The FDIC is exploring a CRA regulatory proposal that would more clearly recognize basic financial services, and assign a higher CRA rating if warranted, thereby creating a more powerful CRA incentive.
If the FDIC were to explicitly state that creating certain products to serve the unbanked and underbanked met the CRA requirement, financial institutions would welcome the inducement, said Richard Riese, senior vice president of regulatory compliance for the American Bankers Association, or ABA.
"I think getting affirmative credit for CRA purposes for initiating financial services for people of low and moderate income would be a positive change," Riese added.
Lower-income and minority populations are disproportionately represented among unbanked and underbanked households. Households with incomes under $30,000 account for at least 71 percent of the unbanked. An estimated 21.7 percent of black households as well as 19.3 percent of Hispanics are unbanked.
In another survey released earlier this year, the FDIC found that while most banks offered basic checking accounts to all customers, 73 percent were aware that significant unbanked and/or underbanked populations were in their market areas but less than 18 percent identified expanding services to unbanked and/or underbanked individuals as a priority in their business strategies.
"Banks are challenged to create innovative yet profitable financial products to serve the unbanked," said Carol Kaplan, senior director of public relations for the ABA.
It is important to bring the unbanked and underbanked into the mainstream banking system. But whatever incentive is used, the government should be careful that the products are truly helpful and affordable.
If the housing crisis has shown us anything, it's that major lending institutions aren't above taking advantage of low-income people or credit-challenged individuals. The traditional banking system can be as abusive as the nonbank financial institutions when it comes to the underprivileged.
But we should care that millions of people aren't banking and that the alternatives are expensive and can trap people into years of debt. At least with the banks, we have the federal power to force them to do the right thing. And now is the time to make them serve communities that have been longing for better and more affordable banking services.