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 credit for qualified community development loans, investments, and service activities under the OCC’s 2020 Community Reinvestment Act rule. The OCC offers information on how banks may receive CRA credit. For more information, visit the CRA section of OCC.gov.
To help banks in their efforts to promote financial literacy, the OCC offers online resources, including Financial Literacy Updates, which list upcoming programs devoted to educating consumers about personal finance. The OCC's “Financial Literacy Resource Directory” has information on a variety of related topics.
Low- to Moderate-Income Communities and Minority Groups
Low- to moderate-income communities and minority groups are disproportionately represented in underbanked markets. Surveys suggest there are many reasons that underbanked individuals are unable or unwilling to open bank accounts. One reason is the perception that banks charge high fees for transactional accounts, and, therefore, the accounts are costly to maintain. Another reason is that some consumers have limited traditional transactions in their credit files to generate a robust credit score. To counter this perception, banks have been designing low-cost bank products and services for the underbanked market. These products and services include the following.
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 OCC explains the CIP in the spring 2009 issue of the OCC Community Developments Investments newsletter titled "Cultivating Community-Based Financial Literacy Initiatives" (PDF). 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’s articles, "Customer Identification Requirements for New Accounts" (PDF), explains in detail the USA Patriot Act's CIP rule.
Low-Cost Bank Transactional and Savings Accounts
The Federal Deposit Insurance Corporation (FDIC) conducted a one-year pilot program in 2011 to evaluate the feasibility of banks offering safe, low-cost bank transactional and savings accounts for underserved consumers. The FDIC, and the nine banks that participated in the program, developed a Model Safe Account Template for designing electronic, card-based accounts with features that limit acquisition and maintenance costs. A full report of the pilot results, lessons learned, challenges faced, and other information, is available on the FDIC’s website.
Low-Cost, Small-Dollar Loans
In May 2020, the OCC and other federal banking agencies issued lending principles to encourage banks to offer responsible small-dollar loans to customers for consumer and small business purposes. The agencies recognize the important role that responsibly offered small-dollar loans can play in helping customers meet their ongoing needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income shortfalls, including during periods of economic stress, national emergencies, or disaster recoveries. Well-designed small-dollar lending programs can result in successful repayment outcomes that facilitate a customer’s ability to demonstrate positive credit behavior and transition into additional financial products.
The Pew Charitable Trusts issued a 2018 brief titled “Standards Needed for Safe Small Installment Loans From Banks, Credit Unions,” which offers guidelines for banks to follow as they develop new small-dollar loan programs in a way that provides consumer protections while enabling sustainability and scale for providers.
Innovations in digital technology have brought about a variety of ways for consumers to obtain money, pay bills, manage their budgets, and check credit scores electronically. These include smartphone apps, websites, general-purpose reloadable cards, payroll cards, government benefit cards, and retail gift cards. Prepaid access programs, for example, allow consumers to add, spend, and withdraw money as needed. OCC Bulletin 2011-27, "Prepaid Access Programs: Risk Management Guidance and Sound Practices," provides banks with guidance on assessing and managing the risks associated with prepaid access programs.
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 updated the "Guidance to Encourage Financial Institutions' Youth Savings Programs and Address Frequently Asked Questions" (PDF). The interagency guidance answers common questions, including those related to CIP requirements, that may arise as banks collaborate with schools and other community stakeholders to facilitate youth savings and financial education programs. The guidance is intended to encourage banks 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.