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TUESDAY, JUNE 27, 2000
U.S. House of Representatives,
Committee on Banking and Financial Services,
Washington, DC.

    The committee met, pursuant to call, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. James A. Leach, [chairman of the committee], presiding.

    Present: Chairman Leach; Representatives Bereuter, Ryun, Ose, Terry, LaFalce, Watt, Bentsen, J. Maloney of Connecticut, Mascara, Inslee, Schakowsky and Moore.

    Chairman LEACH. The hearing will come to order. The committee meets today to hear testimony on H.R. 4490, the First Accounts proposal, which the Ranking Member John LaFalce and I have introduced, and which would introduce a $30 million program advanced by the Administration in its budget submission to the Congress.

    The goal of this legislation is laudable; to extend traditional banking services to those Americans, who for various reasons, do not now have checking or savings accounts or any other relationship with a bank, a savings and loan, credit union or other financial services firm, and rely upon usually higher-cost alternatives to cash checks or make payments and higher-risk methods of savings.
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    In the past decade, we have seen the number of people not using financial institutions decline by about 50 percent, but still, the Federal Reserve Board found in the 1998 survey that 9.5 percent of Americans are without a transaction account. While almost 3 out of 10 of these persons said they don't write enough checks to warrant opening an account, another one-fifth of the responders said they don't like dealing with banks.

    In this regard, the legislation before the committee requires the Secretary of the Treasury to establish programs to: one, educate low- and moderate-income people and banks on the feasibility and availability and use of financial services; two, to encourage development of new products and services to meet the needs of low- and moderate-income persons; and three, to expand access to financial services for these persons.

    Treasury is also given authority to enter into grants, cooperative agreements and contracts, as well as to provide technical and financial assistance with depository institutions to expand services.

    In addition to hearing more about this proposal, the committee has asked witnesses to address two collateral issues: How this First Accounts proposal will interact with the EFT '99 plan requiring that all Federal payments be made by electronic funds transfers and the low-cost electronic bank account system which has been established to assist in carrying out this mandate; and how Treasury's program to place automatic teller machines in low- or moderate-income neighborhoods has progressed.

    We will hear from Under Secretary Gensler and representatives of the banking industry, consumer groups and academia.
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    Before we welcome Mr. Gensler back to the committee, let me ask Mr. LaFalce if he has any opening comments. And let me also say this is Mr. LaFalce's legislation, and I am appreciative for his introducing it.

    Mr. LAFALCE. Thank you very much, Mr. Chairman, both for holding this hearing and for agreeing to cosponsor this legislation with me, as does a number of Members of our committee, working very, very closely, of course, with the Administration, because this is basically the Administration's initiative. I hope we can enact this important initiative into law during this session of Congress as we are able to turn our attention away from modernizing the financial services industry and turn it toward bolstering consumers' financial protections.

    The issue we take up today has eluded us with a practical solution for some time; that is, banking the unbanked. The Administration's First Accounts initiative represents a meaningful effort to help bridge the financial divide in America through the implementation of innovative pilot strategies by the Treasury Department. As the bill's title implies, the First Accounts program will offer many low-income individuals with their first electronic bank account. This initiative complements the Treasury's electronic transfer accounts, or ETAs, which are low-cost electronic accounts offered to recipients of Federal benefits.

    President Clinton proposed $30 million from the Fiscal Year 2001 budget for the First Accounts initiative, which, unlike ETA, applies to nonrecipients of Federal benefits. The First Accounts Act of 2000 represents a meaningful effort to redress the imbalance between those of us who can afford and enjoy the convenience of readily available basic financial services, which we often take for granted, and those less fortunate American families who cannot.
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    Although our committee today considers the Administration's initiative to help the unbanked, we should not lose sight of the important concept of basic banking in a broader sense. Earlier this month I introduced a bill, H.R. 4584, to require all banks, thrifts and credit unions to offer basic banking accounts to their customers. These affordable transactions accounts would have a low monthly service fee and would allow for a minimum of eight withdrawal transactions or checks per month. This is a concept that has not been received well in some quarters, but it does, in my judgment, represent good economic and public policy, and it has worked well in the State of New York.

    I am very disappointed that pressing legislative business prevented a witness from the State of New York from attending today's hearing. I hope that can be done in the future. But I am pleased to note the following: According to a 1998 survey of New York State-regulated banks, conducted by New York State banking authorities, 119 State-chartered banks had 710,928 basic banking accounts with $865 million in total deposits. That is almost three-quarters-of-a-million accounts in the State of New York with almost $1 billion in total deposits.

    Now, a similar survey on national banks in New York was conducted in 1998. Forty-three of sixty-eight national banks responded. And of those 43 who responded, 41 offered a basic banking-type account. There were 221,935 accounts with a total of $229 million in deposits in these national banks. The State of New Jersey, which has a comparable basic banking law, has also had similar results; however, some national banks have resisted compliance with these laws arguing that their national charters and a control of the current advisory opinion preempts the State laws. However, to their credit, some institutions have complied with those laws voluntarily. I look forward to hearing from our U.S. PIRG witness today on the record of those laws and their impact on low-income consumers.
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    Mr. Chairman, I have been concerned for some time that our Nation's financial services system is evolving into two separate but unequal segments, one serving middle- and upper-income individuals through mainstream financial institutions, and another serving lower-income households through check cashiers and pawn shops and other unscrupulous lenders. I shouldn't say ''other''—and some unscrupulous lenders. Whether we are proposing to enact affordable transaction accounts or First Accounts as the bill before us today would do, offering either of them to low-income individuals and families will help break the cycle of debt that so often hamstrings those who are forced to rely on payday lenders, pawn shops, tight lenders and predatory lenders.

    Thank you, Mr. Chairman.

    Chairman LEACH. Thank you, John.

    Mr. Bereuter.

    Mr. BEREUTER. Thank you, Mr. Chairman. I want to just recognize and say for the record that I regard this as significant and not uncontroversial legislation, but as the Chairman knows, in our other committee, we are also hearing testimony today from Secretary Richardson on the impact of OPEC on America's economy. So I am trying to balance important testimony in both places, and I thank you for holding this hearing.

    Chairman LEACH. Does anyone else wish to make an opening statement?
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    If not, let me welcome back Mr. Gensler, and we recognize your handicap not having your daughter with you today, but in any regard, you are welcome. And please proceed in any manner you see fit.


    Mr. GENSLER. Thank you, Mr. Chairman, Ranking Member LaFalce and Members of the committee. I thought it was best not to bring yet my third aide, my three-year-old. I thought that was going even beyond the pale. But I thank you for recognizing my daughter at the last hearing.

    I appreciate the opportunity to discuss basic banking and the bill that you and Ranking Member LaFalce and many of this committee cosponsored, the First Accounts Act of 2000. Despite the strong national economy, we still have 10 million American families that don't have the most basic connection with the financial system, a bank account. Treasury believes that it is vitally important to bring these families into the financial mainstream, and the First Accounts Act will help us build on the work we have already done to reach those who lack the basic passport to the broader economy.

    I would like to submit my written testimony for the record, but if I may summarize here.

    Chairman LEACH. Without objection. Your full statement will be in the record.
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    Mr. GENSLER. First, there are many challenges for low-income families in maintaining an account. For most of us entering the financial services mainstream is simple. We can walk into a local bank, make an opening deposit, walk out with a check book. We can have our paychecks directly deposited and access the funds in a number of ways. And we typically leave some cushion in that account as well in case you need that next check. But for the unbanked, gaining a foothold in the financial services is not so simple. Financial institutions may not offer account products that meet the specific needs of the unbanked. Products may have high monthly service charges, minimum balance requirements and bounced checks fees that are not affordable to many low-income Americans. And in particular, that last point about bounced checks, our surveys have shown, bring a barrier to many Americans.

    Two is as a result of past problems with managing accounts, many individuals have greater difficulty just qualifying for conventional accounts, again because of overdraft provisions.

    Three, in many areas there have been fewer and fewer mainstream financial institutions. Our research shows in Los Angeles and New York roughly half the number of ATMs per capita in low-income communities than in middle-income and upper-income communities. And, of course, we all know that there are less bricks and mortars in Harlem than there are in Westchester.

    Fourth, many unbanked Americans lack the knowledge of the benefits of a basic banking account. And lastly, many financial institutions feel that serving this customer base often, they believe, has greater risk and lesser rewards, even though many banks do serve these communities and serve those communities profitably.
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    The importance of universal access is critical, and, as noted earlier, we have made great success. Roughly speaking, in the last decade we have gone from 15 percent of American families to 10 percent of American families being unbanked. But it is ever more critical as we move into the internet economy and the future economy to bring all Americans into this simple banking product.

    First, banking products are lower cost than many of the products that are provided in alternative financial services, check cashing, payday lending. We are all very familiar, but one survey shows that a minimum wage earner will spend about $18 a month on check cashing services. Payday lending, just to borrow $200, you can have as much as a 400 percent annualized rate of interest to borrow that $200.

    Second, deposit accounts allow families to get a gateway into savings, and as we all promote savings in America, it is vitally important to have a bank account.

    Third, account ownership is also part of being in the mainstream for credit products, auto loans, mortgages and building a relationship with the banking system.

    And lastly, banking the unbanked enhances the efficiency of the economy. We found in our own product, in EFT, that we have lowered the cost to the Government by giving direct deposits. This is true for corporate America.

    I will summarize here then.

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    Chairman LEACH. You have at least five minutes.

    Mr. GENSLER. The strong economies helped us make some of this progress from 15 percent just ten years ago to 10 percent. We also think that CRA has been vitally important. That was revised a number of years ago to include a service test. That was very important. And the Federal law in 1996 for Federal recipients to receive direct deposit, we have gone from just over 50 percent—about 55 percent of Americans who receive Federal benefit payments got it electronically four years ago, and today we are just over 75 percent. And, in fact, Social Security recipients, we are at 78 percent of all Social Security recipients now receiving it electronically.

    We have also created as part of that program a low-cost, no-frills basic banking product called the ETA, Electronic Transfer Account. It is early. This product has only been offered since last fall, but close to 600 banks currently offer the product. And what we found in that product is the design of the product was fundamentally important. It was designed not as a checking account, but designed as an electronic account where direct deposit can be made and where you can use an ATM and also use it at a point-of-sale machine to take money out, but avoiding some of the problems that do exist in terms of having checks and managing a checking account, and having overdrafts, and often overdrafts can be very expensive, or bounced check fees that can run $20 a check.

    The First Accounts Act would allow Treasury to extend these benefits to low-cost basic banks to the 5- to 6 million American families who don't currently receive Federal benefits. So a little over half of the 10 percent are not receiving Federal benefits at this time.

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    The initiative involves four elements, all in somewhat a pilot form, but first, to pilot First Accounts to develop a low-cost electronic banking account for the unbanked, non-Federal banking recipients. Second, to expand on our experience in the postal ATM pilot wherein Baltimore and Tallahassee partnered up with the Postal Service, Treasury has worked to put ATMs in low-income communities. Third, it is designed to improve awareness through a public education campaign; and fourth, new research on financial services needs of low- and moderate-income individuals.

    The structure is flexible to allow us to benefit from the experience we continue to gain in ETA and the ATM pilot, and as we move forward toward full implementation of ETA, we think this is an appropriate next step for Congress to take.

    The First Accounts Act represents a small, but significant step toward helping the 10 million families that do not have bank accounts to enjoy the benefits of participation in our financial system. As we said earlier, as we move into the internet age, this becomes even more important as so much that we can do, really you need a bank account before you can engage in something in the electronic age.

    I thank again Chairman Leach and Ranking Member LaFalce in focusing attention on this important issue. I would be happy to take any questions.

    Chairman LEACH. Thank you very much, Secretary Gensler, and we appreciate your coming this morning on this important initiative.

    I think at this point rather than proceeding with questions, because the vote on the floor—well, maybe there is not a vote. The bells have been ringing to announce a reconvening. There is no vote on the floor.
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    Mr. LaFalce, do you have any questions?

    Mr. LAFALCE. Mr. Gensler, how many ETAs have been opened?

    Mr. GENSLER. There are currently just under 600 banks offering ETAs at over 6,000 branches. As I had said, we are in the initial phases wherein many of the large banks that have signed up are looking to market this product more aggressively starting next year. The most success we have had actually is in Puerto Rico where one bank has significantly offered this account over the last several months, and in Puerto Rico there are a little over 2,000 accounts opened. But nationally, again, we are waiting for more aggressive marketing by banks later this fall.

    Mr. LAFALCE. Well, I have been advised that as of June 21st, there were 560 financial institutions with 5,000 branch locations that had agreed to participate in the program that was being offered from October and November of 1999. And you cited Puerto Rico as having some 2,000 customers basically with two Puerto Rican banks, as I understand it, but nationally I am told there are only 2,500 ETAs. That would mean the two banks in Puerto Rico have 80 percent of all the ETAs in the United States in its territories, and that two banks in one territory have four times as much as the entire 50 States and all the other territories combined.

    Now, are those facts basically correct?

    Mr. GENSLER. They are. The program of rolling out ETA was first to market to the banks to get enough on board and then to start a marketing campaign, which is not yet—by and large—not yet started in the continental U.S.
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    Mr. LAFALCE. Well, what are the plans for starting that marketing, because as I understand it, we began offering the ETAs in October and November. Five hundred accounts in the totality of the United States seems like an unbelievably low number even at this early stage. It is June 27th in the year 2000.

    Mr. GENSLER. The Congressman is correct. What we have found is there is a great challenge in offering these accounts, and certainly financial institutions we have worked with have found the same in terms of marketing the accounts. The plan was to find enough banks particularly within a region that were offering the account, and that was phase 1, and then later this fall to go into a marketing phase from the Treasury, and many of the major banks were going to enter into their own marketing later this year and the first quarter of 2001.

    Mr. LAFALCE. Is there some written description of exactly what the marketing plan of the Treasury Department and the private sector is?

    Mr. GENSLER. We could follow up with——

    Mr. LAFALCE. Would you, please. I'd be interested in both.

    Now, to the extent that there is going to be a marketing plan from the private sector, who would be responsible for making representations on behalf of the private sector, any trade association or just individual banks or—this is all voluntary on their part; is it not?

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    Mr. GENSLER. That is correct, sir.

    Mr. LAFALCE. That is one of the difficulties with volunteerism, it can work or not work depending upon the spirit that moves you and the financial incentive that exists.

    Now, do you think that it is more likely that we will be successful with First Accounts than we have been so far with ETAs when First Accounts will be available for those individuals who are not receiving Federal benefits, and ETAs will be available for those individuals who are recipients of Federal benefits?

    Mr. GENSLER. The First Accounts program is meant to be a pilot program to move forward in an incentive-based mechanism.

    Mr. LAFALCE. You say an incentive-based mechanism. You mean basically that we want basic banking so much that we are willing to have the Federal Government subsidize the banks to provide them; is that correct?

    Mr. GENSLER. We think that it is important to bring these 10 million Americans into the economic mainstream.

    Mr. LAFALCE. I agree with you. When we talk about incentives, you know we could also use the word ''subsidy,'' and we are saying that the need is so great, these financial institutions might not do it unless they are, A, mandated into it, or, B, subsidized. And the approach we are taking in the bill before us today is to subsidize them. Is my understanding basically correct?
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    Mr. GENSLER. It also includes an important national education program, but in terms of the First Accounts portion of it, it would be similar to some other programs we had awarding banks to move forward in this area.

    Mr. LAFALCE. OK. In the 50 States we have 500 ETA accounts subsequent to November of 1999. In the State of New York we have in State charter banks 710,928 basic banking-type accounts and, with respect to 41 of the 68 national banks, an additional 221,935. So basically in New York we have 1 million basic banking accounts pursuant to the New York State law, and so far we have only got 500 under the ETA approach. Are my facts at least correct, if not my conclusions or inferences?

    Mr. GENSLER. I was just going to add, if I may, Congressman, that we have made tremendous progress on the Federal front from 55 percent to 75 percent of Federal benefit recipients receiving direct deposit. And much that we have done at the Federal level has brought the unbanked in even aside from the new ETAs. So I think there has been tremendous success at the Federal level even there.

    While we don't have that specific data you referred to in New York, it may also be reaching some of the unbanked, and reaching some that are not necessarily unbanked. I mean, sometimes there is a movement from one account structure to another account structure.

    Mr. LAFALCE. All right. If the only thing we are able to accomplish legislatively this year is passage of the law creating First Accounts, I will declare a victory, but I would like to set the stage for much more. And I would like you or your designee to go to New York City or Albany and meet with representatives from the New York State banking department, and I would like Treasury to give me their report of the New York experience. I would like you or your designee to go to New Jersey and meet with the New Jersey banking department and give me your analysis of their experience.
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    I would also like you to confer with the Office of the Comptroller of the Currency, because I think that the advisory opinion that was rendered at least with respect to the New Jersey law upon request from New Jersey was in error. I am grateful that no financial institution in New York State has deemed it desirable or necessary to even seek an opinion as to whether or not there would be Federal preemption in New York. To the extent that there might conceivably be a Federal preemption, that wouldn't be on the horizon if the comptroller might not have so inferred. Then we ought to consider a legislative remedy to that.

    I thank the Chair.

    Chairman LEACH. Thank you, John.

    Mr. Terry.

    Mr. TERRY. Thank you.

    Mr. Gensler, this is an interesting plan or philosophy, at this point a philosophy, but I am curious about the costs. I have been trying to find—I have seen a $30 million figure. Is that what you figure the program will cost, $30 million?

    Mr. GENSLER. The President's budget called for $30 million of money. I believe that we called it ''no-year money,'' meaning it was over a number of years. It is contemplated that of the three main prongs within the First Accounts program, accounts, ATMs and the public education, that while it is not exactly this, it is close to a little over a third on the first and a little less than a third on the second and the third, but, again, that is for current planning purposes.
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    Mr. TERRY. All right. So that is $30 million over three years, and you said that that is what was requested or in the President's budget, but that doesn't necessarily mean that is the cost of the program. Now, are you saying that the request and the cost are the same?

    Mr. GENSLER. Well, the bill that I believe is in front of you authorizes $30 million as the pilot in Fiscal Year 2001.

    Mr. TERRY. I am confused on what that $30 million does or goes for. Is that the Treasury's cost of administering this, or is this going to the financial institutions who adopt these, quote/unquote, voluntary programs?

    Mr. GENSLER. It is performance-based, and the money would go outside of Treasury. I believe the actual legislative language limits the administrative costs to a small percentage of that. So it is really meant to go for public education or to performance-based incentives for banks.

    Mr. TERRY. Theoretically if a financial institution were to adopt these programs, what cost would they bear? Have you determined if there would be any cost to them, or does the Treasury——

    Mr. GENSLER. They would bear whatever normal commercial costs they would bear. We think that it is economically sound for banks to offer these accounts. As Congressman LaFalce has noted, even in the New York experience many accounts are offered there, and in our own experience moving in the last eight years from 15 percent of Americans to only 10 percent being unbanked. But this is really to promote that even further.
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    Mr. TERRY. I understand that philosophy. I am just wondering whether the dollars that are spent in a cost-benefit analysis are actually going to accomplish the task. And then one of the issues that concerns me is that while, quote/unquote, it is a voluntary program, I am trying to figure out what burdens will be placed on a financial institution that accepts that.

    And another issue, one of the major issues that always seems to creep up in this committee is ATM fees. And it is just interesting that part of the program will be to place more ATMs in low- to moderate-income areas despite maybe market reasons why there are fewer there than more. But will part of your program be mandatory waiver of ATM fees? Will the next step in this process you come before this committee and say for these programs to work you have to mandate no ATM fees? I am worried more about the next step than I am the first step.

    Mr. GENSLER. The legislation contemplates that there would be, as we have said, performance-based incentives. They would be set up through a process of rule writing. And working with any criteria on these monies that would go to the banking system would be set up by criteria and rule writing and so forth. The legislation does not contemplate what you have just said, I don't believe, about ATM fees, and we would look forward to working with this committee on however to best move this legislation forward.

    Mr. TERRY. Thank you.

    Chairman LEACH. Mr. Bentsen.

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    Mr. BENTSEN. No questions.

    Chairman LEACH. Mr. Ose.

    Mr. OSE. Mr. Chairman, I came to visit with the gentleman from Ames, but I have no questions for this witness.

    Chairman LEACH. Fair enough. Thank you.

    Mr. Inslee, do you have any questions?

    Mr. INSLEE. No.

    Chairman LEACH. If not, we thank you very much for your testimony, Mr. Secretary.

    Mr. GENSLER. Thank you, Mr. Chairman.

    Chairman LEACH. Our second panel is composed of Mr. Michael Stegman, MacRae Distinguished Professor of Public Policy and Business, Chairman of the Public Policy Curriculum, and Director of the Center for Community Capitalism, the University of North Carolina at Chapel Hill; Mr. Edmund Mierzwinski, who is Consumer Program Director of U.S. PIRG; Mr. Daniel L. Krieger, who is Chairman, President and CEO of the First National Bank of Ames, Iowa, on behalf of the American Bankers Association; and Mr. Joseph S. Bracewell, who is President and CEO of Century National Bank, Washington, DC., on behalf of the Independent Community Bankers of America.
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    We will begin with the order——

    Mr. BENTSEN. Would the Chairman yield? Mr. Chairman, I just want to mention one of the panelists—I may have to leave before we get to him—Joseph Bracewell is, by birthright, a Texan who happens to be living here in Washington and comes from a very prominent Houston and Texas family, the Bracewell family. And I just wanted to make note of that for the record, and I hope that the rest of the committee will not hold that against him.

    Chairman LEACH. Well, I appreciate that. As you know, Mr. Krieger represents Ames, Iowa. I don't know his birthright, but he has the good common sense to remain in Iowa.

    Professor Stegman.


    Mr. STEGMAN. Thank you, Mr. Chairman. My name is Michael Stegman. I am pleased to be here today to testify on H.R. 4490, and related issues. I am Professor of Public Policy and Business at the University of North Carolina at Chapel Hill, Chairman of Public Policy and Director of the Center for Community Capitalism at UNC. I have been on the UNC faculty for thirty-five years teaching and conducting research in affordable housing and community and economic development finance.
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    From May 1993 to June 1997, I was on leave from UNC to serve as Assistant Secretary for Policy Development and Research at the Department of Housing and Urban Development under Henry Cisneros. It was at HUD, Mr. Chairman, that I learned about EFT '99, and for the last three years I have spent a good deal of my time at the Center for Community Capitalism looking into the potential of EFT '99 and now the First Accounts Act to bring millions of unbanked families into the financial mainstream and help them save for the future.

    I will summarize my testimony and request that the full written testimony be included in the record.

    Chairman LEACH. Without objection, your full statement will be in the record, as that of all the panelists.

    Mr. STEGMAN. H.R. 4490 recognizes that EFT '99 targets only about half of the unbanked population. From an industry standpoint it seems to me for the unbanked to become a commercially viable market, mainstream financial institutions must create accounts, marketing strategies, education campaigns and delivery systems that really target all 10 million unbanked American families.

    The non-ETA-eligible population is quite different from the ETA population and may call for different marketing strategies, products, and approaches. Because the EFT population are all Federal benefit recipients receiving Government checks, they are dominated by seniors—70 percent of them are Social Security recipients. We estimate, using Federal Reserve data, that of the non-ETA-eligible unbanked households, only 4 percent are 62 years or older. So it stands to reason that the banking needs and tastes of these two populations might differ in significant ways.
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    First Accounts attempts to improve access to services in two ways. The first way is reflected in Treasury's efforts to place more ATMs in convenient and safe locations like the post office. But there is another aspect to the access issue which has to do with convenient location and hours that services are available. Federal Reserve data indicates that 59 percent of banked families cite convenience and location as very important in their selection, but only 1 percent of the unbanked say that location is an issue in their decision to remain unbanked.

    There are lots of other issues dealing with access which are cultural and psychological, and that concern the products mix and pricing patterns that banks adopt which do not meet the needs of all unbanked families. First Accounts will attempt to deal with these kinds of access issues, as well. I think we also need more market research to help us understand why so many of today's unbanked families were previously banked.

    According to 1998 Federal Reserve data, 46 percent of all unbanked families previously had a bank account. The previously banked are more likely to have closed their accounts for price reasons, while the never-banked are much more likely not to have an account because they just don't like dealing with banks. And the marketing challenge of attracting families who are meeting their financial services needs outside the financial mainstream in more costly ways into the banking system, is a significant challenge that both EFT '99 and First Accounts must take on.

    The good news, as Secretary Gensler said, is that the number of unbanked is down, but despite this good news, there are still 25 million persons and almost 10 million American families without a bank account. Just as in the mortgage market, there continue to be pronounced racial divisions in the ownership of bank accounts. Nationally, about a quarter of African American and Hispanic families are unbanked, compared with just 5 percent of non-Hispanic white households. Fewer than 20 percent of all families with incomes under $30,000 are unbanked, as are between 13 and 14 percent of unmarried men and women, compared with just 5 percent of married couples.
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    There is also a significant asset-building potential for both EFT '99 and First Accounts. You know the savings problems that we face generally. Unbanked families with incomes of less than $30,000 have median assets of just $2,000. That is total assets. For 54 percent of the unbanked with any assets at all, their only asset is their car. Without a bank account, these families are going to be unable to take advantage of individual development account programs, and any variety of savings incentive programs that have been proposed by Members of congress on both sides of the aisle, and by a number of other political leaders.

    But I think there is also another important aspect to the asset-building potential of First Accounts and EFT '99, and that is finding a source of longer-term, cheap deposits for financial institutions that will help keep account fees low by improving the economics of low-balance accounts. Treasury-sponsored research suggests that these low-balance accounts, obviously with high rates of withdrawals, generate very little ''float'' for banks to invest.

    If you combine these efforts to create inexpensive accounts for the unbanked with a savings initiative for working families that gives them incentives not only to sign up for a bank account, but to begin saving steadily, slowly, building up their balances in ways that bring the power of compound interest home to them, you will also make these accounts more attractive to financial institutions. The combination of EFT '99 and First Accounts if linked to a savings incentive program for working families has the potential to prove the commercial viability of the low- and moderate-income market for retail financial services for mainstream financial institutions.

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    In conclusion, the combination of EFT '99, First Accounts, a financial literacy campaign, and a savings incentive, all of these taken together can become the foundation for a community development policy for the future that both sides of the aisle can support.

    Thank you, Mr. Chairman.

    Chairman LEACH. Thank you very much, Professor.

    Mr. Mierzwinski.


    Mr. MIERZWINSKI. Thank you, Chairman Leach, Mr. LaFalce and Members of the committee. I am Edmund Mierzwinski, Consumer Program Director of the U.S. Public Interest Research Group. I am also testifying on behalf of our New York affiliate, New York Public Interest Research Group, which has done a great deal of work in the area of basic banking and was a major sponsor in the passage of the New York basic banking law in 1994.

    We are pleased to be here today to support the notion that banks should be required to provide affordable accounts for all Americans. We have been very disappointed in that in an era of tremendous bank profits, rising profits in every year, there still remain 10, 11, 12 million American families that do not or cannot afford bank accounts. Unfortunately, most of these families are lower-income Americans.

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    In response to deregulation and the unbundling of bank fees that came along with deregulation, at least two States have passed full-service basic banking laws which require banks to provide a low-cost lifeline affordable bank account. In 1992, New Jersey passed its New Jersey checking account law, and in 1994, New York passed its New York State banking law. Similar laws, less broad-based, have been passed by several other States, and a few States require low- or no-cost accounts for teenagers and senior citizens as well, the so-called 18/65 laws.

    In our view, a number of other States might have followed the lead of the pioneering work of New York and New Jersey were it not for abusive and aggressive preemption determinations by the Office of the Comptroller of the Currency. As Mr. LaFalce pointed out in his earlier remarks with Under Secretary Gensler, although no banks in New York have taken the stance, a few banks in New Jersey have now taken that this law does not apply to them, I want to point out that these preemption determinations have had a chilling effect on other States passing laws. When I talk to advocates, whether they are with PIRG or other consumer groups, they say that when they try to pass a similar basic banking law in their State, that the New Jersey preemption determination is held up as if they are trying to ward off vampires or something. The bankers hold up the preemption determination as a shield. And these State bankers say, ''If you pass this law, it will only apply to us''; and the national bankers say, ''If you pass this law, it won't apply to us so we don't care.'' So, the legislatures throw up their hands and say, ''Well, we are just not going to pass this law.'' So we are encouraged by Mr. LaFalce's points to the Under Secretary that the preemption determination be reviewed.

    Again, I want to point out that, in 1994, the Congress found that preemption determination to be overly aggressive and in the Riegle-Neal law passed a strong amendment that required OCC to review its preemption determinations as they apply to consumer and other laws.
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    In 1995, the New Jersey banking petitioner petitioned to have that preemption determination overturned; and the OCC has done nothing since except continue to ignore the petition from New Jersey.

    I think that both the bills that are before the Congress today——

    Mr. LAFALCE. If I could interrupt you for a second, is a representative from the Treasury Department present? Is an OCC person present? Good. I would like OCC to specifically comment in writing with regard to why it has taken from 1995 to the present to address the petition for reconsideration.

    I thank you.

    Mr. MIERZWINSKI. Thank you, Mr. LaFalce.

    The U.S. PIRG thinks that both bills before the committee today offer important protections for consumers who are unbanked. Turning first to Mr. LaFalce's broader bill, which would require the provision of transaction accounts for consumers similar to those offered in New York State, we would generally support that model as the better model to go.

    It has worked in two States. There are nearly 700,000 or more consumers in each State, according to the surveys that we have seen, who are taking advantage of the accounts. More importantly perhaps, in neither State are the banks subsidized for the requirement that they provide these affordable accounts; and I think that is an important step forward to recognize.
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    The two States that have enacted broad-based basic banking laws are not subsidizing the banks in their State. The banks are making very high profits; and, as a taxpayer, I certainly don't want to bail out the banks. We are happy that they are making profits, but they can certainly afford to provide these basic banking accounts.

    Turning to the Administration's First Accounts Act, there are some positive features of that act as well. Most importantly, the act recognizes that service fees on deposit accounts are only one of the problems that lower income consumers face. In addition to the monthly service fees, lower income consumers frequently may bounce checks if they have checking accounts. The ETA account or the First Accounts program using an electronic transfer of funds may discourage the payment of bounced check fees. And both PIRG surveys and Federal Reserve surveys have found that bank fees are going up substantially throughout the 1990's.

    In some markets, by the way, bounced check fees are now $35 a shot. The Philadelphia market and a few other markets around the country, bounced check fees are now $35—unbelievable.

    So that is another deterrent to consumers, as is the requirement that banks have that they should take a Chexsystems test, credit report test, before they open a bank account.

    There are some laudable provisions of the ETA and the First Accounts program that would serve to diminish those problems that consumers face in addition to the service fees on regular checking accounts and the high minimum balances on regular checking accounts that the affordable transactions account will solve.
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    The other point that I wanted to make, of course, is that the ETA First Accounts program, as Professor Stegman has pointed out, gets to the provision of increasing assets. It encourages savings. And that is an important point, that we think any basic banking law that the Congress passes ought to not simply provide transaction accounts, but ought to encourage the development of savings and asset formation by lower income consumers.

    The final point I want to make, because I am over my time, is that, as you know, PIRG has done a number of bank fee studies over the years since deregulation. We call them the Big Banks, Bigger Fees series of reports, which has documented rising bank fees. They have also documented that there is a trend toward the highest fees being charged by big banks, lesser fees being charged by community banks and the lowest fees being charged by credit unions.

    There is one other institution besides U.S. PIRG that conducts those bank fee reports and comes to virtually the same conclusions as the Federal Reserve Board of Governors. And, unfortunately, we believe that the law passed by the House of Representatives to continue the Federal Reserve Board's annual account fee studies has a drafting error, and we would encourage you to revisit that act and to reenact legislation to require the Federal Reserve to continue to conduct its bank fee studies that we think are quite important.

    Thank you.

    Chairman LEACH. Thank you very much.

    Mr. Krieger.
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    Mr. KRIEGER. Mr. Chairman, we are pleased to testify on opportunities to encourage greater use of banking services. We agree with you that there are significant benefits to having a bank account. Alternatives to banks are considerably more expensive and do not provide the same level of safety and convenience that bank accounts offer. Promoting access, as the First Accounts Act seeks to do, is certainly a worthy goal.

    My bank feels a responsibility to help the less fortunate members of our community maintain a banking relationship. We offer a totally free checking account with no monthly service charges and unlimited ATM or debit transactions. We have had a very positive response to this account.

    We are proud of our record in our community and giving our customers extra help when they need it. For example, we cash checks without cost for residents of the Curt Forbes Facility, most of whom are recently released from correctional facilities and do not have bank accounts. We also serve most of the residents of a low-income housing complex that is within walking distance of our bank.

    Our bank is not unusual. Anyone in the State of Iowa can obtain a checking account with no or minimal costs with ease. The same story is repeated in community after community around the country. In fact, over 93 percent of large banks offer basic, no-frills checking accounts.
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    Importantly, each bank tailors its accounts to meet its own unique population. There is no one account, with or without Government-mandated features and prices, that could possibly work across all of the varied communities from rural to college towns to retirement communities to the big city.

    Providing positive incentives rather than mandates, as H.R. 4490 does, is the best way to increase the percentage of individuals that have bank accounts. The challenges should not be underestimated, however. Those individuals who choose not to have a bank account do so for a wide variety of reasons. The availability or cost of accounts are not the primary reasons. In fact, only 1.2 percent of respondents in a Federal Reserve survey said that lack of a convenient location was the main factor. Rather, individuals felt they didn't write enough checks to make it worthwhile, or were worried about overdrafts, while others preferred to deal in cash or feared having their accounts frozen in the event of a legal judgment. Studies have also found that illiteracy and the lack of fluency in English were contributing factors.

    The Federal Reserve has found that these reasons haven't changed much over time. Thus, it is important to be realistic about the effectiveness of any Government program to reduce the percentage of individuals without banking accounts. Any Government program should be designed to identify the reasons people do not have accounts and target those reasons specifically.

    The First Accounts program certainly has promise. The program should be limited to providing research grants and other incentives to improve financial education and to encourage participation in banking account services. We would, however, be opposed to additional regulations mandating account features or price controls.
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    The most important contribution a program like First Accounts could make is to support and promote the use of electronic accounts. Such accounts help resolve some of the fears and concerns of those currently without accounts. In addition, electronic accounts are safer, reduce fraud, and are easier to use and less expensive than other alternatives.

    There are many innovative approaches to meeting the needs of low- and moderate-income individuals through electronic accounts. Mandating a one-size-fits-all account would certainly stifle this type of innovation. With electronic provision of payment services evolving so rapidly, we should not lock in an approach that would surely become outdated in a short period of time.

    In conclusion, Mr. Chairman, the ABA believes that the goal of the First Accounts program is certainly laudable. Through its emphasis on positive incentives and setting education and electronic delivery as priorities, such a program may help increase the number of individuals with banking accounts. The ABA looks forward to working with this committee in finding innovative approaches to helping our citizens.

    Thank you.

    Chairman LEACH. Thank you very much, Mr. Krieger. I am particularly appreciative of your notation that some parts of America are aggressively seeking these accounts, presumably because they are good for the institution and good for the individual.

    Mr. KRIEGER. That is true. Our job is to take care of our customers. If we don't have the deposits, we can't grow. We need customers, and we need their deposits.
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    Chairman LEACH. Fair enough.

    Mr. Bracewell, we are waiting to ascertain what this accent has become.


    Mr. BRACEWELL. Well, with that kind of lead-in, I am almost embarrassed to speak. But I appreciate, Chairman Leach and Ranking Member LaFalce, your invitation to testify today; and, Congressman Bentsen, thank you for that very generous introduction.

    Mr. Chairman, serving the needs of our communities is something community bankers know something about. If we don't serve the needs of our communities, most community banks would not survive. We believe this is one of the characteristics that distinguishes a community bank from institutions that have a regional, national or even international focus.

    H.R. 4490 is intended to provide incentives to banks and credit unions to do what community bankers already do. That is to ensure that all members of their communities have access to affordable, basic financial services.

    We appreciate the committee's desire to bridge the financial divide between the ''banked'' and the ''unbanked.'' This is a commendable goal, particularly as instances of predatory lending practices that target low-income people are brought to light. Clearly, as a Nation, the more quickly we can move vulnerable consumers away from the financial underworld and into the light of legitimate regulated financial providers, the more quickly we can rid our Nation of these abuses.
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    However, as a trade association that exclusively represents community financial institutions, we do not believe that more Government intervention is needed to encourage community bankers to provide affordable financial products that meet the needs of everyone in our communities. We do, however, applaud your efforts to establish programs to provide financial education to low- and moderate-income areas.

    In this regard, ICBA has teamed up with the Wall Street Journal to sponsor a program that partners community banks with local high schools to teach the students the basic and not-so-basic points of finance. This is where financial education should start, and this program will help students become more financially literate adults. This program, which has already reached more than 3,000 students in more than 100 high schools, is described in more detail in my written testimony.

    Another area of concern in this bill, Mr. Chairman, is the broad power and discretion granted to the Treasury Department. The bill requires Treasury to establish programs to expand access to financial services in low- and moderate-income areas and, quote: ''such other activities and projects as the Secretary may determine are consistent with the purposes of this act.''

    Similarly, under the powers and authorities section of the bill, Treasury is granted authority to mandate, quote: ''other financial services deemed appropriate by the Secretary to meet the needs of service areas or service populations.'' This is a very broad and potentially dangerous grant of authority.

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    Mr. Chairman, in your letter of invitation, you ask how prevalent basic banking services are in the marketplace today and what is the role of public and private sectors to expand such services. At my bank, we offer checking products that are affordable to almost everyone for a flat $4 monthly fee. We offer a checking account with no minimum balance, unlimited ATM usage, and customers are writing up to 10 checks a month. There is a nominal charge for additional checks, but with unlimited ATM access most consumers can stay below the 10 check limit.

    In a survey that ICBA conducted among our leadership bankers, every one of them offered some form of basic banking such as free or low-cost checking accounts; and many banks also provide financial education programs to help educate the members of their community on basic financial services.

    You also ask whether or not the First Accounts program would help in decreasing the ranks of the unbanked and/or would be of assistance to people who do not write enough checks to open a bank account or simply don't like dealing with banks. In areas where there may be significant concentrations of low- and moderate-income people, a financial literacy campaign could be helpful in providing education on the benefits of banking services. This should extend to both the deposit and lending programs. However, the committee should recognize that there are always going to be people who will not do business with banks, and it will be difficult to move this group into the mainstream financial world.

    Finally, Mr. Chairman, I would like to comment on why, in our view, community banks are generally able to meet the needs of low- and moderate-income people in their communities.

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    Community banks are typically small, with average assets of just over $100 million. They are located predominantly in small towns and rural areas. Most bankers serve a variety of functions in their communities. Many serve on school boards, are active in their churches and volunteer their time with civic groups. So the bankers generally know the people they do business with, and the people in the community know the bankers.

    Thus, community bankers are more apt to make character loans that might get turned down under a credit scoring program. They are more likely to have programs like Christmas Club accounts that are geared toward low- and moderate-income consumers. And generally there is much less consumer resistance to opening an account and a greater amount of trust in an institution that is run by someone known and respected in the community.

    This is called relationship banking, and it in large measure is what distinguishes a community bank from one that deals in a wider geographic market and what enables us to compete in a market that is increasingly dominated by financial conglomerates.

    In summary, while we applaud the goals of your legislation, we do not feel it is necessary to expand access to banking services in the communities served by community banks, since most already offer free or low-cost basic banking services. Clearly, however, there are significant benefits to be gained from a financial literacy program targeted not only at the unbanked, but the underbanked as well; and we commend you for this initiative and pledge to work with you to advance its goals.

    Thank you again for the opportunity to present the views of our Nation's community bankers. I would be happy to answer any questions.
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    Chairman LEACH. Well, I thank you very much, Mr. Bracewell.

    While I was listening to your testimony, I was reminded that I spoke this weekend to a group of American Bankers Association members in Denver, an 18-State grouping; and the President of the ABA, Mr. Johnson, or the Chairman, announced that we now have 2,000 banks that are part of General Powell's program, the red wagon approach of mentoring.

    And as I think about education, which is part of this particular program, the thought that the bankers associations can be brought into—and I don't mean necessarily by the Government, because they have taken it on themselves and the major education effort in financial literacy is extraordinary. And it is interesting to me that you are doing it on your own, but there is a possibility here that this can be leveraged. And I hope that a dialogue commences, if we pass this legislation, between associations such as yours and Mr. Krieger's with the Treasury. Because I think it is very important.

    All of us realize that illiteracy is a major problem in American society. Mr. Krieger pointed it out, that it is one of the factors about people choosing not to be with a bank. There is this term of art, but enumeracy or financial literacy, and I think that is, in many ways, going to be critical to our economy in the years to come.

    I am also impressed—I want to ask Professor Stegman and Mr. Mierzwinski about this—that in our society we all understand that there is an underground economy; and this is an economy that is very difficult to measure. In some ways, it is healthy and vibrant and part of our society; and other ways it is outside the tax system.
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    All of us have had anecdotal episodes in our lives that people have said they don't want to have a bank account, because the tax authority will find out about it. In many regards, when you think of low-income people, that isn't a great problem relative to someone else. But I suspect it is an aspect of consideration of more people than might be suspected. That is, they believe if you come into a bank, suddenly there is a methodology by which the IRS can figure out whether there is income coming into your circumstance or not.

    So I wonder, because I don't think it would show up in a survey—that is, I don't think someone would answer a survey, ''I don't want to have a bank account, because suddenly the IRS will find out how much money I make,'' but do you think that is a factor with anybody?

    And the second point I would raise in that regard—because, you know, philosophically everybody has different judgments on what the level of taxation, and so forth, should be, but most Americans kind of feel that whatever level of income someone has they ought to pay their legally obligated share. That, in theory, is bringing people into the banking system, another way of taking people outside the greater economy; and, in theory, does it mean more revenue? For example, a $30 million program, is that offset by $40 million in tax receipts? Is that inconceivable or is that a possibility in this type of circumstance?

    Mr. STEGMAN. Mr. Chairman, going back to your initial point, it is interesting, the consumer expenditure survey, which tracks what people spend and consume, shows that low-income people report spending multiples of their reported income. That is because of large amounts of unreported, off-the-books income, not all of which comes from illegal activities. There is a significant amount of off-the-books income being generated in communities across the country that comes from perfectly legal activities.
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    The history of EFT '99 and the structure of the ETA does show a serious concern for privacy issues and for protecting the rights of consumers against garnishing of Federal benefits. People are worried that banks might be able to ''capture'' their Federal benefits deposited by direct deposit if they fall behind on their loan payments. There were real serious privacy issues that had to be resolved in the EFT '99 regulations. I think that there are still some of those concerns that perhaps are really limiting the number of people who are opening these accounts.

    With respect to Government's invading one's privacy, it seems to me that there are so many other ways that Government plays a role in the lives of families, including those with low-incomes, that invasion of privacy is not crucial in the unbanked equation. For example, with our tracking of child support payments and so on, there are so many registries now that one can't escape one's parental responsibility by not having a bank account and operating in a purely cash economy.

    So I think that issue may not be as important as in—I mean, all of this discussion about basic banking, it is unclear to me the relationship between the development of these accounts and the unbanked rate. We know very little about whether the clients and customers of all of these accounts in the basic banking States and other low-cost accounts really are capturing more of the unbanked population or really giving more choice to consumers for a different product mix at a lower price that really meets their needs, and I think we need to do more research and understand that kind of dynamic better.

    Chairman LEACH. Thank you.
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    Mr. MIERZWINSKI. I think it is a very perceptive set of questions that you have asked on the privacy views that Professor Stegman has brought out. I generally believe the research of many groups, although not my own, supports that; and I think some of the analysis of the survey of consumer finances has found that people are very concerned about their privacy.

    One report—and I will ask the Consumer Federation of America to submit some additional testimony for the written record—they commissioned a survey by Professor John Caskie on why isn't the savings rate of lower income Americans higher and what can we do to increase the savings rate. And in the major, 50-page report, the three principal findings—one of the three was to better publicize asset limits for eligibility for Government transfer programs. It appears that many lower income individuals believe the limits are much more restrictive than they actually are. So one of the reasons people may not be opening accounts—I mean, there are a lot of reasons for dealing with the way banks treat lower income people and the opening account requirements, and so forth, but another reason is they are afraid they will lose the benefit systems they already have.

    Chairman LEACH. Well, thank you very much.

    I have gone over a little bit, but I am tempted to make an observation. I have been in the Congress longer than some. I have been here so long that I came before the Age of Greenspan. And the reason I raise this is because, in my first term in the Congress, I attended a seminar in a town about an hour from here in Virginia that Arthur Burns, who was then the Chairman of the Federal Reserve, gave.
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    My wife and I returned to Washington with Chairman Burns. As we were coming back to the city, Chairman Burns saw an advertisement for an establishment in America called McDonald's; and he asked me if I would mind stopping. I said, ''Well, of course.'' I said, ''Do you like—whatever it was called then—their Big Mac?'' He said, ''No, you see, I have never been to McDonald's.'' Which I thought was fairly amazing for the Chairman of the Federal Reserve.

    But, in any regard, we went into McDonald's. We came back to the car, and he was grinning from ear to ear. I said, ''Did you like your hamburger? Is that why you are so happy?'' He said, ''No.'' He said, ''I am ecstatic because I now see how enumerate America works.''

    And I said, ''Well, Chairman, what do you mean?'' He said, ''Those young boys and girls at the counter were pressing pictures,'' which he had never seen before. That is, he was from a German shopkeeper background where people can add and subtract as part of their daily life; and he had read these studies that young America can't add and subtract, that they were pressing these little machines and that that was a methodology of making life easier.

    Well, the reason I raise this is that, in essence, First Accounts are a technique for everybody of figuring out ways to save and to use the methodologies of the American system. Now, people might not exactly agree with me on this, but if you take other systems of the world—for example, the Japanese have a long-standing history that, whatever income level a family is at, they try to live on 20 percent less, and 20 percent is saved—and it strikes me that it is not inconceivable that you could have First Accounts types of programs that are tied not only to a savings account at a bank, which is a bank's first instinct, but possibly a money market mutual fund. And that you can—the fact that banks can now offer a multiplicity of services, which we often think of exclusively for highly incomed, highly sophisticated people, might well be the type of thing that can be considered for lower income people as well.
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    And I just lay that on the table. I don't know how that fits your experience, Mr. Stegman, but I will tell you many types of people on Social Security save a bit. And, frankly, the Social Security recipient, some of whom scrape by, spending everything, some of whom can save, but then need everything when there is a little bit of an emergency, might be well helped by accounts of this nature. Now, does that make sense to you or not?

    Mr. STEGMAN. It does make sense, Mr. Chairman. There is a national demonstration in 14 communities right now of these individual development accounts, these matched savings accounts that are funded largely by foundations right now. But what they show is, among the 1,300 participants in these 14 sites, the bulk of them have incomes under 200 percent of poverty. They are poor.

    In the first year that this demonstration has been operating, called Down Payment on the American Dream, the average savings of these low-income people who are taking advantage of the matches is $33 a month; and they have been doing that over a sustained period of time during that first year. They are receiving matches averaging about $2-to-$1. So they are saving about $100 a month, $33 of their own money. The poor among them are saving as much or slightly more than those who have a little higher income; and, most importantly, they are taking advantage of about 71 percent of the maximum matching funds that are available. That is, they are responding to incentives like the rest of us respond to incentives.

    But the incentives really are relevant to them in their lives. They can take can't take advantage of Roth IRAs and tax-deferred savings incentives.

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    So I believe profoundly that the combination of EFT '99 First Accounts, financial education, and savings incentives can make an enormous difference in the lives of our lower income citizens.

    Chairman LEACH. I appreciate that.

    Let me just conclude with one sentence, and that is I think an obligation of this committee is to address issues of financial literacy. And the degree that—not that the financial community is involved in that process, and I commend the ICBA, but all—I am sure the ABA has programs as well—to the degree that our financial industry makes this a high priority I think it is good for the American economy.

    Mr. LaFalce.

    Mr. LAFALCE. Thank you very much, Mr. Chairman.

    First of all, I would like to associate myself with all the remarks that you made, Mr. Chairman. I share your observations.

    Let me just make one observation. Of course, it is much easier for an individual who is making a million dollars to save 5 percent of what he or she makes than it is for an individual who makes $10,000 to save 5 percent of what he or she makes. Because there is a certain amount of income that is just essential for survival, much less life.

    We have spent so much time over the past many years concerned with the needs of our financial institutions, and it was not inappropriate that we do this. I have been doing this for decades. But we need to spend much more time considering the needs of individuals. We have really in the financial services modernization law taken care of the needs of the institutions. We have to focus on the needs of the individuals in a good many areas. We are doing that part in today's hearing.
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    I don't think there is too much disagreement amongst the panelists over the First Accounts initiative, with the possible exception of Mr. Bracewell who would not oppose it if some of his concerns were dealt with. But I do detect a difference in approach, difference in nuance, a difference of opinion with respect to the nature of the unbanked.

    I am not sure, but let me ask this, I see Dr. Stegman and Mr. Mierzwinski viewing the problem much more seriously than Mr. Krieger, Mr. Bracewell, representing for the most part in a presentation of what is happening with what their own individual banks are doing and then also saying that the trade associations are doing likewise. That is a bit of a broad leap, but I think it is a leap that you made.

    In any event, I am wondering if this juxtaposition of Stegman and Mierzwinski and Krieger and Bracewell saw any issues that they would like to join with respect to the testimony of the other. Mr. Mierzwinski and Dr. Stegman, do you see the problem of the unbanked in America a bit differently than Mr. Krieger and Mr. Bracewell see it? And, if so, would you care to expand upon that?

    Mr. STEGMAN. I think there is a core of families that are very, very hard to reach that are operating in a cash economy, meeting their financial service needs in a way that is probably not most advantageous to them, but would be very difficult to get into the banking system and probably are not really walking into the lobbies of either their community banks or larger regional bank branches to open accounts.

    I think in order to reach probably what is a several million family strong population, we need to talk about different kinds of partnerships and delivery systems that are not solely definable by the standard business practices and product mix of an institution.
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    There are many, many examples of very exciting bank-community partnerships that target the unbanked. But they are mostly small-scale pilots that are not reaching enough people. Just last week, for example, a new internet-only bank called Umbrellabank.com was launched as a partnership between a small bank in Chicago and the National Equity Fund, which is one of the largest investors in affordable housing in the country. Umbrellabank.com is going to target unbanked residents living in Government-assisted housing, and will utlilize the computers in the learning centers of this housing to enable families who are unbanked to open accounts over the internet.

    I think what we want to do is learn more about these partnerships, and then really talk about what kind of national strategy we might employ to grow them to scale before a Federal basic banking mandate will get at the problem of the unbanked.

    Mr. LAFALCE. The First Accounts initiative would provide some monies to engage in programs. The Umbrella.com banking is one possibility.

    Mr. STEGMAN. That is correct.

    Mr. LAFALCE. We are losing our time.

    I want to ask Mr. Mierzwinski if he wants to join the issue or just differ in any respect with the nature of the unbanked problem.

    Mr. MIERZWINSKI. Well, from our perspective Mr. LaFalce, the problem of the unbanked is there is a perhaps a core constituency that will be very difficult to reach. I don't disagree with that. But I believe that there is a solid constituency of consumers in the millions, families in the millions, that are unbanked; and then there is another constituency who actually may have bank accounts who we characterize as the underbanked.
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    Both of these groups, the unbanked and the underbanked, are just not being well served by federally-insured, federally-subsidized financial institutions; and, therefore, they are at great risk to become the prey for the predatory lending and the other banking industries that a number of your other pieces of legislation have attempted to address, companies that solicited rent-to-own stores, the check-cashing stores. And many people with bank accounts may, in fact, go to check-cashing stores some of the time, because they need their check today and not in several days, which is what the bank makes them wait for if they don't have enough money in their account.

    So I think there is a serious problem out there, and the structural system of the banking industry could do more to help them.

    Mr. LAFALCE. Mr. Krieger, Mr. Bracewell, I am reading Dr. Stegman as saying there that there are millions of families that are unbanked—not individuals, millions of families. And Mr. Mierzwinski is saying there are millions of families that are unbanked and millions, millions, millions more that are underbanked. That is one of the reasons we are seeing so many problems in the paper every single day about predatory loans and payday lending and so forth, and we have got to do something. This First Accounts initiative is one good step.

    At least Mr. Mierzwinski would go much, much further. Dr. Stegman would do certain other things, too. I am reading you as saying, ''Well, if you want to pass your First Accounts initiative, fine, we will take it, but the problem is really not all that bad, because we are doing such a good job.'' Am I reading you right? Or are you saying something like, ''You can go ahead and pass it, but we are really doing a good job. We can do better if you toss some more money at it.''
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    Mr. KRIEGER. I don't think the money is the solution. I really don't. The United States is a very divergent country.

    Mr. LAFALCE. Are you pleased with the job that is being done by the financial institutions, by the membership of the ABA that you are representing today? Or to what extent do you think you could do a lot better?

    Mr. KRIEGER. I think education could be one thing. ABA is working with Treasury and has worked with Treasury in the past in promoting educational materials to help people find out about banks. As the gentleman on my right said, regardless of what you do, they may not want to walk into a bank because of privacy issues and things of that nature. But I think there are a lot of banks that do offer basic banking services.

    The one-size-fits-all I think is something that we need to work on. I think the electronic accounts would be one source that could help a great deal to help people use a debit card if they want to keep their money out of a financial institution.

    We oppose the mandates that say you have got to do these things—because one size doesn't fit all. It is too rigid. It is inflexible in that respect. And, obviously, what it does to the banking industry is create a larger regulatory burden.

    Mr. LAFALCE. Has the ABA ever called in its membership from New York and New Jersey and said tell us what you are doing under the New York law and the New Jersey law, how is it working? Are you doing things under that law that you wouldn't have been doing without the law? Are you taking a loss on it or are you actually making money on it? Have you ever done that?
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    Mr. KRIEGER. I am sorry. We will have to get back to you for the record on that.

    Mr. LAFALCE. I think that might be a good idea.

    Mr. KRIEGER. I do, too.

    Mr. LAFALCE. Mr. Bracewell, has your organization ever done that?

    Mr. BRACEWELL. I am not aware personally.

    Mr. LAFALCE. It might be a good idea, too. I guess maybe the first thing we have to do is educate ourselves.

    Dr. Mierzwinski.

    Mr. MIERZWINSKI. Not yet.

    Mr. LAFALCE. You have a law degree? You don't. That justifies me calling you doctor. Let's go to that New Jersey and New York law, and we have got about a million accounts in New York under that basic banking law there. We have got almost a million in New Jersey, I think, too. Do you think those accounts would have existed without that law?

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    Mr. MIERZWINSKI. I think those laws are instrumental in the large numbers of consumers who have taken advantage of those accounts. Our studies have shown that about 16 percent of banks across the country—and I haven't broken it out in New York and New Jersey, but about 16 percent across the country offer totally free checking to any consumer. Those two States offer the broadest banking accounts.

    The bank associations contend that no frills accounts, by definition, equal basic banking accounts; and I would respectfully disagree that some of the no frills accounts happen to be very similar to these accounts. But in many other States you might have a no-frills account that is much more limited, higher priced, $5 or $6, $7 a month for a limited number of checks, rather than $3 a month, $1 per check if you go over the limit. I wouldn't characterize any account like that as being within our broad definition of basic banking. So I would contend that New York and New Jersey are well ahead of the curve in other places.

    Mr. LAFALCE. Well, it might be interesting if somebody did a study of that—the Federal Reserve Board, Comptroller of the Currency, the FDIC, the GAO, or the Committee on Banking or the ABA or independent bankers. But I think it is an issue that certainly, if we can address first-off this Congress, fine, but I think we are going to have to do more the next Congress. I thank the Chair.

    Chairman LEACH. Mr. Ose.

    Mr. OSE. Thank you, Mr. Chairman.

    One of you, I don't recall which, referred to the umbrellabank.com. Was that you? The question I have is in terms of correlating the number of folks in our target audience below or 200 percent of poverty income; how many of them have the facilities to interact with umbrellabank.com?
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    Mr. STEGMAN. I would say more, generally. One of our largest concerns in the low- and moderate-income communities across the country is assuring access to the new banking technology, whether it be the ATMs or online banking. What is interesting about umbrellabank.com is simply that it is targeting assisted housing and working in partnership with suppliers of computers and technicians to set up banking centers, essentially, in ways in which——

    Mr. OSE. But you end up with a kiosk in a housing facility, for instance?

    Mr. STEGMAN. Well, I mean, there is just no question that we have that technology to do today. This, I think, is going to be more online banking through computers that are in the computer learning centers in this assisted housing. I was at HUD, as I mentioned, for the first four years of the Clinton Administration. There are now 600 or 700 what are called ''neighborhood network centers'' in HUD assisted housing across the country. These are economic development tools. These are communications tools. They now must become banking tools and resources to these populations.

    Mr. OSE. Are these the 14 sites? Are they interested in the 14 sites?

    Mr. STEGMAN. No. The 14 sites I talked about are a national savings demonstration program, not related to the computer resource centers that I am talking about.
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    Mr. OSE. OK.

    Mr. STEGMAN. There is just a lot going on there that today can be connected to our need to bring more people into the financial mainstream.

    Mr. OSE. Mr. Mierzwinski, the question you posed, you brought up credit unions, small banks and big banks in terms of, if you will, a hierarchy of fees. And I am a little bit curious from a comparative sense. Can you give us some feedback on the fees that are charged at the credit unions versus local fees charged at local banks versus fees charged at big banks?

    Mr. MIERZWINSKI. In our studies we have attempted to create what we call a ''bank fee index,'' Congressman, and we have generally found that we rank the top 300 banks which hold nearly two-thirds of the assets as big banks, the other 8,000-and-some banks as small banks, and then credit unions. And when you take the service fees on accounts, we have found that big banks have about 15 percent higher service fees than small banks, and then credit unions are substantially lower than the small banks. It might cost over $200 a year at a big bank, if you can't afford to meet minimum balance requirements, to have a regular checking account; at a small bank, something like $200 a year; and then at a credit union, about $100 a year. The important caveat being that the balances to avoid fees also decline, so fewer consumers actually pay fees at a credit union, because more consumers find it easy to meet the balance minimums.

    Mr. OSE. So the small banks, or the local banks, might have a threshold of X, big banks X plus 15 percent, and credit unions, .5X is what you are indicating?
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    Mr. MIERZWINSKI. About right, yes.

    Mr. OSE. I want to go on to the fellows who are actually in the banking business. I have heard a lot of testimony this morning about the banks can afford this or the banks can afford that. I am a little curious; you guys being in the business, can you provide us some feedback? I still have the $3 lifeline number and various other things. Do those reflect your costs? Are you making or losing money on these accounts from a cost basis?

    Mr. BRACEWELL. Well, I think they are fair—they cover our costs. We are not extending—I mean, an individual account may be a loss, but I think what Congressman LaFalce said earlier about those New York accounts, for example, he gave some statistics in the aggregate that would have averaged I think about $1,200 per account or something. So that would be a profitable account, even though within the group there may be some that are unprofitable. That is sort of the nature of the business, I think.

    Mr. OSE. Mr. Krieger.

    Mr. KRIEGER. As I said, our bank has a no-cost checking account. There is no minimum balance. There is no limit on the number of transactions you can make, either electronic or checking. You have use of an ATM card. You have use of a debit card. We found this is very popular. I called one of my friends up in New Hampton, Iowa, John Rigger, the other day and asked him about this, and he said, ''We have had the no-charge account for a year.'' So it is not unusual to find this in the State of Iowa, that many of the banks have a no-frills, no-charge account. They have unique statements that they receive. We keep the checks in-house. They get a statement every month. We find that is a good way to take care of people.
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    And in the business we are in today, as someone else mentioned, you can't fund loans without deposits. We are looking for depositors. We are working as hard as we can to get them in the bank, and this is one way we think we can get more people to bank with us. Education, I think, is a key to letting those people know there are ways to bank at no cost if they wish to take advantage of it.

    Mr. OSE. My time is up, Mr. Chairman.

    Chairman LEACH. Thank you, Doug.

    Mr. Watt.

    Mr. WATT. Mr. Chairman, I think I will pass and let other Members who have been here.

    Chairman LEACH. Mr. Bentsen.

    Mr. BENTSEN. Thank you, Mr. Chairman.

    I think, Mr. Mierzwinski, I think that you are right; that we shouldn't lose scope or lose sight of the scope of this issue. It is not just the unbanked. You called them underbanked. I might call them overbanked in some cases. I can still remember prior to coming to Congress, I worked in a bank building, and you would go down in the lobby on Friday afternoons—and I won't mention the bank—but all the pressmen from the one remaining newspaper in Houston were across the street. They would come over and be cashing their checks. And what we are seeing is an increasing amount of charges for people who are living in a completely cash society, but it seems to me also that the cash-based society, that we are moving away from the cash-based society.
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    And my question would be, particularly to Dr. Stegman, to what extent do you think this group, particularly the unbanked group, is going to be forced into some sort of banking product at some point, because the cash-based society is contracting so quickly?

    You know, we look at changes in technology in Third World countries and we say there are some Third World countries that are going to make a leap from an LDC to some form of an industrialized country. They are not going to put up telephone wires. Everything is going to go cellular or whatever. Is this going to happen in the banking world as well, where people have to use smart cards, where they have to use certain types of a bank type of product in order to conduct most types of transactions? I mean, obviously there will still be a very small segment in certain areas, but take for instance, you can't rent a car in this country, I don't think, unless you have a credit card. And I think the people we are particularly concerned about, and Mr. Mierzwinski is concerned about, I am concerned about, Mr. LaFalce, are the working poor. Are we going to get there at some point and are we going to be pushed there in part by the fact that banks, for whatever reason, thrifts and others, are going to push, because they are going to try and cover their costs on cash checking and, as consumers are better educated, which I think is terribly important, they will understand that there is price discrepancy in other forms of banking through check cashing operations, through day loans and the like?

    Mr. STEGMAN. I think there are enormous pressures to use the technology that you are talking about. Employers are looking to reduce the cost of payroll by encouraging direct deposit, and they can't require direct deposit if their workers don't have a bank account. And so there are products and there are systems in place today to provide essentially debit cards, which are payroll cards.
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    And the challenge for us, it seems to me, for those of us in the policy community, those of us who are focusing on this problem, is to make sure that the systems that are put in place don't merely serve the interests of the employers, but really in the process provide full access to the employees of affordable financial service, not just their ability to access what was a paycheck from an ATM for an additional fee that they never had to pay before.

    And there are really benign and very helpful systems out there, and there are more narrowly defined systems that essentially pass the cost of the payroll process from the employer to the employee, but there is no question that the availability of cost-saving technology is not only driving a good part of the future of the financial services sector but, obviously, the world of commerce, and that means more people being able to access it.

    So I just might say in the Third World, the largest electronic banking system for very low-income people, a large fraction of whom are illiterate, is in South Africa. The Standard Bank of South Africa has something called Autobank E accounts that has 2.6 million low-income savers using automated kiosks, translating into nine languages and dialects. It can be done, and technology is there. I think we are going to see it kind of slowly infiltrating throughout our country.

    Mr. BENTSEN. If I might just add, and Mr. Mierzwinski wants to make a comment, there is always going to be some cost. There is a cost right now if you just go and cash your check. There are very few—I assume there are very few employers who pay their employees in cash. Now there may still be some. I can remember when I was in college, as a carpenter I had an employer who paid everybody in cash. He bought a case of beer, paid everybody cash and then played poker, and then you decided whether you got out with your money. But that was some time ago. And in most cases, there are very few that pay in cash.
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    But if don't have a bank account, you have to go to the bank, you have to pay a certain fee to cash a check there. You go to a check cashing operation, you probably have to pay a larger fee to do that. So it would seem to me that there is a more efficient way of doing this.

    Let me just add to this, from your experience at HUD—and Mr. Mierzwinski may want to comment on this also, and it may appear to be too paternalistic—would it be make sense, and you talked about this umbrellabank.com or whatever, would it make sense to go beyond EFT '99 and say everybody who is receiving some form of housing subsidy through HUD, Section 8, a voucher or whatever, that they are required to have some form of a bank account, just as we have done with other types of Federal transfers?

    Mr. STEGMAN. I think as part of welfare reform it is awfully important to build in financial education and to help people open up a bank account as they move to work. Mandating an account for a low-income person without really dealing with the larger context of these hearings kind of troubles me, because I really don't know if the convenience factors, the need factors, and the price feature kind of tradeoffs will meet the needs of the people; but there is no question that preparation and financial education really have to be a part of all of these programs. And you know, it is funny, at HUD we spend a great deal of time with home ownership counseling. The logic of home ownership counseling is compelling, because the people have a goal and a target. What is much more difficult is to really figure out the delivery system for financial education when people are not in crisis. We have crisis counseling to get people off the brink of bankruptcy, but building in financial education and literacy is part of our community development kind of policies and welfare reform and all those kinds of things, this is really the challenge that we have.
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    Mr. MIERZWINSKI. Just very briefly, Mr. Bentsen, I would say that moving toward these electronic delivery of benefits, one of the things we are encouraged by, as I pointed out in my testimony, is that the First Accounts program and the ETA program avoid bounced check fees, at least we hope they will avoid bounced check fees. Now, some banks charge consumers a fee, if they try to access their ATM fee card and don't have any money in their account, as if it was a bounced check. But what discourages us, and a lot of consumer groups opposed a lot of the provisions of EFT '99 and the ETA accounts, is that they limited consumer protections under the law.

    So as we move toward banks saving a lot of money moving into electronic transactions for the delivery of services, we just need to make sure that we maintain an adequate level of consumer protection so that consumers are happy with the product. And that applies, by the way, also to the internet and electronic commerce.

    Mr. BENTSEN. If I understand, Mr. Chairman, my time is up, but it is important to note that the State of Texas and other States went to electronic transfer for food stamps and other types of welfare benefits to combat fraud. There might be a corollary to doing that for checking account purposes on the upside or to the benefit of the recipient.

    Chairman LEACH. Well, thanks very much. And Professor Stegman, Mr. LaFalce and I would be appreciative of any information that you might have the documentation for on the South African experience. Is there an article on that that you can send the committee?

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    Mr. STEGMAN. Yes, there are a number of papers on that I will be glad to submit for the record.

    Chairman LEACH. Yes. Then I am turning, of course, to Ms. Schakowsky.

    Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

    Thank you, panel. I am co-sponsor of all the basic banking, lifeline banking bills, and a sponsor of Financial Services Consumer Bill of Rights, and it is hard for me to understand if we agree here that access to financial services is in the national interest gateway to economic mobility, as Secretary Gensler testified, that it is critical to the mainstream economies as well as to bridging the digital divide, all of those things, that I guess I would just wonder why it is that we are having such a hard time talking about voluntary programs that provide an incentive for financial institutions to participate, and that it is so obvious to me that we need to be moving in this direction.

    Secretary Gensler also talked about and indicated that there is clearly money to be made from lower-income consumers. I come from Chicago where there are currency exchanges just dotting all of our not just low-income, but middle-income communities as well, where people can pay—the survey that was done of people who get the earned income tax credit—up to $18 per month. If you think about it, that is nearly a half a day's work if you are a minimum wage worker, to pay for the check cashing services. Payday loan stores are there because they are making money from those consumers.

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    So why it is that we are having such a hard time mainstreaming those people into our financial institutions makes me wonder if we are seriously marketing—I understand what is available at banks, but we do need to do better education—we, not just the Government sector, but the private sector—in marketing to those individuals who clearly have a contribution to make to your bottom line profits, unless you would dispute that.

    But if we are modeling this program on this ETA program, what I have been told is the electronic transfers account, which also provides an incentive, that there are only 2,500 accounts opened, and that 80 percent of those are by two Puerto Rican banks. If this is the model we are using, why hasn't it been more successful and why might this be more successful?

    One other comment. I was confused a bit, Mr. Krieger, by your referring to this program as somehow imposing regulatory burden. I am looking for that and I don't really find regulatory burden. You did use that phrase in regard to this. So I would be interested in your comment on that, and what will make this more attractive to the ETA accounts, and why aren't they more attractive.

    Mr. KRIEGER. I was thinking more in the terms of mandates. The ETA account pays each bank $12.60 to open an account, and they can charge $3 a month if I recall. Each time, in my experience in banking in forty years, that we have put something in place such as First Accounts, associated with that are certain rules and regulations that are very inflexible, and those rules and regulations will need to be looked at by every regulatory agency. And we have four of them that come into our banks, each time they come in, to make sure we are providing the services that they say we should and that we are following the rules and regulation.

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    That is what I'm talking about when I say a regulatory burden. It takes people in our organization, as well as regulators, to make sure that if there are rules and regulations to be followed, that we do follow them. And I assure you in our banks we do follow the rules and regulations as mandated by this Congress.

    Ms. SCHAKOWSKY. Can anybody explain to me, is this incentive enough in the First Accounts? Will anybody do it? How come they are not doing the ETA accounts? Anybody?

    Mr. KRIEGER. The reason we are not doing it is because we have an account that takes care of these people. They don't need an ETA account.

    Ms. SCHAKOWSKY. Well, since you are speaking today, I thought, for the American Bankers Association, 16 percent of the banks I guess offer these low—you know, these basic banking accounts.

    Mr. KRIEGER. Basic banking?

    Ms. SCHAKOWSKY. Well, I mean the no service fees. What is the 16 percent.

    Mr. MIERZWINSKI. I am sorry, Congresswoman. Our studies find 16 percent offer totally free checking, and the banks have different numbers as to how many offer their view of basic banking at much higher than our view.

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    Mr. KRIEGER. I believe the gentleman to my left said his was $4.

    Mr. BRACEWELL. At our bank we have $4 a month for 10 checks.

    Ms. SCHAKOWSKY. I guess what I'm saying is that the majority of the institutions don't offer this.

    Mr. KRIEGER. I don't have those numbers. I am just saying that in the State of Iowa, 93 percent of the banks offer free checking in one form or another to the consumer.

    Mr. BRACEWELL. We did a survey that I referred to in my testimony that was done hastily—I wouldn't say it was statistically sound by any means—but of 200 of what we call our leadership bankers who serve on committees and offices and that, and got 50 responses back. And all of them offer some form, it is not always totally free, but some form of basic banking that is tailored to low balance customers.

    Ms. SCHAKOWSKY. Does anybody have any explanation on why there would be so few, then, ETA accounts?

    Mr. MIERZWINSKI. Congresswoman, if I could, from our perspective again, advocates were very concerned that the ETA account is a very restricted account, and my understanding of it is that for your $3 a month you get up to four transactions, and then after that you will pay fees per transaction. So it is a limit account for the consumers even for accounts that offer the product. I don't know why more banks are not offering the product. I am surprised that only 500 are doing it when the Government is offering them a subsidy to provide these very small restricted accounts. I am surprised.
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    Mr. LAFALCE. Five hundred accounts outside of Puerto Rico.


    Ms. SCHAKOWSKY. So what about this offering, the First Accounts, would make it more attractive and more popular?

    Mr. STEGMAN. Congresswoman, I don't know if I can clarify this at all, but as I read the First Accounts legislation, it is not legislation designed to prescribe a one-size-fits-all account for the non-Federal check recipients. The ETA account is very restrictive. It generally does not pay interest; it does not accept savings deposits; it does not provide opportunities for electronic bill paying; and many banks offer more attractive accounts at more attractive prices. All of those features that could be more attractive to consumers are not included because of the pressure to keep account fees at not more than $3 per month. Ultimately, the consensus-building process overseen by Treasury created a low-cost electronic account that receives Government benefits by direct deposit, but provides few other financial services.

    It seems to me that First Accounts—and we might learn something from that process—that the First Accounts initiative really seeks not to create a kind of a one-size-fits-all account for the rest of the non-banked, but to begin to move the market and stimulate the market to create a variety of First Accounts, if you will, using the most advanced technology and trying to attract as many customers as you can, through the market process. And it seems to me it is an extension, but it is a much more broadly based initiative than is the narrowly defined ETA account.
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    Ms. SCHAKOWSKY. Thank you.

    My time is up, but let me just conclude with a measure of disappointment and some impatience, that I think Mr. LaFalce to some extent said that. I am a new Member of Congress and I have spent now almost a year-and-a-half where almost every single piece of legislation we have passed out of this committee has the perspective of ''how is this going to help financial institutions?'' That is my view anyway—with precious little emphasis on ''what are we going to do for consumers?'' And it seems to me that we do need to change our priorities some. Thank you.

    Chairman LEACH. First, Mr. Watt.

    Mr. WATT. Thank you, Mr. Chairman.

    I just wanted to ask Mr. Krieger and Mr. Bracewell one question. In his prepared comments, Mr. Mierzwinski makes a recommendation in which he said Congress should require that all banks that receive Federal deposit insurance be required to offer low-cost basic checking and savings account based on the New York and New Jersey models. Ideally, the number of transactions should be increased to 12 per month at tellers, electronic transactions, or checks. Dropping the ''ideally'' part, the 12 transactions, and just dealing with the first part of that, would the Independent Community Bankers of America, Mr. Bracewell, and would the American Bankers Association, Mr. Krieger, be supportive of that recommendation or would they oppose it? And, if so, why?

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    Mr. KRIEGER. I think again it comes back to the fact that a mandate is a one-size-fits-all situation. Second, we do provide free checking accounts to our people, free use of ATMs with no charges, whether it is a foreign ATM or our own ATMs. Essentially we are already doing that for our customers.

    Mr. WATT. When you say ''our,'' are you saying all members of the American Banking Association, or are you just saying your bank?

    Mr. KRIEGER. I am saying our bank. I am also saying in the dealings I have with the Community Bankers Council, which represents banks from 50 States, that we find that a majority of them, in talking with them, either have or are putting into place free checking accounts.

    Mr. LAFALCE. Does that mean a minority, perhaps 49 percent do not?

    Mr. KRIEGER. I don't have the numbers, sir. If I had them I would give them to you. We can certainly get that if you would like. In fact, I asked them to take a survey at the Community Bankers Council and let us find out what they are doing in that respect. We will be glad to share that with you.

    Mr. WATT. Apparently Mr. Mierzwinski has some different figures. I assume he has some different figures. My experience is that not all banks are doing that. I guess that is why I was asking the question. Is this something you all oppose, or is it something you support?
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    Mr. BRACEWELL. Well, I will take a turn, I guess, and say that we would oppose it simply because it adds to a set of requirements. And I think, as Mr. Krieger said, this is something that we feel that most of our members or at least enough banks are doing to provide access to these types of accounts. I think that it is just—if I could comment a little on some of the other points that sort of weave into this, it seems that there has been evidence that the number of unbanked households has been declining. So the trend line is right. There have been a lot of suggestions about trying to identify specific reasons why people are unbanked, which I think makes a great deal of sense, and we would support that as well as the education that goes with it.

    I really haven't heard from the other panelists at the other end of the table a lot of evidence that the absence of low cost or free or whatever—maybe all banks don't offer them. But as I said, we did a survey and it was very quick, we got 50 responses back. Every single one said they offer some type of account that I think would meet most people's definition of a basic banking account.

    So is that the right approach? Is that really the legislation that is needed, or should we really be focusing on what is more along the lines of what Professor Stegman was saying, I think, to really research why it is that people aren't accessing the system and develop some innovative solutions that banks would probably voluntarily partake of?

    Mr. WATT. Maybe I should be asking the other question. Do you oppose or support this legislation? Because as I understand, this particular legislation would be a voluntary system and would provide education and would provide possibly the wherewithal, the financial wherewithal to determine why people are being unbanked. Is this something you support, or is it something you all oppose?
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    Mr. BRACEWELL. The thrust of it we support. The concerns we have with it really are the camel's nose under the tent argument, I guess, that through the beginnings of incentives, those could creep into becoming mandates over a period of time, and the broad powers given to the Treasury to basically—without the additional congressional involvement—if it chose to do so, to begin moving more in the direction. So those are our concerns. It is not so much with the first step, but what might follow along later in adding to the regulatory burden that was discussed earlier.

    Mr. WATT. Thank you, Mr. Chairman.

    Chairman LEACH. Thank you.

    Mr. LaFalce.

    Mr. LAFALCE. Mr. Bracewell, Mr. Krieger, you both point out that this survey was taken and that survey was taken of your banks, and of those who responded, virtually all were offering what you might define as a basic banking, however that is defined. One of the difficulties is sort of like asking banks, ''I want to find out if you are a good bank or a bad bank''; and if maybe 50 percent respond, do you think they are more likely to be the ones that know that they have got good responses, and do you think the 50 percent that don't respond might not be responding because they know they can't give a good response? I am just wondering what percentage of those surveyed responded in this most recent survey, Mr. Bracewell.

    Mr. BRACEWELL. This survey, as I think I mentioned earlier, was sent to 200 of our what we call leadership bankers, people that serve on committees and so forth. It was just a fax survey, because we had a relatively short period of time to prepare. We got 50 responses so we got a 25 percent response. I would not contend that it was a statistically defensible survey, but we tried to gather some information to speak intelligently at the hearing.
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    Mr. LAFALCE. It is the same way as the survey that I cited of the national banks in New York. I said 41 out of 43 that responded, you know, do provide basic banking, but there were 68 in toto. So the first question in my mind—well, 43 from 68, you know, what about them? Whenever you are dealing with a survey, you have to do a little bit of analysis before jumping to conclusions.

    A couple of things. Earlier I had asked a representative from the comptroller's office to comment on why it was so long from 1995 to the present, and we still don't have a response to the petition from the State of New Jersey with respect to a reconsideration. I should underscore that I want that response to make specific reference to the Riegel-Neal law of 1994, which attempted, in my judgment, and I am sure in the judgment of Congressman Neal, to redress the advisory opinion of the Comptroller of Currency. And since the representative of the Comptroller's office that is present here today was on the staff of Mr. Neal at the time, he can understand the importance that we would attach to that.

    Dr. Stegman, there are a lot of ways to skin a cat, and you are especially interested in sentence methodology, in educational, and so forth. In your written testimony you talked about changing the evaluative method that is used in the application of the CRA test from one that double-weights lending to one that might give equal weight to lending and the provision of services in determining whether or not a bank is providing satisfactory or outstanding service to a community. Could you expand upon—you didn't mention this, to my recollection, in your oral testimony and I think it is worthy of pursuit.

    Mr. STEGMAN. Thank you. I didn't mention it because I had five minutes or so to present, and I was watching the clock so I cut off. Mr. LaFalce, I think that, you know, as we look to the future, the provision of affordable financial services is so critical to becoming part of the 21st century economy that we really ought to be doing everything that we can to make sure that we achieve as much financial inclusion as possible.
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    As I was reviewing and have been part of the community reinvestment community for thirty-five years because of the work I do, I mean it struck me that while I understood and appreciated the double weight under the CRA performance test given to community development lending, given the history of the development of CRA around trying to correct mortgage redlining and so on, that perhaps we have reached a point today where we should really give equal weight and support under the community development services test to the provision of affordable financial services. And that test does include retail delivery and the quality of the retail delivery that banks are providing to low- and moderate-income persons and in low- and moderate-income communities.

    So it struck me that this was another incentive, if you will, a way in which regulated financial institutions could achieve excellence, outstanding scores on the CRA evaluations, by increasing their attention to the provision of retail services.

    I also thought it would be very important with respect to encouraging financial institutions to sponsor savings initiatives and asset building programs that I think are critical components of what EFT '99 and First Accounts is all about.

    Mr. LAFALCE. Let me ask you this. Have you prepared or could you prepare some score card that could be used by a regulator in evaluating the CRA compliance, that could be used in evaluating the service component? Have you prepared anything or could you easily——

    Mr. STEGMAN. No, I have not. No. I mean this is not a simple matter, and in fact—I mean, the regulators have to deal with this today in their assigning grades. I mean, my recommendation is to increase the weight. So the first thing I would do is to look to see how the regulators are doing it.
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    Mr. LAFALCE. Increasing the weight is one thing that I think should be considered very seriously, but in determining the score they get, what is the score card that you use? What are the questions that you ask? We have to make sure that we have some good questions before they are given a score and then a weight.

    Mr. STEGMAN. Sure. I don't think there is any question about it. As a matter of fact, I think one of the largest challenges that we have to face as we look to the future in CRA is how to deal with this new world of technology and how we are going to factor into——

    Mr. LAFALCE. I think you have hit upon a very important issue and I would like you to pursue it further with me, and I know my time is up. Let me just conclude by saying this. Earlier I had made a number of suggestions that the Treasury get together with New York and New Jersey. I had suggested that ABA and the Independent Bankers do the same.

    Now, with respect to the nature of the problem of unbanked, we have some studies that have been done by PIRG and others. We have some surveys that have been conducted by ABA and the Independent Bankers. May I suggest that, Mr. Mierzwinski, you and one or two others of your choosing get together with Mr. Krieger and Mr. Bracewell or their representatives, where you can look at each other's studies or surveys and give constructive critiques and perhaps come to joint judgment with respect to the nature and extent of the problem; and if not, then explain what your methodologies are and where you might differ. I think that could be helpful. You concur?

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    Mr. BRACEWELL. Be happy to.

    Mr. MIERZWINSKI. Sure.

    Mr. LAFALCE. Go ye, therefore.

    Thank you, Mr. Chairman.

    Chairman LEACH. Thank you, John.

    First, before concluding, I would like to ask unanimous consent to put in the record statements from America's Community Bankers as well as the Financial Services Centers of America and, without objection, that will occur.

    Let me just conclude, because there is another nose under the tent in a very positive way. I want to mention to Mr. Krieger and Mr. Bracewell in particular, I think this issue of financial illiteracy is a huge national issue, and my best guess is that by using the institutions of American society, whether it be some institutions that spring from, say, the community actions agency direction or others springing from the direction of financial institutions might in combination provide a lot of leveraging that might occur. And so if this bill is passed, I wouldn't doubt at all that if you take the American Bankers Association, Community Bankers Associations, that you might not want to work with the Treasury and maybe even a grant seeking agency in this direction. I suspect that more can be done from the institution's associations than probably any direction I can think of.

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    And so as this movement goes forward, if it does, I think it might be something that, if you talk the camel's nose under the tent, it is possible the associations might want to look at this from the perspective of working with the Treasury to see if there is something they can help the Treasury with and vice versa.

    In addition, I am very impressed that the University of North Carolina has the center it does. I don't think that is a center of a type that most universities have. If either from your center's perspective, from PIRG's perspective, if you have advice to the committee on how you think approaches to the financial literacy issue might be addressed by the Congress in general, I would be personally very appreciative of receiving whatever advice outside the scope of this hearing that you think might be helpful, and I think from the association's point of view you might want to think this through, too.

    Mr. WATT. Would the gentleman yield?

    Chairman LEACH. Of course, Mr. Watt.

    Mr. WATT. I just want to remind him that a lot of good things come out of North Carolina.

    Chairman LEACH. We realize that, and in fact, I think if there is any symbolic State of the last decade in making extraordinary changes in American society, it may be North Carolina. And I am a great admirer of your State, as I am of its elected representatives.

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    Anyway, I would be appreciative if all of you want to think through this financial literacy issue in ways that go beyond this particular bill, which is, after all, a fairly modest bill, and I want to thank all of you for your thoughtful contributions to the hearing today.

    The hearing is adjourned.

    [Whereupon, at 12:25 p.m., the hearing was adjourned.]