The Wall Street Journal
By: Sudeep Reddy
August 22, 2010
Federal and local governments are trying new efforts to lure "unbanked" consumers into the financial mainstream.
Some 17 million U.S. adults rely on check-cashing services instead of banks, even though they typically spend hundreds of dollars a year to cash checks.
Along with the unbanked, 21 million more Americans are considered "underbanked" -- people who have checking accounts but often turn to higher-cost services, such as payday loans and car-title loans, with annualized interest rates frequently exceeding 300%.
Now, governments are trying to take a more active role to shield consumers from those higher-cost financial services. The Federal Deposit Insurance Corp. approved a pilot program this month to encourage banks to create simple, low-cost deposit accounts.
Meanwhile, the Treasury Department, in its latest budget proposal, is seeking $50 million from Congress to create a "Bank On USA" program to extend local initiatives that encourage people to set up bank accounts.
The financial-regulation measure signed into law last month also directs the Treasury to use grants and other agreements to draw lower-income consumers into the financial mainstream. Other initiatives are under way at the local level.
The FDIC pilot program provides a template for banks to offer what the agency calls a "safe" account with features -- such as no overdraft fees and a $1 minimum-balance requirement -- appealing to lower-income consumers. While these accounts would prohibit fees for overdrafts and nonsufficient funds, they would allow other fees that are "proportional" to the banks' costs.
It's unclear how the new programs will fare at a time when many banks have indicated they are likely to raise fees for basic checking accounts due to new regulations.
Surveys show that unbanked consumers don't think they have enough money or don't write enough checks to make an account worthwhile.