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Pew to Promote Fair Bank Account Standards For 'Underserved'

The Pew Charitable Trusts have announced a new project aimed at 'helping America's workers underserved by mainstream financial institutions secure access to safe, affordable, fair, and empowering bank accounts. The Pew Safe Banking Opportunities Project, a two-year $2.1 million initiative, will develop and promote standards for bank accounts so that moderate- and low-income households that are new to or have been left out of the mainstream banking system are less likely to have to rely on overly expensive, income-stripping financial products.'

The project will work with industry representatives, state and local governments, consumer advocates, and personal finance experts to develop and promote the standards.

"The three core principles that will guide the development of the standards are clarity, consent and fairness," said Shelley Hearne, Managing Director of Health and Human Services for Pew. "For too long, millions of households that lack a basic bank account have had to rely on expensive check-cashing establishments."

These alternative financial service businesses are estimated to charge full-time workers more than $800 every year, on average, just to cash their paychecks. There are also millions of additional hard-working households that do have a basic bank account, but stand to lose hundreds of dollars every year in confusing, overly expensive bank fees often tied to basic bank accounts.

The project will develop standards for safe, affordable, fair, and empowering bank accounts, promote their voluntary adoption by banks and credit unions, and educate the public about the standards. Banks and credit unions that adopt the standards will be eligible to use an easily identifiable logo that will help consumers know the product is safe.

Promoting safe basic financial services is especially important amidst the current economic downturn, when people face a growing imbalance between their income and costs of living. Families will better manage this downturn if they can cover rising food and gas prices instead of putting their dollars toward cashing paychecks and paying bank fees.

Matt Fellowes has joined the staff of The Pew Charitable Trusts as director of the Pew Safe Banking Opportunities Project. Previously a Fellow at The Brookings Institution, Fellowes has worked with a wide range of policymakers across the country on strategies to increase access to banks among moderate- and low-income households. His research on the topic has been cited widely by journalists and academics and his counsel is sought by banks, foundations, elected officials and consumer advocates.

"Too many families today face a dizzying, and overly expensive, array of choices to meet their basic banking needs," said Fellowes. "This project strives to cut through that complexity by developing and promoting a safer, more affordable basic bank account alternative that serves the bottom lines of both consumers and banks."

Today's announcement marks the fourth major project launched by Pew in its growing effort to promote family financial security. In 2004, Pew launched the Retirement Security Project through a grant to Georgetown University to identify policies that make it easier for people to save for retirement. In 2005, Pew initiated the Project on Student Debt at The Institute for College Access and Success to help students and their families avoid unmanageable student debt burdens, prevent unnecessary borrowing and borrow more wisely. And last year, Pew announced a new investment to prevent irresponsible subprime mortgage practices with a two-year grant to the Center for Responsible Lending.

The Pew Charitable Trusts (http://www.pewtrusts.org) is driven by the power of knowledge to solve today's most challenging problems. Pew applies a rigorous, analytical approach to improve public policy, inform the public and stimulate civic life. We partner with a diverse range of donors, public and private organizations and concerned citizens who share our commitment to fact-based solutions and goal-driven investments to improve society.

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I think this is another step in the right direction but Pew needs to tread carefully...the trick is for well-intentioned people like Pew to deeply understand the reasons why alternative financial institutions have sprung up - because mainstream ones haven't met these consumers' needs - and then work diligently with banks to craft solutions that fill that hole. Thus far, mainstream banks have shown either unwillingness, ignorance, or weak capability to serving these customers.

I think it will be years - if ever - before mainstream financial institions "get" these underserved customers. With banks' overhead, there isn't a business model that makes them money, other than chalking up their efforts to community outreach. Over time banks have lost hundreds of billions in revenues as specialty providers have stolen their bread and butter business - credit cards, investment accounts, merchant accounts, savings accounts - the list goes on and on.

I'd also like to see alternative providers (like my company, www.accountnow.net) adhere to the clarity, consent, and fairness standards. Pew should be reaching out to those in the industry, and the industry should be voluntarily taking steps in this direction. AccountNow.net has a new Money411 section where customers can learn how to make intelligent financial decisions. You can see it at www.accountnow.net/resources. It's our first start, but I think all providers can both offer services and help inform/educate at the same time.

As long as the rules of the "Innovators Dilemma" continue to apply, the large financial institutions will never break into the market of the underserved customers. Frankly, their focus is on the large margin generated by the mainstream middle class and affluent. Their infrastructure, focus, and passion does not lie in expanding emerging markets. And… where is the incentive to focus on this market and fix the serious inequities of the system? There is a lot of money to be made just in penalizing folks for a bounced check:

Did you know that according to Bretton Woods Inc, banks and credit unions collected $37 billion in fees on overdrawn checking accounts in 2008? That works out to $1,472 per household in annual NSF fees (almost 1% of the median HH annual income). That is a pretty serious chunk of cash, even if we weren’t in the most serious economic downturn of our lives at this time.

The energies to get the large financial services companies to change is wasted energy. They do what they do best- deliver financial services on a large scale and maximize ROI for their investors. That is why there is absolutely a place for companies like AccountNow and local community focused organizations to build tailor made products and services that are their bread and butter – not just something to twiddle with on the sidelines nor satisfy their regulatory CRA efforts. This flexibility and focus is the beauty of small companies and the bane of large corporations. Support the small businesses that cater to the needs of the underserved and everyone will be better off from it – from a moral and economic perspective.

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