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Banking Products and Services for Underbanked Markets

Low- to moderate-income communities and minority groups are disproportionately represented in underbanked markets. Surveys suggest many reasons underbanked individuals are unable or unwilling to open bank accounts. One key reason is the perception that banks charge high fees for accounts, so the accounts are costly to maintain. To counter this perception, banks and regulators are looking into designing low-cost bank products and services for the underbanked market. These products and services include:

Low-cost bank transactional and savings accounts - The FDIC launched Model Safe Accounts, a one-year pilot program that began on January 1, 2011, to evaluate the feasibility of banks offering safe, low-cost bank transactional and savings accounts for underserved consumers. Nine banks participated. A full report of the pilot results and a list of the participating banks, as well as the template, lessons learned, challenges faced, and other information about this pilot, are available on the FDIC's Web site.

Low-cost, small-dollar loans - In February 2008, the FDIC began the Small-Dollar Loan Pilot Program, a two-year pilot project, to review affordable and responsible small-dollar loan programs in financial institutions. In all, 28 banks volunteered to participate in this pilot. The program's website offers a final report including lessons learned from the pilot, and a template for banks.

The OCC issued a news release and guidance to encourage national banks and federal savings associations to work to meet consumers short-term, small dollar credit needs.

The Pew Charitable Trusts issued a brief – “Standards Needed for Safe Small Installment Loans From Banks, Credit Unions” which offers guidelines for banks and credit unions to follow as they develop new small-dollar loan programs.

Prepaid access programs - Consumers can obtain money electronically through a variety of cards and other programs. These include general-purpose reloadable cards, payroll cards, government benefit cards, retail gift cards, mobile phones, and Web sites. The programs allow consumers to add, spend, and withdraw money as needed. OCC Bulletin 2011-27, "Risk Management Guidance and Sound Practices on Prepaid Access Programs," provides banks with guidance on assessing and managing the risks associated with prepaid access programs.

Consumer identification requirements for new accounts - The 2001 USA Patriot Act outlines procedures in section 326, the Customer Identification Program (CIP), to help banks verify the identity of customers opening savings and checking accounts. The CIP program is explained in the spring 2009 issue of the OCC Community Developments Investments, "Cultivating Community-Based Financial Literacy Initiatives." This newsletter describes several banking initiatives designed to encourage immigrants to use traditional banking services. These initiatives include financial literacy programs, specialized bank products, and alternative verification methods for customers opening new accounts. One of the newsletter articles, "Customer Identification for New Accounts," explains in detail the USA Patriot Act's CIP rule.

Youth Savings - Guidance to Encourage Financial Institutions' Youth Savings Programs and Address Frequently Asked Questions In November 2017, the OCC, the Board of Governors of the Federal Reserve System, the FDIC, the U.S. Department of the Treasury's Financial Crimes Enforcement Network, and the National Credit Union Administration (NCUA) updated the "Guidance to Encourage Financial Institutions' Youth Savings Programs and Address Frequently Asked Questions” (originally issued in February 2015). The interagency guidance answers common questions, including those related to Customer Identification Program requirements, that may arise as banks, savings associations, and credit unions collaborate with schools and other community stakeholders to facilitate youth savings and financial education programs. The guidance is intended to encourage financial institutions to develop and implement programs to expand youths' financial capabilities and to build opportunities for the financial inclusion of more families. This effort is consistent with the "Starting Early for Financial Success" focus of the Financial Literacy and Education Commission, a body of 21 federal agencies, including the financial regulators, and the White House Domestic Policy Council.

Financial literacy programs - Because financial literacy often is not taught in schools and homes, adults may be ill prepared to make wise financial decisions. The consequences of poor financial literacy can be compounded in underbanked communities, where residents rely on costly check-cashing, payday-loan, and other nontraditional financial services. Banks can play a constructive role in improving financial literacy in their communities by offering free financial education programs and resources. Banks can encourage their employees to volunteer as financial advisers and mentors in schools, community organizations, and churches, and in so doing, they might expand their customer base, create goodwill, and increase business opportunities.

In addition, banks supporting financial literacy initiatives may receive consideration for qualified community development activities during CRA reviews. The OCC offers information on how banks may receive CRA credit in the Community Developments Investments spring 2009 issue, "Cultivating Community-Based Financial Literacy Initiatives."

To help banks in their efforts to promote financial literacy, the OCC offers many online resources, including regular Financial Literacy Updates, which list upcoming programs devoted to educating consumers about personal finance. The OCC's Financial Literacy Resources Directory, has information on a variety of related topics.