For release on delivery
1:30 p.m. EDT
July 9, 2024
Promoting an Inclusive Financial System
Remarks by
Michelle W. Bowman
Member
Board of Governors of the Federal Reserve System
at
Financial Inclusion Practices and Innovations
Washington, D.C.
July 9, 2024
Good afternoon and welcome back to the second half of today's conference on
Financial
Inclusion Practices and Innovations.1 It is really a pleasure to join you to discuss this important
topic. This morning, our panelists provided their perspectives on issues related to supervision
and regulation and payment frictions and innovations both domestically and internationally. The
research and perspectives they discussed can certainly help to broaden our understanding of
financial inclusion and all of the associated challenges. Together, our work to promote
initiatives that further this work will enable greater access to financial services. An economy
that works for everyone necessarily includes a more inclusive financial system. More expansive
inclusion opportunities improve the financial well-being of both consumers and small businesses,
thereby contributing to overall economic growth.
Today, I would like to highlight the excellent work being done in this area by our
Division of Consumer and Community Affairs (DCCA). I will also touch on some ways that the
banking system and private sector can support financial inclusion.
of DCCA's
Promoting an Inclusive Financial System Is a Foundational Element Work
Before discussing our work at the Federal Reserve, I would like to first take a step back
to anchor financial inclusion within the broader objective of fostering an economy that works for
everyone. A healthy and robust U.S. economy relies upon broad access to financial resources
and education. Bringing consumers and small businesses into the financial mainstream helps
them more fully engage in the financial system and the economy and should help to facilitate the
more effective operation of the U.S. economy. Through its responsibility for community affairs,
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DCCA works to achieve a thorough understanding of current community conditions and best
practices by conducting research and convening relevant private sector participants.
Today, we will focus on their important work to enhance financial access. As the chair of
the Consumer and Community Affairs Committee, I oversee these efforts. As many of you
know well, DCCA's
financial inclusion work is expansive, and I look forward to highlighting
these contributions with you today.
First, DCCA informs internal and external stakeholders by leveraging its research and
analysis to provide information that can be utilized by external stakeholders to support their
work. For example, one of the Fed's most important contributions to the study of financial well-
being is the annual Survey of Household Economics and Decisionmaking, or the SHED. We
published the 11th annual report in May. The report addresses topics including financial well-
being, savings, retirement, economic fragility, education, and student loans.2
The Federal Reserve System also conducts an annual Small Business Credit Survey
(SBCS), which is a survey of over 6,000 firms with fewer than 500 employees located
throughout the country. This year's survey found that many small businesses were
experiencing
tight financial conditions and often had to rely on personal financial resources, such as personal
funds or a loan from family or friends, to support their businesses.3 Because access to credit is
fundamental to broader financial access and inclusion, this experience of reliance on personal
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financial resources shows that the credit needs of small businesses may not be fully met by the
financial industry.
Another way DCCA pursues greater financial inclusion is by convening, informing, and
engaging with stakeholders. For example, the Community Advisory Council (CAC), which
consists of members of the non-profit sector and hands-on community development practitioners,
meets with the Board of Governors twice each year to share their experiences and observations
and to engage on challenges facing the consumers and communities they serve. The CAC
focuses on the concerns of low- and moderate-income people, and at its most recent meeting in
May, the CAC focused on a range of economic matters continuing to affect financially
vulnerable communities.
DCCA also prioritizes the work of mission-driven organizations in its efforts to expand
financial inclusion. The Partnership for Progress (PFP) program is the Federal Reserve's
System's
Minority Depository Institution (MDI) outreach program created to support the
mandate to preserve and promote MDIs. DCCA, in collaboration with other areas of the Federal
Reserve, engages MDIs and Women-Owned Depository Institutions (WDIs) through national
outreach efforts. The PFP provides technical assistance to help MDIs and WDIs address unique
business model challenges, enabling these institutions to compete more effectively in the
marketplace.4
Third, DCCA ensures that financial institutions under the Fed's jurisdiction comply with
laws and regulations that protect consumers and promote community development, including fair
lending laws and the prohibition on unfair and deceptive acts and practices. For example, DCCA
examines state member banks for compliance with the Equal Credit Opportunity Act, which
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prohibits discrimination in any aspect of a credit transaction based on race, gender, marital
The division's work to protect consumers from harm
status, age, or another prohibited basis.
furthers our goal to create an economy that works for everyone.
Regulated Financial Institutions and Financial Inclusion
I would like to turn now to share some thoughts about how the private sector can engage
to support financial inclusion. The U.S. banking system is well-positioned to bring consumers
into the financial mainstream by providing innovative solutions to meet the credit needs of their
communities. For example, banks help consumers and small businesses by providing financial
products and services that are safe, fair, and responsive, including through small dollar loan
products. These types of loans can help consumers and small businesses access credit for
unexpected expenses.
Data from the most recent SHED report found that 10 percent of adults with family
incomes less than $50,000 per year used payday, pawn, auto title, or tax refund anticipation loans
to obtain needed funds.5 These types of products often carry high or even punitive direct and
indirect costs and risks to the consumer. For example, non-repayment of an auto title loan can
lead to vehicle repossession further complicating the consumer's financial situation.
When
banks offer small dollar loans, they can often do so on terms that are safer and at lower cost than
other types of loans.6
5
Board of Governors of the Federal Reserve System, "2023 Survey of Household Economics and Decisionmaking"
(2024), https://www.federalreserve.gov/consumerscommunities/shed.htm. Board of Governors of the Federal
Reserve, Economic Well-Being of U.S. Households in 2023 (Washinton: Board of Governors, May 2014),
https://www.federalreserve.gov/publications/files/2023-report-economic-well-being-us-households-202405.pdf.
6
Banks can look for guidance on small dollar loans through interagency statements related to alternative data and
Board of Governors of the Federal Reserve System,
small dollar loans. See "Interagency Statement on the Use of
Alternative Data in Credit Underwriting," CA letter 19-11 (December 12, 2019),
https://www.federalreserve.gov/supervisionreg/caletters/caltr1911.htm, and Board of Governors of the Federal
Reserve, "Interagency Lending Principles for Making Responsible Small-Dollar Loans," SR letter 20-14/CA letter
20-8 (December 12, 2019), https://www.federalreserve.gov/supervisionreg/srletters/SR2014.htm.
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Some banks that offer small dollar loan products often use automated underwriting based
on alternative information that can include consumer-permissioned cash-flow data. If used
appropriately, this approach can reduce bank underwriting costs, potentially making affordably
priced loans available to consumers on a more timely basis. If these loans were more available
in the banking system, they could serve as an alternative to more costly options from alternative
financial services providers. Small dollar loans targeted to low- and moderate-income
consumers have the potential to provide an accessible and more fairly priced alternative when
consumers experience a financial emergency.
Remittances and Financial Inclusion
As we heard from our panelists earlier today, payments inclusion can look different in
domestic and international contexts, but a reliable, safe, and cost-efficient payment system that
minimizes unintended frictions is important to consumers around the world. International
remittances can serve an important role in enhancing financial inclusion, especially in countries
where these funds are a significant source of household financial support. And some research
indicates that the ability to receive remittances increases the likelihood of bank account
ownership, which furthers economic engagement.7
However, for those who send funds abroad using remittances, the costs can be
substantial. For example, the average cost of sending $200 internationally from the U.S. is
nearly 6 percent.8 In addition to broader work on cross-border payments, the G20 countries have
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reaffirmed a commitment to reducing average remittance fees to below 3 percent by 2030. This
could result in a greater proportion of funds reaching recipients.9 Continued improvements to
domestic and international payment systems and responsible innovation can further support our
work on financial inclusion.
Conclusion
Greater inclusiveness in the financial system is an ongoing priority for the Federal
Reserve. While we have made great progress, there is more to be done for both the public and
private sectors. We should be open to considering how new or innovative products and services
could promote financial inclusion. We should also be willing to engage with a wide range of
stakeholders. Financial access and inclusion are not one-size-fits-all and can look very different
to each consumer. Therefore, involving consumers and communities in identifying issues and
crafting solutions is critical to success. Advancing financial inclusion will clearly take many
hands and a diverse set of stakeholders, including everyone participating here today.