Spotlight Exclusives

Banking the Unbanked

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One recent development worth noting is a decision by the Federal Deposit Insurance Corporation to launch a new pilot program called Model Safe Accounts, which aims to help those who have limited access to traditional bank accounts.

Although the FDIC most known for insuring accounts up to $250,000 per depositor per bank isn۪t always the first institution that comes to mind in the fight against poverty, this new program could play a part in widening economic opportunity. That۪s because one important problem low-income people face is the lack of affordable ways to save limited earnings.

About 17 million Americans have no bank account at all. Forty-three million others have accounts, but sometimes rely on the “other side” of financial services: payday lenders, check cashers, and others. Non-bank financial institutions are easy to use, but expensive. A 2008, Brookings Institution report estimates that non-bank outlets take in “about $8.5 billion in fees from mostly low- and moderate-income consumers.”

The last few years have seen a variety of government and private-sector efforts to help “bank” these unbanked and underbanked Americans.

In a 2008 Wall Street Journal op-ed, former-President Bill Clinton and California Governor Arnold Schwarzenegger announced a joint, statewide initiative between the State of California, the FDIC and the William J. Clinton Foundation Economic Opportunity Initiative to work with banks, mayors, and other groups to help enroll people in bank accounts.

The National League of Cities has also targeted the unbanked as part of their recent Bank On Cities Campaign, which provides technical assistance to a range of cities, including Boston, Houston, Miami, New York, and Providence, who are working to help residents access safe, affordable financial services.

Now the Obama Administration is getting into the act, proposing a $50 million Bank on USA initiative as part of the Fiscal Year 2011 budget, which Treasury Department official Donna Grambrell who runs the Department۪s Community Development Financial Institutions Fund says “will address the financial challenges residents of underserved communities continue to face by expanding access to bank accounts, developing a model of low-cost, simple banking products, and integrating financial access and financial education.”

This week the FDIC took on a larger role in this challenge when its Board of Directors voted to begin a pilot program under which participating banks will provide electronic deposit accounts that will follow the FDIC۪s Model Safe Accounts Template, meaning they will be affordable and free from overdraft or insufficient funds fees.

FDIC Chairman Sheila Bair calls the pilot “a voluntary roadmap,” and time will tell whether this and other efforts are successful at helping low-income earners access safe, low-cost banking services to help build a financial foundation. But the announcement is an important reminder that it۪s not just Wall Street banks that have an impact on economic opportunity and prosperity in America.

Posted by Sam

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