FDIC Survey of Banks’ Efforts to Serve the Unbanked and Underbanked Executive Summary of Findings and Recommendations Federal Deposit Insurance Corporation February 2009 Transmittal Letter from Chairman Bair to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate February 5, 2009 Dear Sir/Madam, As required under Section 7 of the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (“Reform Act,” Pub. L. 109-173), the Federal Deposit Insurance Corporation hereby submits the results of the First Biennial Survey on Banks’ Efforts to Serve the Unbanked and Underbanked. Enclosed are an FDIC Execu- tive Summary of Findings and Recommendations as well as the detailed report. This initial survey effort had three objectives designed to satisfy the statutory requirements: • Identify and quantify the extent to which insured depositories outreach, serve, and meet the banking needs of the unbanked and underbanked; • Identify challenges affecting the ability of insured depository institutions to serve the unbanked and under- banked; and • Identify innovative efforts depositories use to serve the unbanked and underbanked. One of several factors and questions that the Reform Act asks the FDIC to consider in conducting the survey is “[w]hat is a fair estimate of the size and worth of the ‘unbanked’ market in the United States.” This question is being addressed by a separate survey effort being conducted jointly by the FDIC and the U.S. Bureau of the Census as a supplement to the Census Bureau’s Current Population Survey in January 2009. The goals of that survey effort are to gather accurate estimates of the number of unbanked and underbanked households in the United States, their demographic characteristics, and reasons why they are unbanked and/or underbanked. These results will be forwarded later this year. Sincerely, Sheila C. Bair Chairman Enclosure FDIC Survey of Banks’ Efforts to Serve the Unbanked and Underbanked n FEBRUARY 2009 2 Executive Summary of Findings and Recommendations Background or other type of transaction or check-cashing account at an Access to a basic bank account and financial services is insured depository institution into the conventional fundamental to economic self-sufficiency. Banks provide finance system. individuals with the opportunity to save, borrow, invest, and build a credit record. Millions of Americans, however, In designing this survey effort, the FDIC focused on ques- are unbanked or underbanked and lack access to banks or tions raised in the Reform Act and sought to provide infor- are not fully participating in the mainstream financial mation to the banking industry that would help enhance system.1 While there are few statistics available on the efforts to serve unbanked and underbanked individuals. actual number of unbanked and underbanked individuals This initial survey effort under the Reform Act had the and households in the United States, some estimates indi- following three objectives: cate that up to 10 percent of American families are unbanked and that a substantial share of the population • Identify and quantify the extent to which insured may be underbanked.2 depositories outreach, serve, and meet the banking needs of unbanked and underbanked individuals The Federal Deposit Insurance Corporation (FDIC) is and households; committed to ensuring that consumers have access to basic banking and other financial services as well as to develop- • Identify challenges affecting the ability of insured ing more and better data about unbanked and underbanked depository institutions to serve unbanked and households and factors that hinder them from fully utiliz- underbanked individuals and households; and ing the mainstream financial system. As part of its commit- ment to these issues, during 2008, the FDIC conducted a • Identify innovative efforts depositories used to serve nationwide survey of FDIC-insured depository institutions unbanked and underbanked individuals and to assess their efforts to serve unbanked and underbanked households. individuals and families.3 This survey was the first of its kind at the national level. One of several factors and questions the Reform Act asks the FDIC to consider in conducting the survey is “[w]hat is The survey was mandated by Section 7 of the Federal a fair estimate of the size and worth of the ‘unbanked’ Deposit Insurance Reform Conforming Amendments Act market in the United States.” The FDIC is addressing this of 2005 (“Reform Act”). The Reform Act requires that the question through a separate household survey effort being FDIC conduct biennial surveys of insured depository insti- conducted jointly with the U.S. Bureau of the Census as a tutions’ efforts to bring individuals and families who have supplement to the Census Bureau’s Current Population rarely, if ever, held a checking account, a savings account Survey in January 2009. The goals of that survey effort are to gather accurate estimates of the number of unbanked Note: Members of the FDIC Unbanked/Underbanked Survey Study Group are Barbara Ryan and underbanked households in the United States, their and Yazmin Osaki (Office of the Vice Chairman); Susan Burhouse, Katherine Samolyk, and demographic characteristics, and reasons why they are David Chapman (Division of Insurance and Research); Luke Reynolds and Angelisa Harris unbanked and/or underbanked. It is anticipated that the (Division of Supervision and Consumer Protection); and Leneta Gregorie (Legal). 1 Unbanked individuals and families are those who rarely, if ever, held a checking account, results of this extensive survey effort will fill many of the savings account, or other type of transaction or check cashing account at an insured deposi- data gaps that exist regarding unbanked and underbanked tory institution in the conventional finance system. Underbanked individuals and families are households in the U.S. The FDIC plans to release those those who have an account with an insured depository institution but also rely on non-bank results later this year. alternative financial service providers for transaction services or high-cost credit products. 2 The Board of Governors of the Federal Reserve System, in its Survey of Consumer Finances, has reported that from 9 to 13 percent of U.S. households lack transaction Bank Survey Details accounts. See Federal Reserve Bulletins dated January 1997, January 2000, January 2001, The bank survey was voluntary and consisted of mail-in and January 2004. The Center for Financial Services Innovation (CSFI) recently estimated that 40 million U.S. households are underbanked. See The CSFI Underbanked Consumer survey questionnaires administered to a nationally repre- Study, CFSI, June 8, 2008. sentative random stratified sample of about 1,300 banks. 3 The FDIC retained Dove Consulting to help administer the survey of banks. Dove Consult- The survey effort also included a limited number of case ing collected the survey results and reported aggregated results to the FDIC. Complete survey studies of banks pursuing innovative strategies to serve results are contained in Dove Consulting’s report located at http://www.fdic.gov/ unbanked and/or underbanked individuals. unbankedsurveys/. FDICNOVEMBER Survey 2008 of Banks’ Efforts to Serve the Unbanked and Underbanked n FEBRUARY 2009 3 The survey sample represents the population of federally • Sixty-three percent of banks provide financial insured banks and thrifts with retail branch operations. In education materials to unbanked and/or under- all, 685 complete surveys were returned, resulting in a banked individuals, often in the form of response rate of 54 percent. Broken out by asset size, the brochures and pamphlets. Basic banking or savings response rate was 96 percent for the 25 largest banks, 61 program educational materials for unbanked and/or percent for banks with assets over $1 billion, and 51 underbanked customers are provided by about 39 percent for banks with assets under $1 billion. percent and 34 percent of banks, respectively. Responses to open-ended questions suggest that Survey questions focused on banks’ financial education and most banks do not distinguish between unbanked outreach efforts; perceived challenges to serving unbanked and underbanked customers in their educational and underbanked customers; banks’ efforts to improve materials. access through retail branch operation modifications; services provided by banks to non-customers who may be • Thirty-seven percent of banks participate in unbanked or underbanked; bank account opening practices financial education or outreach efforts with other and policies; and deposit, payment and credit products organizations to expand services to unbanked and/ offered to entry-level consumers. or underbanked individuals. Examples of such efforts include working with employers that use Case studies were developed from in-depth interviews with payroll cards, government entities that use elec- 16 banks that appeared to be successfully developing busi- tronic benefit transfer (EBT) or prepaid cards, and ness opportunities with unbanked and/or underbanked faith-based groups that provide cash assistance. The individuals. Case study banks were carefully selected on the largest 25 banks are more likely to participate in basis of a variety of different types of information, includ- such efforts. ing survey questionnaire responses and industry research. • About half (53 percent) of banks teach financial Summary of Survey