FDIC’s Chairman Martin J. Gruenberg recently gave remarks at the National Community Reinvestment Coalition on the FDIC’s economic inclusion strategy. 

FDIC Commitment to Economic Inclusion

Chairman Gruenberg began by outlining the importance of federally insured bank accounts to the ability of individuals and families to participate in and fully benefit from economic opportunities.  Having a banking relationship provides households with the ability to securely and conveniently receive and hold funds, including through direct deposit.

Chairman Gruenberg observed that  unbanked consumers—those without an insured account—are not always assured of protections, may incur costly fees associated with non-bank services,  may have difficulty accessing credit or only find available credit on unfavorable terms, and miss important opportunities enjoyed by those in the banking system.  Chairman Gruenberg stressed that a banking relationship allows consumers to gain access to savings accounts, establish credit, acquire key assets like a car, and make longer-term investments such as in homeownership or entrepreneurial pursuits.  He noted that the fact that 99% of households with a home loan have a bank account is evidence that a banking relationship is an important step toward achieving financial stability and security.

Understanding the Challenge

Citing to the FDIC’s responsibility as tasked by Congress to conduct relevant research on the size of the unbanked market and develop strategies for promoting economic inclusion, Chairman Gruenberg outlined the results of the FDIC’s National Survey of Unbanked and Underbanked Households.  According to Chairman Gruenberg, the surveys identified important challenges and provided an authoritative set of data to guide economic inclusion efforts.  Specifically, in 2011, the survey found that 8.2% of households were unbanked (lacking a checking or savings account at a federally insured institution) and that 20.1% of households were underbanked (meaning they had an account but used non-bank products and services to meet basic financial needs).  The survey also assisted in providing a line of sight into the reasons households give for not holding a bank account, including not having enough money to meet the minimum balance requirements, concerns about high and unpredictable fees, and a lack of trust in banks.

FDIC Economic Inclusion Efforts

To address these challenges, Chairman Gruenberg reiterated the FDIC’s established economic inclusion strategic plan in 2010.  Among other initiatives, the plan specifically called for the development of a prototype of safe transaction accounts and emphasized the importance of “affordable, easy to understand products” that were “not subject to unfair or unforeseen fees.”

The 2012 FDIC report of its Model Safe Accounts Pilot detailed the positive experiences of financial institutions and consumers in a trial of products patterned off an FDIC model safe account template.  Chairman Gruenberg discussed the factors that have been critical to the success of these accounts, including that the accounts were simple to understand, simple to use, and removed key risks of fees that many consumers cited as barriers.

A New FDIC Economic Inclusion Strategic Plan

Most importantly, Chairman Gruenberg addressed the FDIC’s new economic inclusion strategic plan to guide efforts to expand and support customers’ participation in the banking system.  He indicated that  the plan seeks to help households use a banking relationship to establish financial stability and a more secure financial future, as well as expand on previous plans by specifically addressing the opportunity for the banking system to do more to contribute to the development of strong communities.

Chairman Gruenberg noted the small dollar loan programs being developed by some banks, which typically provide established accountholders with the opportunity to borrow small amounts of money at affordable rates and to repay them over a reasonable timeframe.  According to Chairman Gruenberg, the FDIC’s new plan seeks to help households achieve financial stability through the establishment of positive credit histories and the use of consumer credit from banks along with insured savings accounts.

Perhaps the biggest change, as noted by Chairman Gruenberg, is the plan’s call for the FDIC to take steps to encourage bank lending, investments, and services that support strong and healthy communities, including low and moderate income neighborhoods and other underserved communities.  This would include community development lending and related investments with a broad range of objectives, including affordable housing, improved employment opportunities, and enhancing the resilience of communities to growing risks arising from climate change.  While the FDIC has long sought to support banks’ community development efforts, the explicit connection to its economic inclusion work is new.

Economic Inclusion and CRA

Chairman Gruenberg concluded with his observations of some of the ways in which the FDIC’s newly adopted Community Reinvestment Act rule would provide banks with the opportunity to receive credit for their efforts to expand economic inclusion.  According to Chairman Gruenberg, the rule specifically recognizes that consumers should have access to products and services that are affordable and responsive to their needs and will help expand recognition of a variety of community development activities such as bank activities with and in support of community development financial institutions, minority depository institutions, and women’s depository institutions.

Notably, these remarks come after a recent lawsuit challenging the Community Reinvestment Act of 1977 filed by several national and Texas banking and business trade groups.  The trade groups filed a motion for preliminary injunction which was granted, enjoining the agencies from enforcing the final rules pending the resolution of the lawsuit.  The U.S. District Court for the Northern District of Texas also extended the effective date of the final rule’s implementation by one day for each day the injunction remains in place. 

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