasized the importance of research and suggested

putting a focus on the broader impact of adequate savings on

family stability.

Chairman Gruenberg observed that the presentations and

Committee member comments and suggestions had been very helpful.

He suggested that, in preparation for the Committee's next

meeting, staff identify the regulatory barriers to innovative

savings initiatives, with specificity and use of examples,

particularly those targeting the unbanked; identify the

regulatory incentives realistically available to the FDIC,

including those that address regulatory barriers, those that

provide clarification of existing guidance, and those that

identify how particular activities or programs would be treated

under existing rules; and determine what research has been done

on the value to families and households of accumulating savings.

He then announced that the meeting would briefly recess.

Accordingly, at 10:54 a.m., the meeting stood in recess.

The meeting reconvened at 11:13 a.m. that same day, at which

time Chairman Gruenberg introduced Jonathan N. Miller, Deputy

Director for Policy and Research, DCP, moderator for the "Safe

Accounts and Bank Prepaid Cards" panel.

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311

Mr. Miller began by recalling that, at the Committee's

September 12, 2012, meeting, members had heard presentations on

the efforts of Citigroup and Key Bank to offer accounts

consistent with the FDIC's Model Safe Accounts Template, and

advising that Mr. Annibale and David Bowen, Director, Key

Community Bank Product Management and Specialty Programs,

KeyBank, would be providing updates on the efforts of their

respective institutions. Mr. Miller also noted that subsequent

to FDIC's launch of the Model Safe Accounts Pilot in January

2011, a number of institutions came forward with information on

prepaid cards they were offering or developing. He observed that

FDIC staff and some Committee members have expressed concerns

about general purpose reloadable prepaid card products and noted

that a number of consumer watchdog groups have found that,

although they appear low-cost at first blush, prepaid cards can

turn out to be quite costly; that insured institutions have

traditionally performed back office functions for prepaid cards,

sometimes holding the funds in insured accounts, sometimes not;

that the consumer really has no relationship with the insured

institution and, more likely than not, does not even know at

which bank the funds are held; and that, in staff's view, such

cards keep consumers at arms-length rather than bring them into

the mainstream banking system. He stated, however, that as the

prepaid market has evolved, the FDIC is now hearing from

institutions that are taking an approach to the products that

seems to offer more opportunity for economic inclusion. With

that in mind, Mr. Miller advised that the last two speakers on

the panel, Jonathan Wilk, Head of Product and Marketing -

Consumer Bank, Chase, and Cecilia Frew, Senior Vice President,

Debit and Prepaid Products, PNC, would describe their

institution's respective prepaid card offerings, which have

features sufficiently similar to the safe transaction accounts to

make them functionally equivalent. He indicated that included

among those features were deposit insurance coverage, consumer

protections, an inability to overdraft, and an inability to

generate nonsufficient funds fees ("NSF"). He also indicated

that, unlike traditional prepaid cards, they are designed to

bring consumers into bank branches and into the mainstream

financial system. He then turned the floor over to Mr. Annibale.

Mr. Annibale reminded Committee members that the new safe

transaction account to be offered by Citibank is a checkless,

card-based account that includes such features as free ATM

withdrawals at over 30,000 locations, bill pay, direct deposit,

in-branch and online access, transfers and remittances, clientset email or text alerts, and, perhaps most importantly, no

overdraft capability. He advised that the next step was to

determine how to roll out the product in a way that is

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commercially sustainable and scalable; that based on Citibank's

experience with other products targeting LMI consumers, the key

factors, once the accounts are structured in a way to address the

needs of the targeted community, are working with strategic

partners, which helps to provide scale at a very low cost, and

marketing the product in a way that makes it interesting,

particularly in an industry where other institutions may offer

products with many of the same features. With respect to

partnerships, he indicated that Citibank was planning to pilot

the transaction account in New York City, a city in which 13

percent of all households do not have a bank account and 50

percent of Mexican-American households do not have a bank

account, and was likely to partner with the city's Financial

Empowerment Centers. With respect to marketing the account, he

suggested that the transaction account is not really any

different than a prepaid card, it really has the features of a

full bank account and, therefore, describing the account as a

prepaid card with a banking feature might sound fairly

compelling.

Mr. Annibale next addressed the issue of profitability,

citing the importance of using Citibank's existing platforms that

already have scale, are secured, networked, and national in

scope. He advised that, within that context, Citibank has

reviewed its systems and the systems features that were intended

for the majority of clients to determine whether enhancements

that meet the special needs of LMI consumers would also benefit

most of the bank's clients. He cited as an example enhancements

that would minimize the possibility of overdrafts, which would

not only be beneficial to LMI customers, but to all customers.

Moving on to the issue of obtaining the desired levels of

originations, he suggested that the bank would have to be

ambitious in its outreach efforts, identifying which community

groups would be most helpful, and make certain that the right

incentives are in place internally to properly motivate account

officers to open the accounts. In closing, Mr. Miller advised

that, although Citibank is initiating the transaction account in

New York, it is also planning on implementing the pilot in Los

Angeles and Chicago.

Mr. Bowen began his presentation by informing the Committee

that he had three messages he wanted to deliver: explaining

KeyBank's philosophical approach to addressing all of its

clients, including the underserved; explaining how the bank

operationalizes its approach to address the needs specifically of

the underserved and underbanked; and briefly touching on results

experienced with the KeyBank Access Account since his last

appearance before the Committee. Regarding KeyBank's approach to

May 16, 2013
313

the market, he expressed a belief that it is unique in how the

bank thinks of underserved and unbanked consumers along the

entire client continuum which, he suggested, creates more

sustainable and consistent results than a program approach.

Elaborating, he stated that the bank's approach is guided by a

"Fairness Pyramid" which requires full compliance with legal

requirements; clear, fully disclosed products that are

understandable to the end consumer; a formulaic, "blind" standard

for assessing or refunding fees; competitiveness in the

marketplace, with fees that fall within the mid-range of market

prices and no high-side outliers; and client choice and control.

Regarding KeyBank's operationalization of its approach as it

relates to the underserved/underbanked consumers, Mr. Bowen

advised that the bank looks at essentially all of its products

and services and applies an underserved "lens" to it, rather than

creating a special program that treats clients differently; that

the bank reviews policies and procedures that serve the broader

90 percent of the market but end up being a barrier to an

underserved segment of the market; and that the bank understands

where its clients are in their financial life stage and meets

them where they are, not where the bank wants them to be. As an

example, he indicated that the KeyBank Access Account was

conceived in recognition of the fact there was a missing step

between the bank's check cashing and account services and was

designed to meet underserved customers where they are.

Providing background information on the KeyBank Access

Account, Mr. Bowen reported that it was implemented in 2011 and

built on existing infrastructure; that as a simple solution to a

fairly difficult problem, the bank took its basic checking

account, engineered out the ability to overdraft it, attached a

debit card, and allowed online banking and ATM and bill pay

access; and that, rather than thinking of it as a debit card or a

checking account, the bank thinks of it as an access account, a

means of getting to the money the client has in the institution.

He further reported that the account has been fairly successful,

representing almost 10 percent of the bank's accounts as compared

to five to six percent a year ago, with the addition of

approximately 11,000 accounts per year; that the account can be

bought in a branch, online, and through the bank's Key@Work

channels; and that it is the third most popular product sold in

the bank's branch network.

Addressing account performance, Mr. Bowen reported that

KeyBank Access Account customers look very much like the bank's

overall customer base, with the exception of not using credit

products with the same propensity; that Access Account deposits,

which average X1600, are slightly lower than deposits overall,

May 16, 2013
314

which average $2500; that the deposit growth for Access Account

customers is fairly good, with average initial deposits of $500

increasing to average deposits of $1600, as compared to mass

market accounts which start with a higher average balance, but

grow at the same rate; that Access Account customers tend to have

about one quarter of the revolving balances that the mass market

has; and, not surprisingly, Access Account customers tend to

consume about 15 percent more service products, such as money

orders. Continuing, he noted that first year attrition was

higher, by about 40 percent, than for the overall mass market,

but that some of the higher attrition rate was likely the result

of the timeframe that was being examined. He theorized that some

of the accounts may have been opened for the sole purpose of

depositing and cashing tax refunds, and that for the remaining

nine months of the year, attrition rates would be closer to those

for the mass market.

In closing, Mr. Bowen advised that KeyBank's Key Basic Line

of Credit, a small-dollar loan product, is a complement to the

Access Account; that the bank was working on the PEW-recommended

client disclosure, with the aim of making it more clear, concise,

and transparent; and that the bank was looking for opportunities

to engineer float, which he characterized as an the enemy of the

underserved and mass markets, out of the network.

Next, Mr. Wilk, providing context for his discussion of the

Chase Liquid product, advised that, historically, Chase was

product focused and only recently, within the past few years, had

shifted to a consumer segment focus. He also advised that as

Chase has tried to delve into the LMI consumer segment, it has

done a great deal of research, talking directly to consumers and

reviewing secondary research reports, understanding very early in

the process that the need for a core transactional account is key

to asset building and access to credit. Noting that the research

conducted by Chase showed that many LMI consumers were using

alternative financial services ("AFS") providers, he reported

that their stated reasons for using AFS included to control

spending, avoid overdrafts, provide a vehicle for direct deposit

of funds, avoid carrying cash, and avoid hidden fees, issues that

Chase tried to address with its Chase Liquid account. Describing

the product features, he indicated that it is a general purpose

reloadable prepaid card with a flat monthly fee of $4.95, with no

additional fees to load funds or for direct deposit, customer

service, electronic or paper statements, or card replacement;

that funds loaded are FDIC-insured; and that it provides access

to online banking, mobile banking, alerts, text banking, and the

ability to deposit a check via smartphone. He noted, moreover,

that the product has no overdraft features and no fees in the few

May 16, 2013
315

instances a customer has a negative balance; that the bank offers

broad support in Spanish and English; and that the product is

available to customers with blemished banking histories.

Mr. Wilk next compared the Chase Liquid customer experience

with that of customers of Chase Total Checking, the bank's mass

market checking offering, noting that both products feature

standard account opening procedures with full "Know Your

Customer" screening at Chase branches; both offer instant

embossed, personalized cards at a number of bank branches; both

are subject to risk-based algorithms, similar but not identical,

for funds availability; both offer use of Chase branches, ATMs,

and other Chase service channels; and both offer fraud

protection, with the same procedures in the event of a lost or

stolen card. He then pointed out the differences between the two

products, advising that Chase Liquid customers do not have access

to online bill pay, checks, outbound automatic clearinghouse

transactions, or wire transfers. He noted that nearly 70 percent

of the Chase Liquid portfolio is comprised of new to Chase

customers, with the other 30 percent having added the product as

an ancillary feature to their existing Chase relationship; that

of the new to Chase customers, 45 percent have good banking

histories and were eligible to open any deposit account with the

bank, suggesting that Chase Liquid is not just a second chance

product; and that Chase Liquid nevertheless provides the other 55

percent of customers with blemished banking histories with a

great second chance alternative to reenter the mainstream banking

system. He noted further that nearly 50 percent of Chase Liquid

customers who were new to Chase were never banked, unbanked, or

underbanked, with 32 percent falling into the unbanked or never

banked categories, suggesting that the product is bringing a

significant number of new customers into the banking system.

In conclusion, Mr. Wilk observed that, contrary to its

traditional approach to product development, Chase spent a great

deal of time up front meeting with various advocacy groups and

constituencies to get feedback on product design and insight into

the needs of LMI consumers, which also influenced Chase's

marketing efforts. He explained that the bank employed a multilayered marketing campaign that began at the grassroots level and

included having a presence at festivals and events across the

country to raise awareness about Chase Liquid; out-of-home

marketing in places such as convenience, laundromats, and malls

the bank thought would reach the target segment; and radio and

television advertisements in English and Spanish, which resulted

in terrific feedback, not only on the product, but on the bank's

marketing and outreach activities as well. In closing, Mr. Wilk

stated that, with less than a year of implementation, Chase was

May 16, 2013
316

still growing and developing the product, but that there is an

excitement about the momentum and a belief that Chase Liquid

reflects a changing market dynamic.

Ms. Frew began by noting that PNC's SmartAccess card is very

similar to the Chase Liquid product just described by Mr. Wilk,

with a low and simple fee structure, availability at branch

offices, "Know Your Customer" screening, compliance with

Regulation E, and good functionality for customers. She stated

that, rather than simply repeating much of Mr. Wilk's

presentation, she would talk a bit about unbanked and underbanked

consumers, who provided the impetus for PNC's development of its

SmartAccess card. She explained that 15 to 20 percent of

consumers who walk into one of their bank branches seeking to

open a checking account have been turned down and that

SmartAccess now provides an opportunity for PNC to turn more of

those prospects into customers. Ms. Frew indicated that she

thinks of unbanked consumers as "money management just in time,"

whose typical financial situation may include getting paid by

check on a Friday, cashing that check at a check casher, buying a

money order to pay the rent, putting some of the money on a

prepaid card to pay other bills, perhaps sending money using a

wire transfer service, and in some cases even standing in line to

pay a bill in cash, all the while incurring one fee after

another. She pointed out how stressful and time-consuming it can

be for such consumers, running from one place to another, as well

as how expensive it can be. She advised that PNC is really

thinking about such consumers as a new customer group with which

it would like to develop long-term relationships; that to engage

such consumers, the bank offers online bank, mobile apps, ATM

transactions; and that the bank is now thinking about what other

products they can offer LMI consumers, including a very low-cost

savings account, a secured credit card to help build credit.

Concluding her presentation, she expressed her belief that, by

introducing the SmartAccess card and any other follow-on

products, PNC is helping customers while also driving returns for

the bank's shareholders.

Mr. Miller then noted that there were a couple of common

themes running through the four presentations, the creation of

products to sell to new customers that are attractive not only to

the unbanked and underbanked, but to the general market; and the

use of these products as a bridge to other products and long-term

relationships with financial institutions. He then opened the

floor to questions.

During the ensuing discussion, Committee members sought and

received clarification on some of the features of the products

May 16, 2013
317

discussed by panelists during their presentations. In addition,

Committee members asked and received answers to a variety of

questions, including questions related to features that make the

products so attractive, profitability of the products, effective

marketing strategies, and legislative and regulatory issues

impacting the products.

With respect to the prepaid card offerings, Mr. Cisneros

sought to clarify whether customers with blemished banking

histories were always eligible for the products for anything

short of a fraud indicator, in response to which Ms. Frew and Mr.

Wilk answered in the affirmative. Mr. Orozco, noting that the

cards have many of the typical features of any bank product,

asked panelists what, in their opinion made the cards so

attractive to consumers, in response to which Mr. Wilk stated

that many customers had previously used a combination of general

purpose reloadable cards and check cashers and that Chase Liquid

offers better features and benefits, with greater transparency

regarding the cost of the product; and Ms. Frew stated that

availability of direct deposit, issuance of an actual card, and

the ability to control timing of payments were the features that

consumers find most attractive. Professor Tufano, referring to

Chase's multi-layered marketing efforts, asked specifically which

marketing messages worked best, in answer to which Mr. Wilk

advised that it was the bank's focus on the challenges of prepaid

cards, such as loading funds and hidden fees, that had been

identified in their research as consumer pain points.

Raising the issue of profitability, Professor Tufano

suggested that panelists give some thought to how they would

communicate the economics of the products on a large scale, and

Director Norton asked in follow-up whether panelists thought the

banking industry would be incented to attract people into the

banking system using innovative products if the government were

to eliminate or severely reduce the potential for interchange

fees. Mr. Wilk responded that, in his opinion, it would

certainly impact the economic picture for banks and for consumers

in terms of their ability to have access to core transactional

products like Chase Liquid; Mr. Bowen responded that, from a

KeyBank perspective, it wouldn't have an impact because its

transaction account was built on the bank's existing

infrastructure and, thus, already "paid for," and that the true

marginal cost of the product was the cost of processing debit

card transactions and the occasional bill pay; and Mr. Annibale

responded that the biggest cost for Citibank is the cost

associated with the account opening process and that, while no

one in the banking industry would like to see further caps to

May 16, 2013
~C~

interchange fees, such fees were not a factor in the account's

profitability.

Mr. McDonald, after expressing excitement at hearing about

the different approaches to meeting the challenge of serving

underserved consumers, asked whether panelists would comment on

any potential legislative or regulatory challenges that might

prevent not just the sustainability of such efforts, but also

their growth. In response Ms. Frew advised that, in the prepaid

card area, institutions are constantly on guard to ensure that

the product is not structured in such a way as to result in loss

of an exemption from the interchange provisions of the Durbin

Amendment to the Dodd-Frank Wall Street Reform and Consumer

Protection Act; that the exemption is incredibly important to the

profitability of PNC's card, with profitability being necessary

for the bank to continue investing in technology, marketing, and

the outreach to new customers; and that, there are other features

and products the bank would like to link to the card, but does

not because of lack of certainty regarding the rules. Mr. Bowen,

in response, acknowledged the necessity for regulatory oversight

because of the nature of the industry, but asked that the

regulatory guardrails be set wide enough for banks to innovate

because innovation is the solution of the problem of meeting the

financial services needs~of underserved communities. He noted

that some of the best solutions come from outside of the banking

industry, which may or may not be because they are subject to

less regulatory burden, but that there is certainly a

correlation. Mr. Wilk responded that institutions would welcome

regulatory clarification on permissible product features under

the Durbin amendment. Mr. Orozco suggested that the Durbin

Amendment is not bad in and of itself, but that the restriction

on bill pay needed to be changed, either legislatively or by

regulation. In the alternative, he suggested that perhaps bank

regulators could issue a Q&A, providing examples of when bill pay

might be permissible.

Chairman Gruenberg thanked panelists for their presentations

and the terrific discussion that followed. He indicated that

there does seem to be progress in the areas of safe accounts and

prepaid cards, which he found encouraging. After advising

Committee members that staff would follow-up on questions that

were raised, he announced that the meeting would recess for

lunch. Accordingly, at 12:37 p.m., the meeting stood in recess.

The meeting reconvened at 2:01 p.m. that same day, whereupon

Chairman Gruenberg advised that the final panel of the day would

May 16, 2013
319

be an "Update on Mobile Financial Services and Economic

Inclusion." He then turned the meeting over to Luke Brown,

Associate Director, Supervisory Policy, DCP, moderator of the

panel. Mr. Brown first introduced the panel members, whom he

identified as Matt Homer, Policy Analyst, DCP; Susan Burhouse,

Senior Consumer Researcher, DCP; and Yazmin Osaki, Senior

Consumer Research Associate, DCP. He then recalled that the

previous year, the Committee had a work plan outlining a general

framework of ideas to guide the efforts of the Mobile Financial

Services Subcommittee, which has as its goal the use of mobile

technology to facilitate economic inclusion. Noting that the

marketplace is a rapidly evolving and dynamic environment, with

the development of new products and the increasing prevalence of

MFS, he stated that these trends are underscored by a March 2012

Federal Reserve Board report on Consumers and Mobile Financial

Services, with some of the report highlights indicating that 48

percent of smartphone owners have used mobile banking in the past

12 months, up from 42 percent in December 2011; 15 percent of all

mobile phone owners have made a mobile payment in the past 12

months, up from 12 percent in December 2011; and 59 percent of

unbanked consumers have access to mobile phones, half of which

are smartphones.

After expressing staff's continued belief that mobile

banking and payments offer opportunities to bring unbanked and

underbanked consumers into the mainstream financial system, Mr.

Brown suggested that the challenge is to figure out how that

might happen going forward, what some of the obstacles might be,

and what role regulators, including the FDIC, can play in

facilitating the desired outcome. He advised that, currently,

with the benefit of input from members of the subcommittee and

Ms. Fuchs, Chairperson of the subcommittee, work was progressing

along two tracks: development of a paper on remote deposit

capture ("RDC") technology and qualitative research to better

understand the preferences of unbanked and underbanked consumers.

He then ceded the floor to Mr. Homer.

Mr. Homer recalled the discussion on MFS at the Committee's

December 13, 2012, meeting, which he indicated helped staff

understand the types of mobile app products currently available

to consumers; provided a foundation for their efforts going

forward; and resulted in revisions to the 2013 National Survey of

Unbanked and Underbanked Households ("Household Survey") to

include questions about household access to the Internet and

mobile technology, as well as their use of mobile technology for

banking and prepaid card services. He advised that the projects

related to RDC and qualitative consumer research, to be presented

by Ms. Burhouse and Ms. Osaki, represent the next phase of the

May 16, 2013
320

subcommittee's work plan. As context for their presentations, he

stated that the overarching goal for the work plan is to identify

ways that MFS technology can facilitate unbanked and underbanked

access to mainstream financial services, as previously stated by

Mr. Brown, and to ensure that depository institutions do so in a

way that encourages long-lasting relationships and safe,

affordable products. He cautioned that, although some of the

research to be discussed would extend into 2014, there were other

initiatives that could be undertaken with findings that emerge,

including, perhaps, development of a template that incorporates

key MFS features of particular value to underserved markets,

conduct of a pilot program to test the feasibility and

effectiveness of certain technologies with respect to drawing

underserved populations into the banking system, or development

of best practices or case studies. He then introduced Ms.

Burhouse.

Acknowledging that there are many ways in which MFS could be

poised to help facilitate economic inclusion, Ms. Burhouse

indicated that, for purposes of this particular project, staff

decided to take a relatively narrow look at the promises and

challenges of mobile RDC, with the research designed to answer

the question of whether RDC can serve as a substitute for nonbank

check cashing. She further indicated that staff is hopeful that

the paper will document what is known about consumer preferences

for MFS and RDC, and explore the supply side benefits and

obstacles that might exist, including risk management

considerations and regulatory issues; determine what can be

learned from existing RDC offerings, from banks and nonbanks, and

assess in particular the conditions under which mobile RDC is

being offered in ways that are especially beneficial to

underserved consumers; provide a balanced and thoughtful

framework for thinking through the viability of bank-offered

mobile check cashing; and determine how and whether mobile RDC

can be accessible enough, fast enough, safe enough, and low-cost

enough to effect demand for nonbank check cashing among unbanked

and underbanked consumers.

Having set forth the objectives for the report on RDC, Ms.

Burhouse next provided information on the background and the

motivation for the report. She reminded Committee members that

the Household Survey revealed quite a bit of information on the

types of AFS households are using and their reasons for using

such services, with the survey showing that about 8 percent of

U.S. households overall having used nonbank check cashing

services in the last year, but nearly 40 percent of unbanked

households and about 25 percent of underbanked households having

used a nonbank check casher; that use of nonbank check cashing

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321

services is increasing, growing from 39 percent in 2009 to 47

percent in 2011; and that nearly half of all households that use

nonbank check cashers indicated they did so for convenience, but

that speed of funds availability was also a frequently cited

reason, with about 10 percent of households using check cashers

doing so to get money faster. She explained that as staff

thought through the survey results, one of the implications they

drew was that financial institutions really have an opportunity

to more clearly demonstrate to AFS users, who perceive nonbank

financial providers as offering services that are more

convenient, faster and less expensive, the value of having a bank

account. She noted, moreover, that staff specifically identified

mobile banking technology as a product that could potentially be

convenient in a way that appeals to underserved consumers, and

RDC as a potential way to make funds available more quickly.

Ms. Burhouse pointed out that, while the Household Survey

results and data from other research reports laid a foundation

for the idea that mobile RDC can compete with check cashing for

consumers' attention, there is less data and information

available about the supply side and, therefore, staff hopes that

its report can make a particularly valuable contribution in that

regard. She advised that staff would conduct reviews of publicly

available information and industry reports; have discussions and

outreach with banks, credit unions, and other industry

participants; and conduct a thorough review of the terms,

conditions and features of nonbanks' current RDC offerings,

primarily through analysis of provider Web sites, advertisements

and other publicly available materials, with the goal of

assessing the landscape of RDC offerings and document, to the

extent possible, the full range of eligibility criteria, funds

availability policies, limits on the numbers and amounts of

allowable remote deposits, fees, and dispute resolution policies.

Noting that the project timeline is somewhat ambitious, she

informed the Committee that staff hopes to conduct its research

through the summer and present findings and conclusions at the

next Committee meeting, sometime in the fall. She ended her

presentation by noting that she had laid out staff's current

vision for the report, but that feedback from the Committee at

the conclusion of the presentations would be welcome.

Next, Ms. Osaki presented staff plans for the qualitative

research project, employing in-depth interviews or focus groups,

to gather information about underserved consumers' attitudes,

perceptions and decision making around the use of MFS, noting

that unlike previous research seeking to quantify results, the

qualitative research approach will help to gain insight into

consumers' beliefs, thought processes, the intensity of their

May 16, 2013
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feelings or concerns, and other dimensions that are difficult to

capture through a quantitative survey. As background and the

rationale for staff's focus on the project, she noted that the

Household Survey results provide an indication of consumers'

interest in mobile technology as a means for accessing financial

services, and information about who is more likely to be

financially underserved and why; while other studies, including

those conducted by the Board of Governors of the Federal Reserve

System ("Federal Reserve Board") have emphasized the prevalence

of mobile phones and smartphones among underserved consumers, as

well as their use of mobile banking and mobile payment. She also

noted that, from the banking industry perspective, different

sources suggest that mobile technology has the potential to

reduce the cost of offering banking services; and that, together,

these findings provide the basis for the FDIC's interest in

exploring the possibility of MFS as a tool that could potentially

add greater convenience and access to the banking experience.

She explained, however, that what these surveys do not tell us,

and what staff hope to gather through the qualitative research

effort, is how the unbanked and underbanked make financial

decisions and evaluate how to use MFS relative to other delivery

channels, with the hope that the knowledge gained could help the

FDIC better assess how MFS can be used as an economic inclusion

tool.

Ms. Osaki then briefed the Committee on the overarching

research questions that would be guiding the qualitative research

effort, identifying them as: gaining a better understanding of

why unbanked and underbanked consumers use or do not use MFS and,

more specifically, insights into how they assess the value of

using such services and how they feel about MFS compared to other

ways they might access financial services; learning more about

how MFS can be a tool to bring consumers into and keep them in

the banking system; identifying which, and in what ways, specific

features might be more promising in making banking services more

available and beneficial to underserved consumers; and, having

identified some of the most promising features, delving deeper

into consumers' perceptions about and experiences with those

services. With respect to the type of consumers staff is

thinking of engaging for the project, she advised that the hope

is to gather information from both unbanked and underbanked

consumers with different levels of experience with MFS, those who

use MFS regularly, those who have tried MFS but do not use it

regularly, and those who have never used it. She further advised

that, among MFS users, staff hopes to gain insights not only from

consumers who use MFS provided by banks, but also from consumers

who use such services from nonbank providers; and that some of

the demographic characteristics that would be considered in

May 16, 2013
323

selecting research participants would be age, location, whether

from urban or rural areas, and other demographic factors such as

ethnicity. She stated that at the conclusion of the project,

staff would develop a report that describes the needs and

attitudes of unbanked and underbanked consumers as they relate to

MFS and use that information to help the FDIC's economic

inclusion efforts.

In conclusion, Ms. Osaki provided information on staff's

progress, noting that the project is currently in the planning

stages, that staff is making headway in its search for an

experienced contractor to design and implement the research

effort; that initial market research had been conducted to learn

about the best methods for gathering the desired information;

that staff is in the process of drafting a statement of

objectives; and that initial steps in the process to obtain

approval from the Office of Management and Budget to collect the

information were underway, but that staff hoped to be in the

field later in the year or early 2014 and have initial results by

the second quarter of 2014. After advising that staff would

continue conversations with industry players in the mobile space,

including financial institutions and technology providers, to

broaden insights into the opportunities and challenges of MFS

from an industry perspective, she stated that she looked forward

to feedback from the Committee.

Mr. Brown then asked whether Committee members had any

information on the MFS space to share that would help to inform

the FDIC's broader work plan and projects.

In the discussion that followed, Committee members offered a

number of suggestions to enhance the work of the Mobile Financial

Services Subcommittee as well as general suggestions for

addressing MFS. Mr. McDonald suggested that the FDIC should give

some thought to developing a mobile banking education program,

similar to its Money Smart program, to ensure that consumers are

fully informed, and that regulators refrain from over-policing

financial institutions in the area of MFS so as to avoid a

situation where non-regulated vendors end up capturing the very

consumers the economic inclusion efforts are intended to help.

Pointing out that Liberty Bank and Trust has a full-fledged

mobile banking program, he also volunteered to share the

institution's successes and failures. Mr. Beck, noting that the

research questions were very good, expressed an interest in the

identification of some key metric or measurement, particularly

with respect whether the combined efforts of banks trying to

enter the MFS space actually captures market share away from AFS.

Professor Barr observed that none of us actually knows what the

May 16, 2013
324

future will bring in either the short term or the long term, due

to the fast evolving nature of technology, and suggested that, to

the extent possible, a useful guiding principle would be to

pursue solutions that will be viable, whatever unfolds. Mr.

Murphy noted that there had been very strong community opposition

to the closing of a KeyBank facility, though no one at the

meeting where it was being discussed had visited the facility

within the past year, suggested that it would be nice to get

consumer views on physical branch locations.

Both Ms. Levere and Mr. Annibale, noting that it can have a

profound impact on how consumers relate to technology, suggested

that the qualitative research effort should be segmented by age

groups; and Mr. Annibale also suggested segmentation by income

and, because type of phone has been shown to impact usage in

other countries, perhaps by the types of phones consumers use.

Both Messrs. McDonald and Annibale emphasized the importance of

transparency of costs and looking at the layering of fees by

mobile services providers and financial institutions with respect

to MFS. Mr. Ryan, explaining that states that regulate money

transmission entities have joined forces through the Conference

of State Bank Supervisors ("CSBS") to conduct coordinated multistate examinations of many of those entities, suggested that CSBS

would likely provide some helpful perspective to the FDIC and

assist with identifying industry contacts as well. Mr. Boston

opined that the United States is currently in a "four-screen

society," and suggested that the FDIC's research efforts look at

television, computers, tablets, and phones and how they interact.

He also suggested asking questions on how consumers prefer to get

their information, rather than assuming it is by text; and why

some consumers are not using technology, particularly to the

extent they have concerns about security or identity theft.

Mr. Fakes, confessing confusion as to the audience for the

qualitative research, suggested that if the audience is financial

institutions, areas that should be explored are how to make RDC

competitive with a check casher as it relates to availability of

funds and the issue of fraud as it relates to remotely deposited

checks. Mr. Brown and Ms. Osaki responded that there is a dual

audience, both institutions and consumers, and the intent is to

encourage institutions to start thinking about using MFS

technology not just for the benefit of their existing customers,

but also to bring the underserved and unbanked into the financial

mainstream; and to incorporate what is learned about specific

consumer needs and challenges into the FDIC's financial education

programs for consumers.

May 16, 2013
325

Professor Tufano expressed enthusiasm for the FDIC's RDC

project and anything else that turns paper money, checks, and

cards into a digital format and that staying focused on that

would enhance progress toward economic inclusion. Noting that

there are other uses of mobile technology that are relevant to

financial institutions, such as all-around risk management, he

also suggested that awareness of the other ways in which mobile

technology is transforming traditional financial services might

be a helpful backdrop for the research efforts. Mr. Cisneros

pointed out that mobile technology and mobile banking have a

momentum of their own and that they are among the key mechanisms

for finding new and creative ways to introduce safer products and

services to underserved communities and that, therefore, the

research the FDIC is conducting is critical. He asked that

regulators, including the FDIC, continue to stay engaged in

economic inclusion programs and that they recognize, support, and

reward banks that participate in the programs.

Chairman Gruenberg suggested that, perhaps, staff should

focus more on the Committee's and the FDIC's strategic objectives

in the area of MFS and that, while the work outlined is useful,

he wasn't entirely clear on where it was headed. Noting that the

FDIC could conceivably have a role on both ends, he suggested

that, for the next meeting, staff come back, having framed some

issues and direction, to provide a better focus, both from the

standpoint of what kinds of services banks could offer through

mobile technology that would advance consumer access to the

banking system, as well as to what can be done to inform

consumers on how to utilize MFS.

With respect to progress on safe transaction accounts,

Chairman Gruenberg suggested that there appears to be development

of a critical mass, with major institutions and regional and

money center banks offering products very much in line with what

the FDIC considers appropriate for consumers, providing an

opportunity to develop participation and interest more broadly

within the industry. He asked staff to give some thought about

how the FDIC might pursue that. He also asked staff to address

at the next meeting, questions raised by Committee members and

panelists on the savings issue, including those related to

regulatory oversight and regulatory incentives.

Recalling the FDIC's work on small dollar loans, Chairman

Gruenberg observed that demand for the product is so significant

and, yet, the response on the part of the banking industry has

been, from his perspective, unsatisfactory. He suggested that

the current focus and attention on transaction accounts may

present an opportunity for a teachable moment on the small dollar

May 16, 2013
326

loan side. He, therefore, requested further thoughts on how the

FDIC might bring more constructive attention to small dollar

loans as a complement to the rest of the work being done.

By way of additional thoughts on possible future agenda

items, Mr. Boston, referencing the luncheon speech given by Ms.

Wartell, suggested that the Committee at some point have some

follow-up discussion on housing and relevant regulations. Mr.

Murphy suggested a discussion on branch optimization and how

banks could provide access to LMI communities using different

methods.

Mr. Fakes, noting that he did not want the FDIC's leadership

to go unremarked, thanked the FDIC and the Office of the

Comptroller of the Currency for recently issued "Guidelines for

Payday Lending."

There being no further business, the meeting was adjourned.

Robert E. Feldman

Executive Secretary

Federal Deposit Insurance

Corporation

And Committee Management Officer

FDIC Advisory Committee on Economic

Inclusion

May 16, 2013
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

May 16, 2013 - 9:08 A.M.

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

minutes are accurate and complete.

Martin J. Gru berg

Chairman

Board of Directors

Federal Deposit Insurance Corporation