Banking on America

August 30, 2010

Taking its cue from dozens of similar local programs, the U.S. Treasury Department has announced a new program:  Bank of USA.

Separately, the Federal Deposit Insurance Corporation (FDIC) is putting together a pilot program to evaluate the feasibility of banks offering low-cost, electronic checking and savings accounts. Interested banks have until September 15 to apply for the year-long pilot, according to an announcement published in the Federal Register.

The intent of both: to convince financial institutions that it's possible to offer no-frills checking and savings accounts that are attractive to the unbanked and don't break the bank, so to speak, financially.

"We've seen banks that have already been successful in providing safe, low-cost accounts, particularly designed for consumers new to the financial system," explained FDIC Chairman Sheila C. Bair, in announcing the pilot on August 10.

Bank Accounts that are Low Cost & Profitable

Banks participating in the FDIC pilot must agree to offer insured, low-cost deposit accounts, in accordance with an account template the agency has designed. Required features include free debit cards, direct deposit, online bill pay, electronic statements, check cashing and financial education. The accounts should also be provided with same/next-day deposit availability; feature low minimum balances ($10 or less) and low monthly maintenance fees ($3 or less for checking accounts, nothing for savings accounts). And there should also be options for affordable microloans, the FDIC has said.

Low-cost bank accounts have been around for years. Treasury, for example, makes available to unbanked recipients of federal benefits payments an Electronic Transfer Account (ETA). ETA features include: direct deposit of federal payments, no minimum balance requirements, debit cards for ATM withdrawals and POS payments and monthly payments - all for a mandated $3 monthly fee. In return, Treasury pays a small, one-time set up fee for each account opened.

As of June, Treasury counted 118,137 ETAs at 392 participating financial institutions with more than 52,000 branches, according to a spokeswoman.

Bank On USA

Bank On USA, mandated under the Dodd-Frank financial reform bill, takes the concept a step further, and appears to be based at least in part on FDIC's findings that as many as one in four U.S. households is either unbanked or underbanked.

The FDIC also found when it surveyed unbanked and underbanked Americans last year that at 41% of those households without bank accounts there are no plans for opening accounts at some time in the future. Some of the most common reasons given for not having bank accounts include minimum balance requirements and account fees.

The first Bank On campaign was launched in San Francisco in 2006 and credited with helping 25,000 unbanked San Franciscans open low-cost accounts at 170 participating financial institutions.

In 2008, the National League of Cities (NLC) launched a Bank On Cities Campaign, modeled on the San Francisco experience. Since then, more than two dozen major cities have undertaken Bank On programs, including New York, Miami, Seattle, Los Angeles, Newark, NJ, Louisville, KY, and Rapid City, SD, according to the NLC.

California also promotes a statewide Bank On program.

Bank On programs are designed to connect consumers with local financial institutions offering no-frills, low-cost bank accounts that build on debit cards and other electronic banking channels. The programs also feature financial literacy resources.

The Treasury Department has requested a $50 million allocation for the program in the FY 2011 budget, which kicks in on October 1.

In testimony earlier this year, Michelle Greene, Deputy Assistant Secretary of the Treasury for Financial Education and Access, said the department is committed to moving underserved Americans into the financial mainstream.

"We have a unique opportunity here, and it's one we want to be sure we don't miss," she told lawmakers. "We have an opportunity to change the system and make it work for everyone."

17.2% of Americans reported carrying prepaid debit cards in 2009

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