CFPB and FDIC signal increased expectations for banks on serving underbanked

Consumer Financial Protection Bureau Director Richard Cordray and FDIC Chair Martin Gruenberg have called on bankers to do more to serve unbanked and underbanked in the last month.

Consumer Financial Protection Bureau Director Richard Cordray and FDIC Chair Martin Gruenberg, both of whom sit on the FDIC’s board, have called on bankers to do more to serve unbanked and underbanked in the last month. While fees have been anathema with regulators for some time, Cordray and Gruenberg’s comments signal coming pressure for fee-free and/or no minimum balance deposit products.

On Feb. 3, Cordray sent a letter to the 25 largest retail banks encouraging them “to make lower-risk deposit accounts available that help consumers avoid over drafting.”

On Feb. 8, Gruenberg addressed the National Interagency Community Reinvestment Conference in Los Angeles. Banks, he said, should design product features to help households initiate, as well as maintain and renew, their banking relationships.

“Consumer confidence is enhanced,” Gruenberg said, “when banks treat all their customers fairly and help them achieve their financial goals… That may mean, for example…structuring a bank account to waive fees if the consumer uses bill pay services, rather than requiring them to maintain a certain balance, which can be difficult for households experiencing unemployment or receiving certain benefits.”

Gruenberg connected better serving underbanked and unbanked consumers with Community Reinvestment Act ratings. “At the heart of CRA is making sure that everyone has access to financial services, including low- and moderate-income individuals and communities,” he said.

Positive CRA ratings have been connecting with lending, investments and services that benefit low- and moderate-income people and neighborhoods. “[The FDIC, OCC, and Federal Reserve] have proposed revisions and clarifications… and expect to finalize them in the near future,” Gruenberg said. “For example, institutions that provide low- or moderate-income people with access to low-cost savings and checking accounts… typically receive consideration under the CRA.”

In line with Gruenberg’s comments about treating customers fairly, Cordray said banks “know very well that having a checking account or a reloadable prepaid account enables consumers to receive wages and benefits, make payments, store funds, and manage their day-to-day lives.”

Banks, Cordray said, can “do more to provide consumers with opportunities to access appropriate products.”

Both Cordray and Gruenberg described deposit accounts as essential to consumers’ both financial viability and economic mobility.About 7.7 percent of U.S. households do not have a bank account, according to the FDIC’s most recent National Survey of Unbanked and Underbanked Households. About 20 percent are underbanked − meaning that they have a bank account but also use alternative financial services.

Cordray said his letter was not sent “in reference to any sort of regulatory requirement, but instead is simply a suggestion that I urge you to consider in serving your customers.” He also said, however, that “consumers should not be sidelined out of the basic banking services they need because of the flaws and limitations in a murky system. People deserve to have more options for access to lower-risk deposit accounts that can better fit their needs.”

Fredrikson & Byron Law