Consultations: FDIC consults on template for features of basic accounts

FDIC NOTICE:(unedited)

Significant opportunities appear to exist for banks to provide such services to LMI consumers. According to a recent landmark FDIC survey, at least one-quarter of U.S. households either lack a bank account or use non-bank providers for some financial services1. The study also showed that LMI consumers are more likely to be underserved than the general population. A survey of banks released by the FDIC last year also revealed that three quarters of banks are aware of significant underserved populations in their market area, but less than one-fifth had targeted these markets as a strategic priority2.

At the April 1, 2010 meeting of the FDIC’s Advisory Committee on Economic Inclusion (ComE-IN), the Committee discussed the potential benefits of safe, low-cost transactional and basic savings account products for LMI consumers and heard about successful examples of such product offerings by insured financial institutions. The Committee recommended that the FDIC solicit public comment on criteria for transactional and basic savings account templates as part of an effort to encourage insured financial institutions to make safe, low-cost transactional and basic savings account products more widely available to LMI consumers.

The guiding principles in the development of these templates are that these financial products have low and transparent fees; are FDIC-insured and subject to consumer protection laws, regulations, and guidelines; are simple to use; include easily understandable terms and conditions; and represent sustainable product offerings for financial institutions.

LMI Consumers Need Affordable, Safe Accounts

Like all consumers, LMI and underserved consumers need to conduct basic financial transactions and benefit from obtaining reasonably priced, safe, and convenient ways to cash checks, store and save funds, gain access to cash when needed, pay bills, purchase money orders, and make account-to-account money transfers. Another important goal for LMI households, like others, is to save, accumulate assets, and build wealth over time. When unexpected events occur, households may experience financial setbacks, especially LMI households. Possession of emergency savings is a fundamental way for households to begin to establish financial security. Basic savings accounts that encourage systematic or automatic deposit making, provide liquidity needed for coping with unexpected events, and that do not penalize accountholders when withdrawals are made are important to assuring consumers can meet emergency needs.

Transactional and Basic Savings Account Templates

The transactional and basic savings account templates shown in Figure 1 and Figure 2, respectively, include potential key product features and fees that could most closely reflect the needs of LMI underserved consumers. Both the transactional and savings account templates state that, when opening an account, consideration could be given to applying latitude and flexibility (as permitted by law) when forming a reasonable belief about each customer’s identity and when assessing the risk of opening a new account. These financial services products would be FDIC-insured products and covered under the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) and its implementing regulation, Regulation E (12 C.F.R. part 205), and other applicable consumer protection laws, regulations, and guidance. In addition, some flexibility in the cost and fee structures may be needed to take into account marketplace differences.

The proposed transactional account template is an insured transactional account that is structured as a low-fee, basic checking account or an insured account-based debit card3. The transactional account template features low opening and monthly minimum balance requirements and low maintenance/service fees. The template also features electronic banking (i.e., phone, online, or mobile banking) options and, in order to minimize unexpected fees, overdrafts would not be permitted. Direct deposit would be encouraged (but not required) for such accounts. Also, ancillary transactional services (money orders, check cashing, bill paying, and wire transfers) would be available for a competitive fee relative to fees charged for comparable services provided by non-banks in the bank’s market area. Institutions would consider providing customers with blemished histories in managing previously held accounts an opportunity to open a "second chance" account, where appropriate. The proposed savings account template is also an insured account that emphasizes low barriers for opening and maintaining the account.

Potential for Long-Term Success

In addition to advancing wider availability of safe, low-cost transactional and basic savings products to LMI underserved consumers, financial institutions could be encouraged to consider taking steps to help ensure that consumers opening accounts are provided with access to knowledge and tools to manage the new accounts responsibly and fully maximize the benefits of the account. For example, an institution could provide educational resources to new and on-going customers or offer referrals to online or local free or low-cost workshops. These efforts, potentially in partnership with community-based organizations, could help financial institutions establish comprehensive long-term relationships with their customers.

By considering these templates, additional opportunities could exist for financial institutions to elevate their business and marketing strategies to significantly penetrate unbanked or underserved LMI markets. For example, the demographic breakdown of the unbanked population suggests that there are diverse unbanked market segments to pursue. By expanding their financial services offerings, financial institutions could actively seek out these market segments and better meet the financial transactions needs of unbanked consumers residing in their markets, consistent with applicable laws and regulations.

Public Comment

The FDIC is seeking comments on all aspects of the templates, including:

• What are the expected benefits to consumers using safe, low-cost transactional and basic savings accounts?
• If check-writing is permitted, should there be a maximum number of checks that can be written each statement cycle? If so, at least how many checks should be allowed to be written each statement cycle?
• What is an appropriate range for "low fees" necessary to offset some of the financial institution’s costs associated with offering a transactional account?
• What constitutes a reasonable range of competitive fees for other financial services (e.g., money orders, check cashing, bill payment, domestic and international wire transfers, and other financial services) offered to customers and noncustomers?
• What are some ways of minimizing the costs of offering transactional and savings accounts with attractive features for LMI underserved consumers?
• Are there types of transactional accounts other than basic checking, basic savings accounts, and account-based debit cards that would be attractive to both LMI underserved consumers and insured financial institutions?

The comments received about the transactional and basic savings account templates will help inform the Committee about which features and corresponding fees could be included in sustainable and safe, low-cost accounts for LMI underserved consumers.

Please send all comments to SafeAccountTemplateComments@fdic.gov on or before June 6, 2010. All comments received will be posted generally without change to http://www.fdic.gov/consumers/template/, including any personal information provided. A summary of the comments received will be presented for discussion at the next ComE-IN meeting scheduled for June 24, 2010, and will be posted afterward on the FDIC's Web site.