Serving the Underserved: Initiatives to Broaden Access to the Financial Mainstream

SPEAKERS       CONTENTS       INSERTS

 Page 1       TOP OF DOC

SERVING THE UNDERSERVED: INITIATIVES
TO BROADEN ACCESS TO THE FINANCIAL
MAINSTREAM

Thursday, June 26, 2003
U.S. House of Representatives,
Subcommittee on Financial Institutions,
And Consumer Credit
Committee on Financial Services,
Washington, D.C.
    The subcommittee met, pursuant to call, at 10:05 a.m., in Room 2128, Rayburn House Office Building, Hon. Spencer Bachus [Chairman of the subcommittee] presiding.
    Present: Representatives Bachus, Gillmor, Hensarling, Barrett, Maloney, Sherman, Waters, Velazquez, Hinojosa, Lucas of Kentucky and Davis. Also present were Representatives Baca and Scott.
    Chairman BACHUS. [Presiding.] Good morning. The subcommittee will come to order.
    Today, we are holding a hearing entitled Serving the Underserved: Initiatives to Broaden Access to the Financial Mainstream. This hearing was requested by Mr. Hinojosa to address issues relating to the un-banked, including the use of international remittances and the acceptance of Consular identification cards. I applaud him for requesting this hearing. I think it is going to be an exciting hearing, a hearing that has tremendous potential to improve both citizens' abilities to benefit from financial prosperity from the banking system and also be of great benefit to our economy when all our citizens are given the opportunity to contribute.

 Page 2       PREV PAGE       TOP OF DOC

    The witnesses on the first panel will include Mr. Wayne Abernathy from the Treasury Department, and Mr. Dennis Dollar.
    Our second panel is going to be made up of representatives from some of our minority-owned banks, representatives from the academic world. Those witnesses, as well as our witnesses from the first panel, will talk about innovative ways that we are now attracting the un-banked. There are as many as 10 million households or 60 million Americans who for one reason or another do not avail themselves of banking services. When they either do not have an opportunity to use Federal Deposit Insurance institutions or because of suspicions that they may have, choose not to avail themselves of these institutions, we find that they are prejudiced and handicapped financially. They normally end up paying more for remittances, check cashing privileges, than they would if they chose to avail themselves of a credit union or a bank.
    We also find the importance of educational programs, of financial literacy programs. When citizens avail themselves of those and banking services, we find that financially they are better able to manage their finances. It is an indication of their ability to keep and retain property, wealth, homeownership. So oftentimes, becoming associated with a Federally Deposited Insurance financial institution leads to more success on their part.
    One debate that is going on in the Congress today does involve the use of Matricula Consular cards. There is a bill before the Congress to actually prohibit a federally insured institution from accepting those cards as identification. There is another bill before the Congress by Mr. Hinojosa which would on the other hand require federally insured deposit institutions to accept those cards. Mr. Abernathy will testify, and I agree with his approach to it, that we should basically allow each financial institution to determine what they believe is proper identification, and neither prohibit nor require certain forms of identification. Several of our banks—we are going to have a witness from Bank of America—but several of our large banks have very much increased their services and outreach to the un-banked. We are going to hear some of those success stories.

 Page 3       PREV PAGE       TOP OF DOC

    Furthermore, we have several government initiatives. The FDIC MoneySmart program, the Federal Reserve has just announced an initiative. The National Credit Union Administration, we will hear from Administrator Dollar about Access Across America. The Treasury First Accounts program—we will hear about those from Under Secretary Abernathy.
    I think there are a lot of great things happening. There are some very aggressive campaigns underway by both the government and by large banks, and by minority-owned banks. We are going to hear from minority-owned banks, many of whom have several programs and offer tellers who speak the language of the people seeking the service. That is a big help.
    I think my time has about expired, but I do want to commend Bank of America, Wells Fargo and Citigroup, three of our largest institutions, for their increase in making remittance services available to the un-banked.
    At this time, I am going to recognize Mr. Hinojosa for an opening statement.
    [The prepared statement of Hon. Spencer Bachus can be found on page 50 in the appendix.]
    Mr. HINOJOSA. Thank you, Mr. Chairman.
    Chairman Bachus, thank you for your leadership as Chairman on this very important issue. I am grateful that you and my friend, Ranking Member Sanders, have agreed to hold this hearing today as a result of our colloquy on my amendment to H.R. 1375, the Financial Services Regulatory Relief Act of 2003, considered in the Financial Institutions Subcommittee on April 9, 2003. My amendment would have deemed Consular ID cards issued by the Embassy of Mexico, which refers to them as Matricula Consular cards as a valid form of identification under Section 326 of the USA PATRIOT Act.
    I appreciate Chairman Bachus's efforts and those of his staff and of the staff of Ranking Member Barney Frank in pulling together this hearing. This issue is extremely important to me, to my constituents, to all my state of Texas, and to the un-banked throughout the United States. Opening an account at a financial institution is often impossible for foreign nationals who lack the generally required two forms of identification. As a consequence, they are often forced to use expensive check cashing services to cash payroll checks and wire services to send money to relatives back home.

 Page 4       PREV PAGE       TOP OF DOC

    In addition, these same un-banked foreign nationals have had to carry large sums of cash, which has increasingly made them targets of crime. The Mexican government has attempted to resolve this problem by issuing their own Consular ID cards. I want to say that they have been doing this not for a year or two, but for close to 132 years. They have through the years gone through three stages of improving this identity card that I will be showing you later on during this presentation that is going to be made by our panelists. I want you to know that when I compared the present Consular card that Mexico is issuing with my own identification card that I carry for a driver's license, it is equal to, or superior to, the identification card that I use to identify myself wherever I bank or cash a check or conduct other financial services activities.
    I should stress again that these cards are over 130 years old and have been accepted in the United States for quite some time. In March 2002, the Mexican government significantly improved the ID card by adding several security features, including those that are invisible except when exposed to infrared light. Acceptance of the Consular ID card by local U.S. authorities and governments does not encourage illegal immigration. The Consular ID card serves as proof of Consular registration as established by the Vienna Consular Convention. Thus, the mere acceptance of this document as a means of identification does not constitute a violation of federal immigration laws because it is not intended to aid nor give foreign nationals in the United States the understanding that they can continue to reside without documents in the United States. Moreover, Mexican consulates clearly explain the nature of the documents to assure that Mexican nationals know that it does not regularize their immigration status.
    To address the un-banked issue, I introduced on February 13, 2003, H.R. 773, the ''21st Century Access to Banking Act.'' This legislation will make several key reforms to the USA PATRIOT Act of 2001, which was enacted to safeguard our U.S. banking system against terrorism. The key reforms include: (1), authorizing U.S. financial institutions to accept these Consular ID cards as valid identification for the purposes of opening an account; (2), bringing un-banked individuals into the U.S. banking system; and (3), allowing for more efficient regulation of currency in the United States.

 Page 5       PREV PAGE       TOP OF DOC

    My legislation will allow these hard-working families to enter the mainstream financial system, thus enabling them to open checking accounts, savings accounts, establish a credit history, and possibly even purchase a car or home. Although my legislation runs on a parallel track to Treasury's recently promulgated Section 326 regulations, it goes further. It requires institutions to accept these identification cards. Consequently, my legislation will help improve our sagging economy by enabling these struggling families to avoid being preyed upon by sometimes unscrupulous check cashers and payday lenders, and instead permit them to enter the mainstream financial system, thus infusing our banks, credit unions, and ultimately our economy with much-needed cash.
    Think about it. If individuals were denied use of the Consular ID card, foreign nationals would not be able to open accounts at U.S. financial institutions and send remittances to their loved ones abroad at significantly reduced cost. Funds transferred from foreign nationals in the United States to their families allows them to purchase goods imported from the United States, thus creating a rather desirable economic cycle.
    The recent increase in competition for remittances by Wells Fargo, Citibank, Bank of America, Texas State Bank, and the credit unions, particularly Security First Federal Credit Union represented here today by its CEO and my constituent Al Beltran, has helped reduce the cost of remittances these families send back to their loved ones. We should continue to encourage such activity. Furthermore, improving and encouraging the development of financial literacy programs can only help increase the living standards of these nationals and of Americans in general. As I always say, education is the foundation for economic development. This hearing is a step in that direction.
    There are numerous financial literacy programs out there: FDIC's MoneySmart for Adults, both in English and Spanish; NCEE's K through 12 Program; ACB's MoneyRules program; Fannie Mae's homeownership program in both English and Spanish; Freddie Mac's CreditSmart Espanol; the SIA's online Stock Market Game; ICI's Investing for Success; Operation HOPE's Banking on our Future, and others that are improving financial literacy for our entire population. I would especially like to commend the Independent Bankers Association of the state of Texas for encouraging the Texas state legislature to pass legislation requiring two semesters of financial literacy to graduate from high school.

 Page 6       PREV PAGE       TOP OF DOC

    Finally, Mr. Chairman, I would like to acknowledge all the hard work put into this hearing by Carter McDowell, Dina Ellis, Kevin Macmillan, Karen Lynch, and especially Jim Clinger of the majority staff, and special thanks also to Jaime Lizarraga and Jeanne Roslanowick of Ranking Member Frank's staff. As a result of all of their efforts, we have crafted a truly bipartisan hearing. I look forward to hearing the testimony of our witnesses.
    I yield back the balance of my time.
    [The prepared statement of Hon. Rubén Hinojosa can be found on page 56 in the appendix.]
    Chairman BACHUS. Thank you.
    Mr. Lucas?
    Mr. LUCAS OF KENTUCKY. In the interest of time, I will pass.
    Chairman BACHUS. Thank you.
    Mr. Scott, the gentleman from Georgia. I applaud your leadership on this issue and recognize you for an opening statement.
    Mr. SCOTT. Thank you so very much, Chairman Bachus. First, I want to congratulate and commend you for providing great leadership on this very important and timely issue of serving the underserved and getting forth the initiatives to broaden access to the financial mainstream hearing.
    I would like to also congratulate my friend, Ranking Member Sanders, for holding this hearing today as well.
    Yesterday, the annual survey of African American investors by Ariel Mutual Funds and Charles Schwab was released. It found that of black families with annual incomes of $50,000 or more, only 61 percent had money in the stock market, compared to 79 percent for white families. Many of these middle-class families were moving their money into their homes, but this must be a small group because from 1998 to 2002, African American homeownership rates only rose from 45.6 percent to 47.3 percent, compared with the national average increase from 66.3 percent to 67.9 percent. With interest rates at a historical low, I believe that we must push even harder to help increase minority homeownership rates, but we cannot even begin to encourage low-and middle-wage earners to invest in the stock market or consider a home mortgage if they do not have basic economic understanding of savings and credit.

 Page 7       PREV PAGE       TOP OF DOC

    I have worked, as you know Mr. Chairman from our discussions with you, to coordinate and improve homebuyer education to prevent predatory lending, and to increase investment and financial education and literacy. Our legislation, H.R. 1865, will help educate consumers about predatory lending by providing easy to locate counseling services. The legislation is based on our belief that consumers can best help themselves if they are armed with information and not confusing regulation.
    Specifically, H.R. 1865 would do the following. One, it would provide grants to states and nonprofit agencies for programs that educate consumers, especially low-income borrowers and senior citizens about lending laws, counseling programs for homeowners, and prospective homeowners regarding unscrupulous lending practices, and referral services for homeowners and prospective homeowners. Secondly, and which I think is one of the most creative features of our legislation, this bill will create a nationwide toll-free number to receive consumer complaints regarding predatory lending practices, provide information about unscrupulous lending practices, refer victims to consumer protection agencies or organizations, and create a database for information for consumers.
    Third, it will coordinate government agencies and nonprofit organizations that provide education, counseling to consumers who have been victims of predatory lending practices. And fourth, it will establish a predatory lending advisory council under the Department of Housing and Urban Development, comprised of community-based groups, homeowners, government officials, and the private industry. The council will advise the HUD Secretary and conduct a study on the root causes of default and foreclosure of home loans.
    I would like to ensure that all investor education programs are targeted in ways that reach the intended audiences and have a maximum impact. Many federal agencies, nonprofit groups and private sector firms have public investor education programs and plans. However, I believe that the unsophisticated consumer is not aware of these many overlapping programs. I believe that we can improve the delivery vehicle for many of these worthy programs, especially with the institution of our nationwide toll-free number.

 Page 8       PREV PAGE       TOP OF DOC

    I would like for this committee to determine if some of the financial literacy programs in federal agencies can be combined or streamlined to reduce overhead, reduce overlapping missions, and be easy to find in a one-stop shop that even the unsophisticated consumer can find help. I would also like for the committee to continue to review the standards of investor education curriculum and discuss the best ways to help much of the investors with these programs.
    I look forward to the hearing and the testimony from today's panel. And Mr. Chairman if I may on a personal note, I do understand that we have Mr. James Young with us, who is the CEO of Citizens Trust Bank from my home town of Atlanta. We are delighted to have him. He is one of the pioneering leaders in our community and providing excellent banking services. Glad to have you, James. Thank you very much for being here, my friend.
    Mr. Chairman, I thank you for giving me the opportunity to make this statement.
    [The prepared statement of Hon. David Scott can be found on page 59 in the appendix.]
    Chairman BACHUS. I appreciate your remarks, Mr. Scott.
    What the committee will now do is recess for votes on the floor. What we then intend to do with Mr. Hinojosa's consent is we will come back here probably about 11:45 a.m., as soon as we can return from the floor. Our first panel, which is two basically old friends to this committee, will offer their opening statements. And then my hope is that we will have probably about 30 minutes of questions by the members, so that we can try to get our second panel up by, say, noon, at least by noon, 11:45 a.m. or noon.
    Actually, I am going to resume as soon as we can. And I am hoping that in about 15 minutes we can do that. I keep getting indications to come back at 11:00 a.m., but I would just assume use all our time. So we are going to recess and we are going to come back as soon as the last vote. There are three votes on the floor, but the last vote is just about over. So we will come back. The others are 5-minute votes.

 Page 9       PREV PAGE       TOP OF DOC

    I am sorry. We will shoot for 10:45 a.m. or 10:50 a.m.
    [Recess.]
    Chairman BACHUS. Welcome back. I want to welcome everyone back.
    Our first panel is the Honorable Wayne Abernathy, Assistant Secretary for Financial Institutions, Department of the Treasury. Our second panelist is the Honorable Dennis Dollar, Chairman of the National Credit Union Administration. As I said before the break, you all have testified before our committee on many occasions. We have enjoyed your testimony in the past and look forward to your testimony here today.
    Secretary Abernathy, we will let you start the testimony.
STATEMENT OF HON. WAYNE ABERNATHY, ASSISTANT SECRETARY FOR FINANCIAL INSTITUTIONS, DEPARTMENT OF THE TREASURY
    Mr. ABERNATHY. Thank you, Mr. Chairman.
    It is a pleasure to be here, Mr. Chairman and members of the subcommittee. I appreciate the opportunity to appear before you this morning. The Treasury Department strongly believes that everyone should have the opportunity to establish a banking relationship with an insured depository institution. While most Americans already have the comfort of keeping their money in insured accounts, other Americans use financial services of a different sort. They cash checks at the neighborhood storefront and pay bills with cash or money orders. There may be a variety of reasons for this, but it is usually expensive, occasionally dangerous, and rarely the best option.
    Establishing a banking relationship is a key step toward building a promising financial future. Without a bank account, it is nearly impossible to establish a strong credit record, which in turn is necessary to qualify for a good car loan, home mortgage or small business loan at reasonable rates. A traditional banking relationship offers the account holder an opportunity to become familiar with the fundamental concepts that are critical in asset building. Bank accounts are tools to help families establish and fulfill their savings goals, and manage their money. Saving is the foundation for good financial management.

 Page 10       PREV PAGE       TOP OF DOC

    Greater use of mainstream banking services also aids in our country's fight against money laundering. As individuals move their money from informal financial services providers and rely more upon safer insured depository institutions, the funds are removed from paths more likely to be frequented by those engaged in illegal activity. The Treasury Department's most visible initiative to provide greater access to financial services is the First Accounts program. The 15 First Accounts pilot projects provide an opportunity for the Treasury to evaluate a variety of experiments intended to increase participation in mainstream financial institutions. Our next step is to evaluate the success of the funded projects and to understand which are most effective in achieving our goals.
    Let me also highlight some other initiatives that Treasury is working on related to this effort. A key function of the Office of Financial Education is to identify sound, effective financial education programs around the country and highlight their efforts. Many of the individuals who need these programs do not even know of their existence. The attention that the Treasury Department can bring will help connect individuals in need to good financial education projects. For instance, earlier this week Treasurer Rosario Marin was in Columbus, Ohio to recognize the Ohio Credit Union League's Latino Financial Literacy Program which has provided classes for more than 200 Hispanics in the Columbus area. The program incorporates many of the criteria that we have identified for effective programs, especially the inclusion of tools to measure results. Hopefully this program and many others like it will expand throughout Ohio.
    Another topic in this discussion is remittance activity. Many immigrants send remittances through a small number of alternative financial services providers. The limited competition has contributed to high costs, but this is changing. With our encouragement and support, more and more traditional financial institutions are recognizing that there is a positive opportunity to reach a diverse consumer base by offering low-cost remittance products. This can lay the foundation for new customers to save and build assets, establish a banking relationship, and acquire important tools of personal finance.

 Page 11       PREV PAGE       TOP OF DOC

    At the same time, the increased competition will result in lower remittance costs. We support these and other efforts to make remittances more affordable for the people who send them, most of whom are low-wage earners and for those who receive them, people who often are in very great need. We should encourage this outreach and do nothing to discourage it.
    Expanding access to financial services is a nonpartisan issue that contributes to improved financial well-being. Opening an account at an insured depository institution provides the accountholder with a number of benefits: the opportunity for wealth building; lower costs for financial services; security; knowledge of and familiarity with the fundamentals of personal finance; and the chance to build a credit history and qualify for credit on better terms. Because of these benefits, Treasury is committed to promoting policies that will encourage individuals to establish traditional account relationships with insured banks and credit unions.
    Thank you for the opportunity to appear before you today. I look forward to working with the subcommittee on these important issues in the future.
    [The prepared statement of Hon. Wayne Abernathy can be found on page 60 in the appendix.]
    Chairman BACHUS. Thank you, Assistant Secretary.
    At this time, we will hear from you, Chairman Dollar.
STATEMENT OF HON. DENNIS DOLLAR, CHAIRMAN, NATIONAL CREDIT UNION ADMINISTRATION
    Mr. DOLLAR. Thank you, Mr. Chairman and Ranking Member Sanders and members of the subcommittee.
    On behalf of the National Credit Union Administration, I truly appreciate the invitation to appear here today and I am extremely pleased to have this opportunity to be able to testify and discuss NCUA's role in facilitating credit unions's ability to meet the needs of millions of underserved Americans in their desire for financial self-sufficiency.

 Page 12       PREV PAGE       TOP OF DOC

    NCUA has initiated a number of successful efforts over the course of the years, and a number that we have streamlined in recent years designed to extend lower-cost financial services to more underserved individuals through member-owned, not-for-profit financial cooperatives. We want to see more of the un-banked be empowered to bank themselves through the self-help approach that member-owned credit unions can provide. We recognize that many residents of underserved neighborhoods find themselves in a vicious pawnshop payday lender cycle that can only be broken when they have access to the lower-cost and user-friendly alternatives provided by traditional financial institutions.
    The three initiatives I would like to briefly discuss here this morning in the little time that we have, and to offer as a results-oriented model of how NCUA's Access Across America program is making a difference in extending credit union services to the underserved, are our agency's Underserved Area Adoption program, our agency's interagency and credit union partnerships, and the Community Development Revolving Loan Fund.
    Very briefly, I would like to discus Access Across America. This is an NCUA initiative that is designed to facilitate the extension of lower-cost credit union services to underserved communities and create opportunities for economic empowerment for people from all walks of life. As of the year 2002, there were over 90 million Americans living in census tracts designated by the U.S. Treasury Department's Community Development Financial Institutions program, the CDFI program, as investment areas. These criteria are based upon income and economic criteria which certainly warrant the distinction as being underserved areas. In many of these instances, the residents of these underserved areas often find themselves largely at the mercy of higher-cost outlets such as pawnshops, check-cashing stores, rent-to-own companies in the absence of an affordable financial alternative.
    Mr. Chairman, without sacrificing safety and soundness, without lowering oversight standards, in fact without changing a single existing regulation, NCUA made the decision that we could further the goals of Access Across America by streamlining where appropriate, without sacrificing the integrity of our regulations, the process for credit unions to adopt underserved areas into their field of membership, an option that has been allowed to federal credit unions by regulation since 1994 and statutorily was incorporated by Congress into the Credit Union Membership Access Act of 1998.

 Page 13       PREV PAGE       TOP OF DOC

    The removal of unnecessary regulatory impediments has resulted in the unbridling of innovation in service to underserved areas at what had become record levels. It has certainly served to put the ''access'' into our Access Across America initiative. Some numbers briefly, to help make this point. In 1999, under the same field of membership rules and statutes regarding underserved areas that we have today, there were seven federal credit unions that adopted CDFI-designated investment areas into their field of membership. There were approximately 235,000 people who lived in those underserved areas that became eligible for credit union membership.
    In 2001, just two years later, with the procedural enhancements incorporated under the umbrella of NCUA's Access Across America initiative, there were a total of 164 federal credit unions that adopted 281 CDFI-designated investment areas. Some adopted more than one. The result was a record-setting 16.1 million Americans living in these underserved neighborhoods that at the end of the year had access to the lower-cost financial services of a credit union that had not had such access at the beginning of the year.
    In 2002, thinking we could never see the record-setting numbers of 2001 duplicated, we were pleased to see that applications were approved of 223 federal credit unions adopting 424 underserved neighborhoods, totaling over 23.5 million residents. That is a 45.9 percent increase over 2001 and a total increase 100 times greater than the results just 3 years before had been in 1999.
    But we have not just stopped with encouraging and facilitating the adopting of underserved areas. We have tracked the results from this adoption program so that we can verify and monitor that his local and lower-cost financing alternative has indeed resulted in a significant number of the over 45 million Americans residing in these underserved areas actually making the decision to take advantage of their eligibility and to become members of their local credit union.

 Page 14       PREV PAGE       TOP OF DOC

    In fact, through our monitoring of our NCUA call report data, we find that the average annual membership growth since January 2000 in federal credit unions that expanded into underserved areas has been 4.80 percent. The national average for annual membership growth in all federal credit unions was 2.49 percent in that same three-year period since January 2000.
    In other words, the membership growth for federal credit unions who adopt underserved areas is 93 percent greater than the average annual growth rate for all federal credit unions. Not only are the residents taking advantage of the access extended to them through this initiative, but credit unions are finding that there is good business in these communities as long as there is proper due diligence and risk management in place.
    That leads briefly to the second of our initiatives that I just want to briefly discuss, and that is the interagency and credit union partnerships that we are facilitating through Access Across America. My testimony in writing clearly states how we are dealing with various federal agencies to facilitate the extension of credit union services and to work in partnership and even in synergy with them to extend our programs into their areas and their programs into ours.
    We have partnerships with the U.S. Department of Agriculture, U.S. Department of Housing and Urban Development, U.S. Treasury Department's Community Development Financial Institutions program, the Internal Revenue Service through their VITA initiative, the Corporation for National Community Service, the FDIC through its MoneySmart financial literacy that we chose to endorse ourselves rather than reinventing the wheel. We felt that there was no reason for there to be a separate credit union financial literacy program endorsed by NCUA when the FDIC program was as strong as it was. The Neighborhood Reinvestment Corporation, Small Business Administration, these are all agencies that we are working together in partnership to extend this service.
    Another issue of importance, quickly, in extending lower-cost financial services to underserved individuals is the issue that was discussed earlier of international remittance. The predatory high cost of international remittance has been a concern of NCUA for a number of years. We have tried to facilitate where appropriate the innovative services and technologies available through credit union partnerships such as the IRnet service facilitated by the World Council of Credit Unions. The savings to individuals remitting funds internationally can be sizeable when the not-for-profit credit union sector can offer a lower flat-fee alternative to the percentage of funds which is often charged by some international transmittal outlets. Credit unions, of course, must fully comply with all U.S. USA PATRIOT Act regulations and verify their customers' identity. But NCUA strongly believes that encouraging individuals to use traditional financial institutions actually provides greater security.

 Page 15       PREV PAGE       TOP OF DOC

    NCUA will continue to facilitate these lower-cost international remittance alternatives wherever possible under existing law and regulation through credit union partnerships such as the IRnet and others.
    Lastly, I just want to mention the Community Development Revolving Loan Fund, Mr. Chairman, because I don't think that we could look at ways that the Congress and NCUA have worked together to further the extension of credit union services into low-income communities without briefly addressing the Community Development Revolving Loan Fund. It was established by Congress in 1979 through an initial appropriation of $6 million to assist officially designated low-income credit unions in their efforts to provide basic financial services to underserved communities. Over the years, Congress has continued its commitment to CDRLF program by increasing the number of appropriated dollars available for loans to $13 million.
    Now, for more than 13, almost 14 years, NCUA has successfully administered this ongoing program, providing more than 217 revolving loans totaling $32.8 million. We have been able to revolve your $13 million appropriation into $32.8 million worth of loans to low-income credit unions during its history. In 1992, the NCUA board began funding technical assistance grants by using the interest that was generated from these loans.
    In fiscal year 2001, you began to recognize the success of that grant program by reserving certain funds, and you have reserved up to this point a total of $1 million of additional appropriation for technical assistance grants to assist low-income credit unions. We have awarded more than 1,000 grants totaling $2.4 million between the two sources, both the interest from the loans and your $1 million appropriation. By providing an alternative to the higher-cost lenders, we believe that the CDRLF program furthers the goal of credit unions extending service into underserved areas.
    So Mr. Chairman, as you can see, the NCUA takes seriously its responsibilities to not only ensure the safety and soundness of the American credit union system, but also to make sure that it is both viable and valuable in meeting the needs of folks from all walks of life. We are building today's NCUA Access Across America initiative on the foundation of decades of outreach by financially sound credit unions. That has established a successful model of individual and community empowerment that we feel can have a positive impact on future generations and lead millions of individuals no longer in the ranks of the underserved, and giving the self-help empowerment through member-owned credit unions to bank themselves out of the category of the un-banked.

 Page 16       PREV PAGE       TOP OF DOC

    I appreciate the opportunity to testify before you today. I will be more than glad to answer any questions that you or members of the subcommittee have. I respectfully ask that my full statement be entered in the official record.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Dennis Dollar can be found on page 104 in the appendix.]
    Chairman BACHUS. Thank you.
    In the interest of time, I am going to actually forego my questions. I would like to make one comment that I think is particularly important. That is that more Americans do have a bank account if for no other reason than to provide a safe place for deposit of their Social Security benefits or other government benefits, veterans benefits, electronic transfers, which can be a tremendous advantage to them.
    I am sure that the United States Government, the people of America have probably saved hundreds of millions of dollars on direct deposit programs. Because as you know, a prevalent problem in our country is people stealing benefit checks out of the mailbox.
    At this time, I am going to recognize Mr. Hinojosa for questions.
    Mr. HINOJOSA. Thank you, Mr. Chairman.
    I want to commend all of you for your efforts to bank the un-banked. I am going to ask my first question of Wayne Abernathy. I recently obtained a copy of a letter from Treasury Secretary Snow to Chairman Sensenbrenner of the House Judiciary Committee announcing that you would reopen the regulations for a 45-day comment period. Why are you reopening these regulations that you recently promulgated and that were two years in the making? And what questions will you ask of financial institutions?
    Mr. ABERNATHY. Thank you, Congressman, for asking that question, because there has been some confusion as to exactly what it is that Treasury is doing in that regard. We are not reopening those regulations. Those regulations were promulgated on July 9. They will go into effect I believe in October. What we have made a promise to do, however, is because of the increased interest that there is on the impact of those regulations, the request was made to us from Congressman Sensenbrenner and others to continue to evaluate some of the concerns that they raised. We are very happy to do that.

 Page 17       PREV PAGE       TOP OF DOC

    We don't have the view that any regulation, any answer is ever permanent, so we are always willing to gather additional information. We frankly would encourage everyone who has a view on these particular questions that we are putting forward to let us know what their views are, pro or con. And the two questions we are putting forward, one of the concerns that was raised in our regulation was whether or not financial institutions should be required to maintain photocopies of the identification documents that were used to open an account. The regulation does not require a lengthy retention of that kind of paperwork for a number of reasons that I think were explained during that two-year comment period that you mentioned.
    There are some in the law enforcement community who think that maybe that does not aid law enforcement. We are open to hear whatever comments the people may have on that. We would like to have people comment on that and tell us, does it assist law enforcement to retain that paper, or does it actually cause some additional vulnerabilities to retain that paper?
    And then the other question is, particularly with regard to the Consular identification cards, whether those are appropriate means of identification. We have the policy in the regulation as you know of saying that financial institutions have a very important responsibility that their new customers are who they say they are. But the regulation says that responsibility is yours, as a financial institution. You should be sure, as a financial institution, that you have in place a good system that makes you feel very comfortable that the people who are opening accounts with you are who they say they are, and your particular financial regulator when they come to examine you in your periodic examinations will be asking, what is your system? What procedures do you have in place to verify that your customers are who they say they are?
    That is where that question should be asked. It should be between the financial institution and their examiner. The burden is on the financial institution. The examiner will make sure they have looked at it properly. Treasury has said that is where the duty is.

 Page 18       PREV PAGE       TOP OF DOC

    Mr. HINOJOSA. I appreciate that. Let me ask you, is it accurate to say that the Section 326 regulations as recently promulgated would leave the decision of whether or not to accept Consular ID cards at the discretion of the financial institution?
    Mr. ABERNATHY. By and large, but not wholly. The responsibility is on the financial institution to have a good process in place, and they can be questioned about their process by their financial regulator. So it is partially a shared responsibility, but the primary responsibility is with that financial institution. We do not think that it is wise for the Treasury or for the government to come up with lengthy lists of which forms of identification are appropriate and which forms are not, for a very important reason.
    If we try to maintain those lists, we will always be behind the times. We will always be behind the times of putting on the list things that banks should not be using and putting on a list things that they ought to. We do not want to be behind the times. We want that to be a current process. It is best left to those who understand it best and in their community what works best.
    Mr. HINOJOSA. Let me ask another question, and possibly Chairman Dollar can answer it. I am glad that NCUA recognizes the Consular ID card as a legitimate identification source for an individual to become a member of a credit union, and that you all are working closely through your office of general counsel to assist credit unions in the effective use of the matricula card.
    If Treasury decides to reopen the Section 326 regulations of the USA PATRIOT Act, how will this impact the NCUA and credit unions?
    Mr. DOLLAR. Congressman, we are very comfortable with the USA PATRIOT Act regulations as they were put into effect. The Treasury regulations, as you referred to, have also been adopted by the other financial regulatory agencies as our regulations. So we are in the process of, as Secretary Abernathy said, implementing them even as we speak.

 Page 19       PREV PAGE       TOP OF DOC

    Our office of general counsel is working in close consultation with credit unions who are seeking our guidance as to the acceptance of the matricula card. We have made very clear to them that not only is it allowed in the regulation, but that we recognize it and that we will work with them to facilitate their use of the card. Then through, as Secretary Abernathy said, the oversight and supervision process, we will then be able to monitor the effective use of that.
    It is working very well among those credit unions, particularly in the southwest part of the United States, who have been looking for a way to be able to bring these individuals into the traditional financial institution, to show them the value of a credit union or another traditional financial institution as an alternative to the check-cashers, the international remittance sources that are so highly priced. So we think it is working well.
    We don't see a reason to revisit it at this particular stage, but we do see that there is an importance in all the financial regulators having consistent regulation. So if it is revisited by others, we would feel obligated to at least examine those issues, but we are very comfortable with the regulation as it is presently constituted.
    Mr. HINOJOSA. Thank you, Mr. Dollar.
    Mr. HENSARLING. [Presiding.] The chair now recognizes Mrs. Waters.
    Ms. WATERS. Thank you very much, Mr. Chairman.
    I am very pleased that we are holding this hearing today and I would like to thank Chairman Bachus for paying attention to a subject that I am very much involved with and have spent an awful lot of time dealing with.
    I am very pleased to see the National Credit Union Administration here today talking about the efforts that are being made through your Access America campaign. This is something that I strongly support and I have urged the credit unions to move faster to locate in these underserved communities and to become very visible, because as you know, we are at the mercy of payday loan operations, check-cashers, rent-to-own and a whole host of services that have evolved in the poor communities that charge exorbitant amounts of monies and fees and they are just robbing poor people of their limited resources in order to be able to cash checks and have other kinds of limited services.

 Page 20       PREV PAGE       TOP OF DOC

    I recognize that there are many people who end up without money prior to payday and that they need to have the ability to borrow money, but also recognize that there needs to be some kind of education that goes along with the borrowing of money for just very basic needs.
    What I would like to know is, could you give me an example of the difference in the kind of fees that the credit union would charge, the difference between the credit union and a check-cashing operation or a payday loan operation, for borrowing money or for check cashing? I will tell you why that is very important to put on the record. I have researched some of the payday loan and check-cashing operations. I have found with the payday loan operations we have people that are paying as much as 400 percent interest, in some cases 1,000 percent.
    I see these post-dated checks that are required, and of course people are intimidated with the post-dated check, that if you can't pay when you have agreed to pay, then you could be in violation of the law. And then an agreement often worked out where you flip it and you create another loan with additional interest rates. How would the credit union service this population? I am just sick and tired of poor people being ripped off. What can you do differently? You mention in your testimony low-cost services. Describe to me what you could do different than these payday loan rip-off operations?
    Mr. DOLLAR. Congresswoman, the first answer is the most statutorily fixed answer of all, and that is that federal credit unions have a usury limit of 18 percent that can be charged. So federal credit unions will charge no more for any loan than 18 percent. An 18 percent alternative to the costs that you were referring to in your statement makes a good comparison at any time. Even if because of risk these individuals were charged the highest amount that would be allowed, it would be an 18 percent alternative to what many times you are correct is a 400 percent and a 500 percent rate.
    I would like to make one quick point, if you don't mind. I really believe that the not-for-profit sector, the credit union sector is an important part of breaking this cycle of the check-cashing, rent-to-own, pawnshop mentality that is so prevalent in many underserved communities. One of the reasons that we believe we have had the success with Access Across America that we have is not only that credit unions are adopting these areas, but as a part of our requirements, they must establish a physical presence in that community. They cannot do it through home banking. They cannot do it through audio response. They cannot even do it through a mere ATM, although they can open ATMs in that area, but they must establish a physical presence.

 Page 21       PREV PAGE       TOP OF DOC

    The pawnshop has a physical presence. The check-casher has a physical presence. The rent-to-own company has a physical presence. And if they have to take 28 bus stops to get to the credit union, then it is not as viable of an alternative. I believe that this physical presence has made a key contribution to the success of Access Across America. It is the reason that those membership numbers in credit unions that adopt underserved areas is so much higher than it is in the general credit union population.
    Ms. WATERS. Thank you very much. I would request unanimous consent for one more minute. I see the light has gone on.
    Mr. HENSARLING. Without objection.
    Ms. WATERS. Thank you very much.
    I would also like to ask you if you are aware that the payday lenders are established near our Army bases, and that our Army personnel are now getting involved in getting these short-term loans and robbing these families of their limited resources. What can you do as you pay attention to the un-banked and the underserved to also pay attention to what is happening around our bases? Because payday loans are sprouting up around all of our military bases, and it is another whole problem that I have got to try and address in this Congress. Are you aware of that and can you include that in the areas that you pay attention to?
    Mr. DOLLAR. Yes, Congresswoman. Let me say this, I do not know of a military installation in America that does not have a credit union that is associated with its field of membership. It is one of our goals in Access Across America to encourage those credit unions to get outside the doors of the base, to get outside the fences and the security by the base, and to get out in those surrounding communities to adopt those surrounding communities.
    Some of those bases even have the choice of more than one credit union. We see nothing wrong with that. We hope that someday residents of underserved communities will have the choice of as many credit unions as they do of pawnshops. When that day comes, I think we will have made a great contribution and we will be much more successful in this initiative.

 Page 22       PREV PAGE       TOP OF DOC

    Ms. WATERS. Thank you so much. Some of us would like to help promote that and would be willing to do ads and to go to events to help talk about the difference between the credit unions and the payday loan rip-off operations.
    Thank you.
    Mr. DOLLAR. Thank you. We will take you up on that offer.
    Ms. WATERS. Yes, I would be happy to.
    Mr. HENSARLING. Ms. Velazquez is now recognized.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Dollar, in your testimony you note that the NCUA has partnered with key federal agencies including the Small Business Administration to 7(a) communities across the country. SBA has recently expanded credit union access to the 7(a) loan program, SBA's flagship loan program. In doing so, it was hoped that credit unions will greatly expand the reach of the 7(a) program. I believe that providing access to capital to would-be entrepreneurs in underserved areas must be part of any strategy aimed at bringing people into the financial mainstream. Access to capital is essential to spur economic development in many of these underserved areas.
    Mr. Dollar, how have credit unions made use of the 7(a) loan program to increase small business lending in such underserved areas?
    Mr. DOLLAR. Congresswoman, the last communication that I have had from SBA, there have been over 100 credit unions since they were authorized to participate in the 7(a) loan program, which was just several months ago, who have already made application and are in the process of either being approved or have been approved. May I say that I agree 100 percent with your contention that if we are truly going to make a long-term difference in these underserved communities, that the access to start-up entrepreneurial capital is key.
    Yes, it is a noble cause within itself to offer an 18 percent alternative to a 400 percent payday loan, but I believe that with start-up entrepreneurial capital, there may well be the possibility that people will be able to have their own jobs, have their own businesses, and not need the payday lender. That is how we will most positively impact these communities. So not only through participation in the 7(a) loan program, NCUA has been working where we can within statutory restrictions to allow more member business lending by credit unions. This is a source for investment in these communities that we think will pay long-term dividends.

 Page 23       PREV PAGE       TOP OF DOC

    Ms. VELAZQUEZ. Do you believe that credit products such as the 7(a) loan program should be part of any un-banked outreach strategy?
    Mr. DOLLAR. Yes, unquestionably.
    Ms. VELAZQUEZ. Mr. Abernathy, do you have a comment on this?
    Mr. ABERNATHY. Yes, I do, Congresswoman. Our view is that there are so many different reasons why people are not making full use of the financial services that are available to them that we need to address it in as many ways as we can. The credit unions have a multitude of different programs, working together with SBA and other governmental programs.
    One comment I would make on the question from Congresswoman Waters with regard to military bases, one of the things that we have tried to emphasize is to deal with this problem of people who do not have accounts is helping them understand what the options are. The option may be there. There may be a credit union on-base, but do they understand what it means to have an account with a credit union? Can we educate them?
    Very recently we had the Defense Department present, we convened a meeting in the Office of Financial Education of all of the different governmental agencies that have financial education programs. We had the Defense Department and the Agriculture Department who have excellent programs explain to these others what their programs are. What the Defense Department is doing is they are saying now to their military, ''You will come to this class; and you will learn what it means to manage your pay and your various accounts; and you will then take a test to see if you understood,'' because they understand that it is a real problem. It harms the efficiency of a soldier if he is worried about the financial health of his family. So it is very important.
    Ms. VELAZQUEZ. Mr. Abernathy, in your testimony you noted that through the Partnership for Prosperity with Mexico, Treasury has encouraged the entry of new providers into the U.S.-Mexico remittance market. What sort of specific steps has the Treasury taken to encourage financial institutions to enter this market?

 Page 24       PREV PAGE       TOP OF DOC

    Mr. ABERNATHY. I have discovered one of the biggest tools that we have at Treasury is we have a podium that we can talk from and people listen to us. We have been very encouraged at our continual jawboning of major financial institutions, pointing out to them that there is a real market opportunity for you to enter into, both in Mexico and here, in these important financial underserved markets that will be very good for your bottom line and very good for these populations.
    One of the most recent examples of that has really encouraged me, a major financial institution not long ago made a hefty investment in a large bank in Mexico. They have just recently leveraged that investment to make it possible for someone in Mexico to go to an ATM in Mexico and draw money from an account here in the United States at almost no cost at all. That is the kind of progress that we are happy to see.
    Ms. VELAZQUEZ. As you stated in your testimony, the international remittance market is growing rapidly. It is my hope that the prices will continue to fall. I also hope that consumer protections of such products will be enhanced. Are new entrants addressing some of the consumer protections issues with remittances, such as providing customers with clear notice and making the pricing of remittances more transparent?
    Mr. ABERNATHY. We have seen a lot of good work in that regard. Some of the banks that are getting into this business lately have discovered that they might not make any money on the actual remittance transfer. Where they will make money is they have discovered that is a great opportunity to build a relationship with their customer. As they build a relationship with their customer, they need to convince their customer that it is a good thing to bank with them. Those banks that are doing that, part of building that customer confidence is being very transparent in what your policies and programs are.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Chairman BACHUS. Thank you.

 Page 25       PREV PAGE       TOP OF DOC

    Mr. Davis, and then we will go to Mr. Baca.
    Mr. DAVIS. Thank you, Mr. Chairman. I appreciate that.
    Mr. Dollar, welcome to you. You and I shared a platform together last Friday and I appreciate your coming to Birmingham.
    Let me start with you, if I can. One of the things that I am struck by as I look at your written testimony and a lot of other data, is how successful the credit unions have been in reaching the underserved population. I want to focus on one particular aspect of that, financial literacy, as I assume that is a critical component to whatever you are doing effectively. If you would talk a little bit about how you manage and how your entities manage to reach out to the underserved communities to help them with financial literacy, that would be helpful.
    Mr. DOLLAR. I think we begin with the fact that a credit union by its nature is a member-owned institution, and also by its structure it is a not-for-profit institution. So therefore, there is a tie to the membership, either through an employer, an association or a local community that enables them to perhaps have a little more of a high-touch approach. I think then we have been very serious and diligent in our encouragement of credit unions to look at ways to promote financial literacy. We have even gone to the point of realizing that this is a combination effort, that is not just a credit union effort, but it is a financial institution effort from banks to thrifts to mortgage companies to credit unions.
    So as I stated in my earlier remarks, we have partnered with the FDIC on their MoneySmart financial literacy program. Rather than spending several hundred thousand dollars to develop our own credit union financial literacy program to be endorsed by NCUA to further this initiative, we chose to endorse theirs. I issued a credit union letter to all federal credit unions encouraging them to examine the program. From my reports at FDIC, there have been several hundred credit unions that have taken the FDIC MoneySmart program, adapted it, put it in their high-touch approach that they have as a member-owned, not-for-profit institution. I think the results are demonstrating themselves in the various statistics that were included in my testimony.

 Page 26       PREV PAGE       TOP OF DOC

    Mr. DAVIS. Let me shift, Mr. Abernathy, to a slightly different area, and it is the earned income tax credit and the potential impact the credit unions can have about the earned income tax credit. Some of your colleagues and some people in this institution have raised concerns about what they view as being rampant fraud or abuse that takes place around the earned income tax credit, and that is a discussion for another day. But I want to raise what I think is a more pressing problem.
    I think that there are a lot of people who frankly would benefit from the earned income tax credit, but do not know how to take advantage of it, people who are not getting it. One of the things that I think we need to talk about when we talk about reaching the underserved is that population of people who would be able to take advantage of the earned income tax credit if they were more financially literate and were better educated about it. Do you agree with me that there is a problem in this country with people who are eligible for the earned income tax credit not getting it and not being able to take advantage of it?
    Mr. ABERNATHY. I think there is a very big problem with a lot of people not understanding a whole panoply of what their tax benefits are. We have been very encouraged. A number of these pilot projects that are currently taking place under the First Accounts program include not just getting you into a bank account, but giving you the financial education that is needed. Part of that financial education, many of them are focusing on how the tax program works; how tax benefits can be obtained; how you file your tax forms; and how to take advantage of what is being extended to you through the tax system. I think that is an excellent combination of all the different aspects that any family needs to know if they are going to be managing their finances effectively.
    Mr. DAVIS. And would you agree, Mr. Abernathy, that that problem of people who should be getting the earned income tax credit or should be taking advantage of it, the problem of they are not being accessed into the system is, if anything, probably a more pressing problem than that of people abusing the earned income tax credit?

 Page 27       PREV PAGE       TOP OF DOC

    Mr. ABERNATHY. I couldn't comment with regard to the earned income tax credit program itself. I am no expert on that. I can certainly envision that as being a problem. If people don't know how to fill out their tax returns properly, they do not understand how the tax system works, then they are not going to be able to take full advantage of the programs that are there to help them.
    Mr. DAVIS. Mr. Dollar, if you could just comment on some things that your credit union has done to educate people about the earned income tax credit and to position people to take advantage of it.
    Mr. DOLLAR. It is an important part of the MoneySmart financial literacy program. Another partnership that you will see listed in my testimony is one that I entered into and signed with officials of the Internal Revenue Service, in which we agreed to work with them in the promotion of the VITA program and the informational campaign that they have to make sure that those who are eligible to take advantage of the earned income tax credit and other tax opportunities that are available to them, are aware of and do so. They can do that and can provide that information through credit unions.
    Mr. DAVIS. Thank you, Mr. Chairman.
    Chairman BACHUS. Mr. Hensarling, and then we go to Mr. Baca, and then I am not sure if we have to recess for a vote on the floor. We will try to get all of the questions in.
    Mr. HENSARLING. Thank you, Mr. Chairman.
    I believe that it is a good thing that we are holding this hearing today. I believe this is a subject worthy of our attention. I believe there probably is a problem with the un-banked and, I am here to learn about the scope of this problem. I suppose there are several reasons why one might be un-banked. One is, they know what banks are about and they have chosen not to do business with a bank.

 Page 28       PREV PAGE       TOP OF DOC

    Another reason perhaps is for some reason the banks are barring their doors to some certain subset or class in our society, and I would be curious to know if we have any evidence of that. I suppose a third reason is simply ignorance of what banks and financial institutions have to offer, and education is often a good remedy for ignorance.
    So number one, Mr. Abernathy, is there any evidence that Treasury has that there is some class of people in our society that are being prevented from entering the banking system?
    Mr. ABERNATHY. I don't believe that there is any evidence that there is a systematic bar in place keeping people from entering into the banking system. The reason why I say that is we have laws against that. We have not heard any indications from the financial regulators that there is a systematic problem of redlining currently occurring. So I think the fundamental causes for why people don't have bank accounts probably are elsewhere.
    What we would like to do, though, is move away from the current situation where we are in now where most of the evidence of why people don't have bank accounts is pretty anecdotal. We think there is a good opportunity and need to have a more systematic evaluation of why it might be that people are not opening up bank accounts. A lot of evidence seems to point that people don't have access to bank accounts because there is not a bank nearby. There isn't a financial institution close enough to do business. Other concerns are, people just aren't familiar with their opportunities, what it means to have a bank account, why it's important and why that is of benefit to them. It can be intimidating if people don't understand what a bank does. They can have a very imposing exterior that makes it hard for people to walk in and feel, ''will I be comfortable there.''
    I think we need to study it better, but we have not heard from the bank regulators that there is a systematic problem of redlining today.
    Mr. HENSARLING. I appreciate the sentiment that perhaps a study is certainly needed in this area. I, for one, would be a member interested in working with you on that, so we can understand better perhaps the reasons that this phenomena exists. We have had testimony that there are a number of people, and perhaps mainly low-income people, who choose to deal with payday lenders and rent-to-own and check-cashing services for some their quasi-banking or monetary needs.

 Page 29       PREV PAGE       TOP OF DOC

    It seems to me in a free society people would have the choice whether to deal with these institutions or banks, but perhaps Treasury has some other observation. If people are choosing to use these various services, does Treasury have any evidence that there is widespread fraud among these particular institutions?
    Mr. ABERNATHY. There certainly have been cases from time to time of people who have been taken advantage of in the informal financial sector. But I think you make a good point that banks are not the only financial services providers in the nation. What we want to make sure is that everybody has a real choice of whether they want to have a bank account or not. To do that, you have to do a couple of things. First, you have to make banking available to people. Secondly, you also have to educate them as to what their choice really is so that they can make an educated choice.
    If some consumers decide that they don't want to choose for whatever reason to have a bank account, that is fine, provided they really had a meaningful choice. That is the goal that Treasury wants to achieve, that everybody in this country has a full and meaningful choice to open a bank account, be it in a credit union, a bank, or savings and loan. And then the knowledge and ability to exercise that choice.
    Mr. HENSARLING. Speaking of choices, sometimes I choose to buy my bread and milk at 7-11 and sometimes I choose to buy it at Tom Thumb. When I choose to buy it 7-11, typically it is more expensive. I choose to do that because I can find a 7-11 on every street corner and I know that I will never face a line of more than two or three people. At Tom Thumb, I have to drive some distance and the lines quite often are long.
    So might it be a rational decision by an informed consumer that they prefer the ubiquitous nature of some of these other institutions and prefer the convenience as a factor of why they might be using these payday lenders and rent-to-own and check-cashing businesses for their banking needs?

 Page 30       PREV PAGE       TOP OF DOC

    Mr. ABERNATHY. I think convenience is probably the number one driving reason why people use these other financial institutions. It is more convenient because it is in their community. It is more convenient because they are willing to provide funds when another financial institution might not be willing to provide funds. I think what we would like to do and what we see happening is banks are becoming more convenient. They are feeling that pressure. And so they are offering products to increase their convenience. But nevertheless, as long as the consumer knows what his options are, understands them, let the consumer make the choice as to what meets their needs best.
    Mr. HENSARLING. Thank you. My time is up.
    Chairman BACHUS. Thank you.
    The gentleman from California, Mr. Baca?
    Mr. BACA. Thank you, Mr. Chairman.
    My question is for Mr. Abernathy. On May 9, the Treasury Department published the final rule requiring financial institutions to establish consumer identification programs to identify the identity of each consumer opening an account. Many in the financial service industry supported this rule because it allowed them to accept Matricula Consular cards. Unfortunately, the Treasury Department is, I state, ''reexamining the rule.'' Shouldn't banks be the ones to determine what they are going to use for foreign ID? That is question number one. And do you think that banks need the flexibility of identifying the risks? That is question two.
    In my district in Rialto, the police department recently decided to accept Matricula Consular cards, joining the police departments in Chino, Colton, Fontana, Rialto, Indio and San Bernardino and Upland. Do you think the Treasury Department is in a better position to evaluate the risk than local law enforcement? That would be the final question.
    Mr. ABERNATHY. Very good questions, Congressman, I appreciate the opportunity to comment on them. I think you have presented exactly the correct distinction. The regulation went into effect or was promulgated and will go into effect in the fall. At the request of members of the Congress and others, we have agreed to reexamine the rule. We are not reopening the rule, and that is important to understand. We are willing to receive additional comments on the advisability of going forward with the rule, which has been published as a final rule.

 Page 31       PREV PAGE       TOP OF DOC

    I think you have touched upon the reason why we have promulgated the rule the way we have. It is very difficult for us to understand why Treasury should put itself in the position of trying to second-guess people who in their communities are making the decisions as to what are the best forms of identification, particularly with regard to financial services.
    So the rule says, you as a financial services provider have a requirement to be sure that who is doing business with you is who they say they are. But it is up to you to find out the way that works best for you to fulfill that requirement, knowing that you might have to justify your decision and your process and your procedures with your bank regulator. That is the principle. We think that is the best way to do it. We think that way we are more likely to have the solution that really fits the needs of that particular community.
    Mr. BACA. You mentioned that members of Congress have asked you. Is this Tancredo and his groupies?
    Mr. ABERNATHY. A number of congressmen have asked questions and we are happy to respond to requests from Congress. I want to make this very clear. The results of the information that we get during this comment period, we intend to come and discuss with this committee. It is this committee that has jurisdiction and responsibility over that particular part of the law. I do not think that we would even contemplate making any changes to the regulation without having close consultations with this committee.
    Mr. BACA. Earlier you talked about choice in banking availability and educating the knowledge that is important. Well, you have got to create the climate that is there. And by offering matriculas, at least then people feel a sense of comfort going into a bank, so attitudes then change in terms of perception towards individuals. So it is a lot easier to be educated if you create the kind of climate and attitude that is going to be there. But if you claim the attitude in terms of the identification and not accepting matriculas, it becomes very difficult. And that is why people choose to go somewhere else other than one of our banking institutions. So we have got to change those kind of climates and those kind of attitudes.

 Page 32       PREV PAGE       TOP OF DOC

    Mr. ABERNATHY. I agree with you fully. What we need to be doing is finding ways to attract people into financial institutions, not erecting new barriers.
    Mr. BACA. Thank you.
    Mr. ABERNATHY. Thank you.
    Chairman BACHUS. Instead of asking questions, I am simply going to make a statement. I want to associate myself with your remarks and those from Mr. Baca that a lack of documentation by legal immigrants is one of the main barriers to them establishing a bank account. I believe that federal regulations allowing these institutions if they so choose, credit unions and banks, to accept these foreign government-issued documentation is the right approach and really the humane approach. I very much support the use of Matricula Consular cards as identification and I applaud those banks which are accepting them.
    Ms. Maloney?
    Mrs. MALONEY. Thank you, Mr. Chairman.
    I would like very much to be associated with your remarks on this subject, as well as Mr. Baca's and Mr. Abernathy's. Following up on Mr. Baca's line of questioning, some in Congress, as you mentioned, and I would add other anti-immigration groups, have turned what is essentially a debate on curbing money laundering into a debate on immigration policy. My question is, can you tell us Treasury's view about whether it is appropriate for financial institutions to take on the role of participating in the immigration policy debate?
    Mr. ABERNATHY. I don't pretend to be an expert on immigration issues, but I can say that certainly Congress has decided that immigration issues are to be determined in two focal points, by and large: at the border and at the workplace. Congress has not placed in any statute that I am aware of that we should be using the financial institutions and access to them as a means of enforcing immigration policy.
    Mrs. MALONEY. In enforcing the anti-money laundering provisions of the USA PATRIOT Act, which Treasury and others are very involved in, have you seen any evidence that Mexican nationals are using matricula cards to launder money? Has there been any evidence of that?

 Page 33       PREV PAGE       TOP OF DOC

    Mr. ABERNATHY. Certainly not in any more noticeable way than any other forms of identification are abused. We see driver's licenses abused. We see birth certificates abused. We don't see Consular identification cards being abused any more frequently than those other documents are.
    Mrs. MALONEY. Earlier in your testimony, Mr. Abernathy, you mentioned that a United States bank had opened up a branch in Mexico, whereby one could go to the Mexican branch and use an ATM card and get money from America. Is that correct? Is that what you said?
    Mr. ABERNATHY. Actually, what they have done is even more expansive than that.
    Mrs. MALONEY. May I ask which bank is it? I am curious.
    Mr. ABERNATHY. Bank of America.
    Mrs. MALONEY. Bank of America.
    Mr. ABERNATHY. Bank of America made an investment of well over $1 billion in Banco Santander Serfin, I believe it is, a major bank in Mexico.
    Mrs. MALONEY. Was it just one branch or are they all over Mexico?
    Mr. ABERNATHY. No, all the branches of Banco Santander Serfin, their branches can be accessed to reach money in an account in a Bank of America operation here in the United States. So it is very large and very extensive. I believe Banco Santander Serfin is the third largest bank in Mexico.
    Those kinds of relationships are the kinds of benefits, frankly, that we expected would occur from NAFTA, and the greater penetration of U.S. banks into Mexico, and we are beginning to see those benefits.
    Mrs. MALONEY. I think it is fair to say that we have an interest in stabilizing and helping the economies of other countries, particularly those that border us. It appears to me to have been a good policy decision for this to happen. I further would like to follow up and ask about the current Section 326 rules for financial institutions. These institutions can decide for themselves whether to accept identification documents in opening an account for non-U.S. citizens. As you discussed earlier, these document may include the matricula cards issued in Mexico, but they might also include driver's licenses issued in Canada. Is there any anti-money laundering reason why we should be concerned with Mexican matricula cards, but not Canadian driver's licenses? I have heard this debate all over the place on the matricula cards, but no one seems to be questioning the Canadian driver's licenses. So is there any difference in Treasury's mind?

 Page 34       PREV PAGE       TOP OF DOC

    Mr. ABERNATHY. Our view is that Treasury does not want to weigh in on the debate of whether a bank should use a Consular ID or should use a Canadian driver's license, what they should use. The responsibility is on the financial institution, with the oversight of their particular financial regulator to make sure they have the answer right. But they have the responsibility to decide what really does successfully work for them as a financial institution to be sure that their customer is who he says he is.
    Mrs. MALONEY. Mr. Abernathy, have any other American financial institutions opened up branches in Mexico? Is Bank of America the only one that has opened up branches or is it growing?
    Mr. ABERNATHY. Yes, there are other U.S. banks that have their own branches and operations in Mexico. We expect that as the benefits of NAFTA continue to develop that you will have increased penetration of U.S. banks in Mexico for the benefit of Mexican consumers.
    Mrs. MALONEY. Thank you very much. My time is up. I would like to really thank Mr. Hinojosa who pushed very hard to have this hearing. It is a tremendously important one. I thank the Chairman for responding to the concerns of the minority request on this important hearing.
    Thank you.
    Mr. GILLMOR. [Presiding.] That will conclude the first panel. I want to thank you both, Mr. Abernathy and Mr. Dollar, for your testimony and your help. Thank you.
    We will call forward the participants in panel two.
STATEMENT OF JAMES E. YOUNG, PRESIDENT AND CEO, CITIZENS' TRUST BANK, ATLANTA, GEORGIA
    Mr. YOUNG. I am pleased to appear before you today to offer comments on the topic, Serving The Underserved: Initiatives to Broaden Access to the Financial Mainstream. I thank you for the invitation and opportunity. You are to be commended for holding hearings on this matter best known in the financial services arena as banking the un-banked. I am also pleased to see Congresswoman Waters here, who has been a long-time supporter of minority-owned financial institutions.

 Page 35       PREV PAGE       TOP OF DOC

    I am here of course representing Citizens Trust Bank, headquartered in Atlanta, Georgia. Citizens Trust Bank was founded in 1921 and in fact gained its experience in serving the un-banked for very different reasons in 1921 and years thereafter. It is currently the Southeast's largest African American-owned commercial bank and we are the third largest African American-owned commercial bank in the nation, with nearly $400 million in total assets. I would remind you, though, that is smaller than the branches of some of the major banks.
    Citizens Trust Bank is a community development financial institution, a designation received from the U.S. Treasury Department by banks and other financial institutions with the primary mission of promoting and meeting community development needs in distressed areas of its market area. Recently, Citizens Trust acquired the historic Citizens Federal Savings Bank of Birmingham, Alabama and currently has 11 branches throughout metropolitan Atlanta, the Columbus, Georgia area, two branches in Birmingham and one in Eutaw, Alabama.
    We have for many years been involved in banking the un-banked. In January of this year, we began a program called the CT Beginnings program, which is a retail services program designed to provide a DDA, demand deposit account and savings account to low-to moderate-income individuals, in conjunction with the U.S. Department of Treasury initiative on bank the un-bankable.
    We have in fact been utilizing the FDIC's MoneySmart financial literacy program and we have been teaching that in conjunction with faith-based community services operations. We are employing the human resource department's educational Lunch and Learn series. We conducted evening seminars through our CTB branch network. As of June, we had conducted 10 seminars, some of them running as long as six weeks; three at local churches and seven through the branch network. Seminars are held twice a month at our branches. However, since March, we have opened only 27 accounts. Small impact.
    However, what we require before accessing the CT Beginnings initiative and a new account is in fact that there be this educational process. The direct deposit from employers is helpful in this regard and we have a minimum deposit to open an account of only $10.

 Page 36       PREV PAGE       TOP OF DOC

    In the context of how the financial services industry currently works, low-income citizens must establish a deposit account as a means to enter the financial mainstream and begin asset accumulation. It is also my contention that economic vitality can flourish in low-income communities if, and only if, significant numbers of the members of that community are able to move forward on an asset-building track. Therefore, access to financial mainstream for the un-banked is more than simply being able to open bank accounts. It is more than simply being able to simply open bank accounts. Indeed, equal access to the financial mainstream is a critical component of local development.
    Insured depositors should take on providing such access, and in general these institutions offer useful services to support an individual asset-building program by taking direct deposits, providing a safe place for electronic payrolls, government benefit checks and other deposits to be received; promoting savings by paying interest and often limiting access to funds on deposits; providing account statements to track the customer's savings and checking balances and interest earned; providing access to regulated loan products which have minimum standards of customer protection; providing a means to establish good credit; encouraging homeownership through mortgage loans; lower the cost of basic financial services for customers with qualifying balances; combining the delivery of financial services with informal customer education on financial planning, including appropriate loans and savings for college, homeownership, home improvement or retirement.
    The question is, what are the challenges facing most mainstream financial institutions in making such banking services available to the un-banked? As a banker, I would submit the following observations for your consideration. Such financial institutions do not offer the types of retail services that meet the particular needs of the un-banked because they do not find such transactions cost-effective. Many low-income customers need personal high-touch services at odd hours. In addition, many banks and credit unions prefer not to underwrite the small short-term loans those low-income customers require. Because low-income households barely have sufficient funds to meet their day-to-day needs, many need short-term credits, especially when unexpected expenses arise.

 Page 37       PREV PAGE       TOP OF DOC

    However, we know the profile of the un-banked individual, a history of bounced checks, account closures, poor financial management, cash-only basis for household expenses, and the low-to middle-income levels.
    Therefore, the challenge in banks and other financial institutions face in providing banking services to the un-banked is that they must build a significant volume of customers within an array of products and a level of service that meets the immediate financial needs of the un-banked; builds a strong interest on the part of the un-banked in establishing a deposit account; and a healthy credit relationship that promotes asset accumulation; and finally turn a profit.
    There have been many studies done by such organizations as the National Community Investment Fund, Fannie Mae and the Federal Reserve Bank. They have been conducted to quantify and explain the high proportion of Americans who have no checking or savings account in regulated banks and credit unions. The National Community Investment Fund is an independent trust and certified community development financial institution whose mission is to increase the number and capacity of depository institutions that are both effective agents of local community development and sound financial institutions.
    In May, with the support of a grant from the Fannie Mae Foundation, the NCIF conducted a comprehensive study on the un-banked and published one of the most thorough reports that I have read on this subject. The report is entitled, A Report on Innovative Products and Services for Low-Income and Un-Banked Customers. It was published in May 2002. In order to support the products and services described in this report, I believe that community banks, those relatively small and locally based financial institutions, are best prepared to deal with this.
    Going even further, minority-owned financial institutions such as mine are even more focused on communities where our low-to moderate-income fellow citizens live. The fact of the matter is that the initial owners of these institutions founded them with that notion in mind. They remain in those communities today, although most of them were founded more than 50 years ago. Today, there are 167 minority-owned depository banks in the country. Of these, 49 are black or African American, 69 are Asian or Pacific Islander American, 30 are Hispanic American, 17 are Native American or Alaska Native American, and 2 are multiracial American. These banks are located in 96 cities in 30 states and two U.S. territories. In the aggregate, these institutions control some $93 billion in assets.

 Page 38       PREV PAGE       TOP OF DOC

    However, it should be noted that there are no special charters granted to these banks and they must comply with all the banking laws and regulations governing all banks. In fact, the regulators have the ability to look in every nook and cranny of our small institutions, something they cannot achieve with the major institutions. While almost all of these are profitable and meet minimum standard capital requirements, they can ill-afford to incur the losses attributed to providing normal banking services to the un-banked. Yet they have been less than profitable and less profitable than major banks; less profitable than those who serve the majority market. We are measured on profitability. We are measured on capital adequacy by the very regulators who now promote serving the un-banked.
    There have been funding initiatives by the federal government such as the Bank Enterprise Award program of the U.S. Treasury Department, and the most recent New Markets Tax Credit Allocation program administered by the same department. However, when applying for such funding, minority-owned banks find themselves competing for the limited resources against much larger majority-owned financial institutions.
    Mr. GILLMOR. Mr. Young, to try to stay on schedule, could we ask you to wrap up?
    Mr. YOUNG. Yes. I will be finished in 2 minutes, please.
    The result is that many of these smaller minority-owned financial institutions are often overlooked and shut off from the kind of financial support needed to offer normal banking services in disadvantaged communities. To give you an example, there was $2.6 billion available in tax allocations to encourage the private sector to support the development and redevelopment of projects in these underserved communities. When it all came out, there were $26 billion in applications, a number of them minority-owned banks. There was only one minority-owned bank in this country that received a tax allocation for such work.
    I do not quarrel with the process. I do quarrel with the outcome. While you invited me here to make comments, I would also like to make the following recommendations for your consideration. One is to form a true partnership with minority-owned banks in this country to foster the implementation of the integrated products that are described in the NCIF report. These institutions need to have initiative funds allocated only to those banks. They should not have to compete with the major banks. After all, these institutions are heavily regulated already, regularly examined by governmental agencies, and have to meet strict criteria for the maintenance of their respective banking charters.

 Page 39       PREV PAGE       TOP OF DOC

    Number two, one of the critical problems facing the nation is financial illiteracy. Our children are not being taught the importance of participating in the financial mainstream even though they attend public school daily. If we must teach science, math and art, surely our presence here dictates that we should empower our children in financial matters long before they are ready to be first-time homebuyers or before they become un-bankable.
    Within this city is the National Bankers Association, which is a 70-year-old trade organization for the nation's minority-owned banks. It represents a convenient access to those banks that have labored long and hard to provide the affordable banking services we would all like to see available to all.
    I want to thank you again, and as I stated at the outset, access to the financial mainstream of the un-banked is more than simply being able to open bank accounts. Indeed, equal access to the financial mainstream is a critical component of local development.
    Thank you again, and I apologize for taking advantage of the opportunity.
    [The prepared statement of James E. Young can be found on page 130 in the appendix.]
    Mr. GILLMOR. Thank you, Mr. Young. It was an 11-minute 5 minutes.
    Mr. YOUNG. They told me I had 10 minutes before I came here.
    Mr. GILLMOR. Okay. Well, that is fine.
    Next we will hear from Mr. Al Beltran, who is the Chief Executive Officer of Security First Hidalgo Federal Credit Union in McAllen, Texas. You are here on behalf of the Credit Union National Association. Mr. Beltran?
STATEMENT OF AL BELTRAN, CEO, SECURITY FIRST HIDALGO FEDERAL CREDIT UNION, MCALLEN, TEXAS, ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION

 Page 40       PREV PAGE       TOP OF DOC

    Mr. BELTRAN. Thank you.
    Good morning, Representative Gillmor and my good friend, Representative Ruben Hinojosa, and members of the subcommittee.
    I am honored to appear before you this morning to present testimony on the plight of the un-banked and underserved. I am Al Beltran, President and Chief Executive Officer of Security First Federal Credit Union, a $137 million community-chartered credit union serving nearly 21,000 members in McAllen and the Rio Grande Valley of South Texas.
    I appear before you today on behalf of the Credit Union National Association. My written statement includes detailed descriptions of a recent CUNA modest-means survey, a study on serving new Americans and fairly lengthy descriptions of many programs credit unions are employing in an effort to meet the financial needs of the un-banked and the underserved. Because of time constraints, I will only briefly mention some of those programs.
    Before I do that, let me quickly say that CUNA and credit unions are extremely grateful to Chairman Dollar for his tenure on the NCUA board. His leadership in the area of reaching out to the underserved has been unparalleled in credit union history.
    Many of the un-banked still depend on some entity to help them wire much of their hard-earned money back to their families in their native countries. CUNA, along with the World Council of Credit Unions, has for a long time recognized the desperate need for affordable remittance services and the difficulties in providing these services. This recognition has resulted in an aggressive effort by credit unions to address these needs.
    I am proud to say that Security First Federal Credit Union has been offering its members the opportunity to wire money back to Mexico and use the World Council of Credit Unions service called International Remittance Network, or the IRnet. This service saves our users at least one-third the cost of using a high-cost money transfer agent. As you know, many of the un-banked are immigrants, all of which need some form of identification to be able to use the services of a mainstream financial institution. For those from Mexico, that form of identification is often the Matricula Consular.

 Page 41       PREV PAGE       TOP OF DOC

    CUNA is very concerned about some current efforts to discredit the use of the matricula. We have formally adopted a position to oppose any legislation prohibiting the use of the matricula or other similar government-issued ID, and support legislation allowing its use for financial institutions or for general purposes. In that regard, we congratulate Representative Ruben Hinojosa on the introduction of H.R. 773, the 21st Century Access to Banking Act.
    There is a growing public awareness that none of these products or services will help consumers unless they are aware of their options and how the financial system works. Credit unions recognize that it is necessary to offer financial literacy training to successfully integrate the un-banked into the financial mainstream.
    Security First actively sponsors community-and school-based educational programs and seminars. We also provide credit union staff as volunteers to read to elementary school children, participate in the Partners in Excellence program with the local school district, and provide scholarships to needy high school students. All these services are provided at no cost and are open to credit union members and the community it serves.
    At the national level, CUNA has formed a partnership with the National Endowment for Financial Education and the Cooperative Extension Service to teach the high school financial planning program to high school seniors across the country. In addition, CUNA's foundation implemented a nationwide financial literacy campaign called Plan For It, Save For It to address the need for increased savings among low-to-moderate income families.
    For the next few minutes, I will focus on some of the programs provided by Security First. As a whole, the Rio Grande Valley is considered an underserved area. Our credit union products are specifically designed to meet the financial needs of the people we serve. For example, to join the credit union, we have lowered our membership savings account requirement from $100 to $5. Direct deposit and payroll deduction may be established to reach the minimum savings account balance of $50. Once the savings account is open, they do not have a waiting period to use any additional products and services. We advertise in English and Spanish, including billboards and direct mail advertisements.

 Page 42       PREV PAGE       TOP OF DOC

    Security First is currently piloting a checking account program called First Choice Checking, that is available at no cost with courtesy overdraft protection. Additional services include the first order of checks at no cost, debit ATM card access, no-cost check imaging, no-cost audio access, and no monthly maintenance fee. Credit union educational programs in Spanish are regularly presented to groups.
    In conclusion, on behalf of CUNA I am grateful for the opportunity to have commented on the plight of the un-banked and underserved, and how Security First Federal Credit Union and credit unions across the country are trying to reach out and bring them into the financial mainstream.
    There is no more pressing need, in my opinion, for it is only through economic opportunity that we can solve many of the problems facing our nation's poorest and most deprived individuals. Whether it is through the First Accounts program, affordable housing programs, enhanced IDAs, expanded opportunities to serve their communities, or financial literacy, credit unions stand ready to meet this very important challenge.
    Thank you and I would be pleased to answer any questions you may have.
    [The prepared statement of Al Beltran can be found on page 72 in the appendix.]
    Mr. GILLMOR. Thank you very much, Mr. Beltran.
    Is Mr. Hinojosa your congressman?
    Mr. HINOJOSA. Yes, Chairman Gillmor.
    Mr. GILLMOR. I was just going to tell him he has a very fine congressman, but I presume he already knows that.
    We will go to John Bryant, Chief Executive Officer of Operation HOPE.
STATEMENT OF JOHN BRYANT, CEO, OPERATION HOPE

 Page 43       PREV PAGE       TOP OF DOC

    Mr. BRYANT. Good afternoon. I am honored to be here, Mr. Chairman and members of the subcommittee, and Congressman Hinojosa, and those members on the committee from California which is where I am based, including Congresswoman Maxine Waters.
    I would also like to take this opportunity to thank other of your colleagues in the House who have been extremely helpful in our work in California and across the nation. They include Congresswoman Diane Watson, where just yesterday we stood with Simone Lagomarsino, the CEO of $2.5 billion Hawthorne Savings Bank; the Bishop Charles E. Blake of the West Los Angeles Church of God in Christ and more than 100 community leaders to cut the ribbon to a full-service Hawthorne Savings Bank branch in the underserved yet deserving areas of South Los Angeles.
    This is significant because in 1996 we built what we called a HOPE Center at this location, and few financial leaders thought it would succeed. A HOPE Center is a cross between a traditional bank branch and a Kinko's for empowerment; one-stop shopping for changing your life. Well, 7 short years later and $100 million in homeownership and small business bank lending, and with zero reported home mortgage defaults. I will repeat. This is in the inner-city; $100 million in bank lending for homeownership and small business through Operation HOPE, all FDIC-insured banks, with zero reported home mortgage defaults over 9 years. Last year, Operation HOPE became the first nonprofit in U.S. history to build a bank branch and sell it to a bank.
    Congresswoman Diane Watson supports us in her district, as Congresswoman Lucille Roybal-Allard has supported us in her mostly Latino and Spanish-speaking district, with our HOPE Centers there. I am proud to say that there, too, in Maywood, California, the densest city in the State of California with more than 30,000 Spanish-speaking individuals, we now have a full service bank branch replacing the role of Operation HOPE in this deserving community. California National Bank, a $6 billion bank, and their CEO Greg Mitchell made the decision to invest there, and is doing quite well, I might add. Before Operation HOPE made the commitment to serve the underserved yet deserving community of Maywood, the only mainstream financial service provider was an ATM and a 7-11.

 Page 44       PREV PAGE       TOP OF DOC

    And then there is Congresswoman Juanita Millender-McDonald, where we have a HOPE Center in Watts. And Congressman Charles Rangel of Harlem, New York, we partner with the Congressman and former President Bill Clinton to educate every child in Harlem by the year 2005, that is 35 schools in Harlem, in economic literacy through Banking on Our Future, our economic literacy program, teaching kids the basics of a checking account and savings, credit and investment.
    Operation HOPE has taught over 107,000 youth in 400,000 teaching sessions in more than 500 schools, community-based and faith-based organizations, with more than 1,000 trained and certified volunteer banker teachers, what we call Life 101, economic literacy skills, what Mr. Young was referring to earlier. Operation HOPE today is the only national urban delivery platform for economic literacy in the country, both inspiring and depressing.
    And then you have U.S. Senator Dianne Feinstein who has proposed to expand our HOPE Center model across the State of California. I am proud to say today we are building a HOPE Center in Oakland, California with Bank of the West and SBC Communications. After four years of operating, the bank has committed to build a bank branch in our place.
    Finally, we have been asked by Senator Rick Santorum of Pennsylvania to bring Banking on Our Future into the entire State of Pennsylvania. Working with the Senator and the Federal Reserve Bank of Pennsylvania, we will make this happen next year.
    We are working with this administration, the Bush Administration, to push and press a bold economic literacy agenda for our nation and a hoped-for Presidential priority. We are talking, they are listening, and we are on the verge of several major partnerships with this administration.
    So I am honored to be with you today to talk about the wealthless and what I call the ''silver rights'' movement. How concerned should America be if 80 percent of its economic activity is tied to the U.S. consumer? Very, because it is true. How concerned should the President and Congress be if some propose that we manage our own Social Security accounts when a good number of us cannot manage our own bank accounts? Very, because it is true.

 Page 45       PREV PAGE       TOP OF DOC

    How concerned should economists and policymakers be if billions of dollars in yet unrealized taxable income and other tax receipts are effectively left on the table, so to speak, in urban inner-city and low-wealth communities because people don't know better and as a result find it hard to do better? Very, because it is true. How concerned should all of us be that more than 1 million American filed for bankruptcy protection in 2000 and 1.5 million in 2001, with the largest group of bankruptcy filers being youth between 18 and 24? Very, because it is true.
    But not all the news is alarming news. I come with good news. It is called the ''silver rights'' movement. The silver rights movement says two quick things. If the 20th century was marked by race and the color line, then the 21st century will be marked by issues of class and poverty. It also suggests that there is a difference between broke and being poor. Being broke is economic and being poor is a disabling frame of mind and a depressed condition of our spirit. We must vow never to be poor again.
    In both cases, as I told Federal Reserve Chairman Alan Greenspan on June 5 when we took him into an inner-city classroom here in D.C. at John Philip Sousa Middle School in Southeast Washington, DC. He and I talked at an economic literacy course called Banking on Our Future to 35 young bright lights. One kids said when asked what did ATM mean, he said ''all the money.''
    [Laughter.]
    And to bring the attention of economic literacy to our nation and to you for monetary policy and public policy. Greenspan agreed that education is the ultimate poverty eradication tool and I must commend Congresswoman Waters for first bringing Greenspan into South-Central LA and we are now passing the baton to take it to the next level.
    All the indicators suggest that the rich are getting richer, the poor are getting poorer, and it is harder to be middle class. Thirty years ago, middle class was one parent working. Today, it is two parents working and the television set is raising your child. According to CNN, half of all Americans are living paycheck to paycheck. That is not black folks, that is all folks. And an estimated 65 million Americans or 10 million households have no traditional banking relationship and there are 33 million poor Americans in this great country. That is more than 21 states combined.

 Page 46       PREV PAGE       TOP OF DOC

    And then you have our children. As I just mentioned, the largest group of bankruptcy filers are youth between 18 and 24. That is not black kids. Those are middle class white college students, getting a master's degree in psychology and an undergraduate degree in bankruptcy paying for their pizza with a credit card and believe a check is a form of credit. We have to do this because our nation and our economy depends on us doing this. Let me now go to the good news. We are the only nation in the world where every race of people is within our borders. We also happen to be the largest economy in the world. The two largest economies in the nation are California and New York. The two most diverse places in the nation are California and New York. The fifth largest economy in the world is California. The 10th largest economy in the world is Los Angeles County, 180 ethnic groups. I tell CEOs, don't put blacks and Latinos on your boards because it looks good. Do it because it is good for your bottom line.
    Facts: The largest condiment seller in the nation for generations has been ketchup. It is now salsa. African Americans are an economic force to be reckoned with. We represent a $500 billion a year consumer spending force, the ninth largest in the free world. We represent 25 percent of every movie ticket sold in this country and that is why Magic Johnson's theater in South-Central LA is one of the top ten theaters in the entire SONY chain.
    In Harlem, there is $1 billion in cash economy not showing up on census data. In Harlem, there is over $1 billion in untapped buying power and the crime rate per capita, per 1,000 residents is lower in Harlem than in Manhattan. In D.C, there is $250 million of untapped cash economy and the mayor here has launched an illiteracy initiative to empower the individuals here to get the jobs that are actually available. We are bringing a HOPE Center here to Anacostia in partnership with E-Trade Bank and the District and the federal government to prove you can do well by doing good.
    Finally, Banking on Our Future. As I mentioned, we taught 107,000 kids economic literacy, the only national delivery platform. We partnered with the FDIC. It was noted earlier today how good this program is. I believe it is the best program in the federal government, and Chairman Powell deserves a lot of credit. We have also partnered with eight of the twelve Federal Reserve banks and the American Bankers Association and the American Community Bankers Association, and President Bush has highlighted our volunteers.

 Page 47       PREV PAGE       TOP OF DOC

    I have already mentioned the local partnerships, and Wells Fargo and I have committed to bring economic literacy online at Bankingonourfuture.org. We get 250,000 hits per month on this Web site for folks desiring to get economic literacy. We are now partnering with, as I have mentioned, other branches of the administration, the Economic Development Administration, Veterans Affairs. I believe economic literacy has to be clear and transparent throughout our system, because as I said earlier, 80 percent of our economy is tied to the U.S. consumer.
    Results, and my final comment. Check-cashing customers into banking customers conversion. We partnered with Union Bank of California and Nix Check Cashing. I don't like check-cashers, but if you can't beat them, buy them. So we went into the inner-city and we partnered with Nix and Union Bank. I am proud to say today that of 30,000 checking accounts opened by Union Bank of California in 2001, 10 percent or 3,000 accounts were from our partnership, converting check-cashing customers into banking customers. By the way, Union Bank is on its way to one million ATM transactions in those locations this year. You cannot have an ATM transaction without a bank account.
    We have converted renters into homeowners. I referred to those statistics already. You might note that there is not one home burned in the riots of 1992 and there were 3,000 structures damaged. You do not burn that which is your own. We believe in converting the un-banked into communities of choice. I have talked about the HOPE Centers already and I have mentioned that we have built three of them. We are building on in Oakland, California and we are building on in Washington, D.C.
    And so, my request to you today, our nation's legislators, is to do more and to have a call to action and a marked increase in support for economic literacy education and tools and services that empower the wealthless of our great nation. These individuals do not want a hand out, they want a hand up. I believe in the James Brown version of affirmative action, ''Open the door, I will get it myself.''

 Page 48       PREV PAGE       TOP OF DOC

    Thank you.
    [The prepared statement of John Bryant can be found on page 85 in the appendix.]
    Mr. GILLMOR. Thank you very much, Mr. Bryant.
    And we will go to Mr. Gabriel Manjarrez, who is the Senior Vice President, Hispanic Marketing Executive at the Bank of America.
STATEMENT OF GABRIEL MANJARREZ, SENIOR VICE PRESIDENT, HISPANIC MARKETING EXECUTIVE, BANK OF AMERICA
    Mr. MANJARREZ. Thank you, very much. Thank you, Congressman Gillmor, Congressman Hinojosa, Mr. Chairman, the rest of the distinguished members of the subcommittee.
    On behalf of Bank of America, I want to thank you for the invitation to testify on our initiatives to bring the un-banked and underserved into the mainstream financial system. Specifically, I want to talk about two of our programs seeking that objective in the Hispanic market.
    In my role in charge of marketing to Hispanic consumers, it is my job to develop sales and marketing strategies that will connect Hispanic customers with our financial products and services in a way that provides them with the most positive and integrated banking experience. In fact, our in-language advertising slogan is Superacion Constante, which conveys that we are always striving for improvement in the way we serve this market.
    I would like to take a little time today to describe what we have done to be responsive to the needs of this market. The first program I want to discuss is our initiative to accept the use of the Mexican consulate ID, the Matricula Consular. We developed this initiative because we wanted to make it easier for Mexican citizens living in the USA to have access to banking services from Bank of America. Like many of our Hispanic customers, we recognized the opportunity presented by the Mexican consulate ID, but needed to see if the card could serve as an effective form of identification. We launched a pilot in December 2001.

 Page 49       PREV PAGE       TOP OF DOC

    The results were quite convincing, with significant net gains on new checking and savings accounts that have continued an upward trend to this day. The pilot program was successful and we decided to expand it nationwide as of June 2002. The size and significance of this step should not be underestimated. Bank of America is the nation's largest retail bank, with over 4,000 retail branches and more than 13,000 ATMs. In fact, we are the only coast-to-coast retail bank in the nation; 75 percent of the nation's Hispanic population live in communities served by Bank of America.
    We knew that this is a market that has a high need for banking services and very high growth potential. Today, every single Bank of America banking center recognizes the Matricula Consular as a valid form of identification. We believe that banking services ought to be made available to everyone so that they can manage their money without carrying large sums of cash. As Congressman Hinojosa eloquently noted, the consequences of having to carry a stash of cash can be quite dire and take the form of muggings and other violent crimes.
    We strongly encourage the U.S. and Mexican governments to work together to ensure that the consulates have the best authentication measures and tracking systems in place. We also applaud the Mexican government for developing much stronger security measures to ensure the integrity of the card itself. Today, many consider it as secure as a U.S. passport because of its robust security features.
    The second program I want to talk about is our money remittance program. It is called SafeSend. Addressing Congresswoman Velazquez's excellent point about promoting alternatives, we launched an entirely unprecedented international money transfer service as an alternative to traditional wire transfer services that dominate the marketplace.
    SafeSend is a safe, trustworthy and convenient card that uses a telephone Internet and the ATM network, rather than expensive wire services. Our SafeSend customers can send money by phone or electronically to loved ones in Mexico 24 hours a day, 7 days a week, without having to leave their homes. On the receiving end in Mexico, the recipient uses a secure PIN and SafeSend ATM card to access the money within minutes in over 20,000 Mexico-based ATMs.

 Page 50       PREV PAGE       TOP OF DOC

    We created this product because customer feedback demonstrated the demand for less expensive options in the money transfer business. SafeSend is the first to serve that the Bank of America designed exclusively for Hispanics. It offers greater value and convenience than traditional wire transfer products and provides a secure service at a low cost to the sender. More than one-third of all our SafeSend customers open checking accounts when they subscribe to the service. We are finding our remittances business to be a great generator of deeper customer relationships and helping the un-banked and the underserved be banked and served.
    Last, we would be remiss if we failed to mention efforts to bring the underserved populations into banking through financial education initiatives. As Chairman Bachus and Secretary Abernathy pointed out, financial education is key to improve the situation of the un-banked. Bank of America is one of the nation's strongest supporters of financial education.
    We have longstanding commitments to the health of the communities where we do business, and as a provider of financial services we have a responsibility to help our customers and clients understand our products and services so they can plan for every stage of their lives. We have several examples of alliances we have done, including with the National Council of La Raza, with Freddie Mac and Consumer Credit Counseling Service, and with Consumer Action to provide educational services.
    In sum, the Mexican consulate ID, SafeSend, and our financial education initiatives are opening the door to financial services for more un-banked customers. As a result, more are opening new bank accounts, cashing checks, making international money transfers, subscribing to other banking services, and becoming more documented in the process. We are providing opportunity for thousands to gain access, many for the first time, to mainstream banking services, and applaud the subcommittee's interest in learning more about the subject.
    I would like to thank the subcommittee once again for the opportunity to share our perspective and look forward to answering any questions.

 Page 51       PREV PAGE       TOP OF DOC

    Thank you.
    [The prepared statement of Gabriel Manjarrez can be found on page 116 in the appendix.]
    Mr. GILLMOR. Thank you very much, Mr. Manjarrez.
    We go to Ms. Sheila Bair, who is the Dean's Professor of Financial Regulatory Policy at the University of Massachusetts.
STATEMENT OF SHEILA BAIR, DEAN'S PROFESSOR OF FINANCIAL REGULATORY POLICY, UNIVERSITY OF MASSACHUSETTS
    Ms. BAIR. Thank you, Mr. Chairman.
    I appreciate the opportunity to testify this morning on initiatives to broaden access to the financial mainstream among traditionally underserved populations.
    Last fall, the Inter-American Development Bank asked the University of Massachusetts to undertake a research project on ways to improve Latin American immigrants' access to the U.S. banking system. Today, I will highlight the report's key findings.
    Previously sponsored IDB survey data show that lack of documentation of legal status to be the most frequently cited reason Latino immigrants do not use banks. Consistent with that data, our own survey and interviews revealed widespread consensus that banks and credit unions must be able to accept foreign government-issued documentation to successfully reach the un-banked Latino immigrant community.
    There was also widespread support for the approach taken in the Treasury Department's recently finalized section 326 regulations to allow banks and credit unions to accept foreign government-issued documentation if the institution determines that such documentation provides a reasonable basis to know a customer's true identity.
    Our research showed that mainstream financial institutions's acceptance, particularly the Matricula Consular, appeared to move a major impediment to bringing un-banked immigrants into banked status. For instance, Wells Fargo estimated that it opened 60,000 new accounts since it began accepting the matricula in November 2001. The FDIC Chicago office recently began surveying banks accepting the matricula, and of the eight banks they had surveyed so far, nearly 13,000 new bank accounts had been opened, representing $50 million in deposits. The FDIC is in the process of collecting data from an additional 26 institutions.

 Page 52       PREV PAGE       TOP OF DOC

    The provision of bilingual services was the second most important access issue identified by those we interviewed. Virtually all our surveyed institutions provided bilingual account-opening documents, product information, and bilingual assistance at their car centers and Web site, as well as placing a high priority on hiring and training bilingual staff. The provision of products and services for individuals with little or no credit history was also deemed important. All surveyed institutions offered secure credit products and some made small unsecured loans based on alternative criteria such as regular timely payment of rent to let new customers build a credit history.
    In addition, appropriate product offerings were considered very important. Most institutions offered low minimum balance savings accounts on an introductory basis and used caution in introducing checking accounts with overdraft features, credit cards, or other products that could entail high fees if inappropriately used. Financial education was also heavily utilized by all surveyed institutions. School-based programs were particularly effective at outreach since in a high percentage of Latino families the parents are un-banked. School banking programs introduced Latino children to bank accounts which they, in turn, would take home and share with their families.
    Surveyed institutions also made very stringent efforts to provide services in easily accessible locations and during nontraditional hours and to be visible, present forces in Latino neighborhoods. Many institutions had also entered partnerships with major employers of Latino immigrants, providing job-site banking services and ATMs, as well as financial education.
    Finally, all surveyed institutions offered remittance services, identifying that as the top product need of their Latino immigrant customer base. All also said that providing low-cost remittance services was a major marketing tool, a key to getting Latino immigrant customers in the door. A key benefit of banks and credit unions interested in marketing to the Latino community has been their entry into the remittance market. As other witnesses have testified this morning, their entry into this market has created needed competition which has already made significant progress in lowering the cost of remittances. To encourage this trend, however, it is imperative that banks and credit unions have the discretion to accept reliable foreign government-issued identification to open accounts.

 Page 53       PREV PAGE       TOP OF DOC

    Unfortunately, their ability to do so under the section 326 regulations has become embroiled in the larger debate over immigration control policy. Being able to have a banking account will not materially influence an individual's decision to immigrate or remain in this country illegally. As a consequence, denying banks or credit unions the ability to accept reliable foreign-issued documents to open accounts would do little if anything to accomplish immigration control objectives. It will, however, force undocumented workers to rely on higher cost, less-regulated financial service providers with the resultant loss in regulatory oversight and transparency.
    Regulated depository institutions have long experience in combating money laundering and illicit financing under the Bank Secrecy Act and are subject to stringent independent oversight by highly trained bank regulatory staff. It is unlikely that less-regulated financial service providers would devote the same level of expertise or resources against money laundering and terrorist financing. Thus inhibiting the ability of banks and credit unions to provide remittance services could run counter to our enforcement objectives.
    Senator Richard Lugar eloquently stated in a recent op-ed defending the Matricula Consular, quote, ''throughout American history, our nation has succeeded in integrating immigrants into the economic fabric of the country,'' end quote. For millions of immigrants, having access to a low-cost, federally insured depository account is a necessary part of achieving that integration. All of us, Republicans and Democrats, conservatives and liberals, can and should embrace the notion of removing government impediments to allowing people to work and contribute to this great nation.
    Banks and credit unions should be allowed to do what they are chartered to do, provide a safe place for people to deposit their money and provide a means by which those deposits can be translated into productive lending. The federal government should not try to micro-manage these institutions's customer relationships, nor should it try to undertake the impractical task of dictating among thousands of different types of identification which are acceptable and which are not.

 Page 54       PREV PAGE       TOP OF DOC

    To be sure, there have been failings in our immigration policy, but intrusive interference with the ability of banks and credit unions to serve their communities is not the answer. There is near-universal support for improved border security, reformed visa procedures, coherent tracking systems and a rationalization of the patchwork of laws that make up the immigration code. This is where the focus of our immigration control efforts should be.
    Thank you, Mr. Chairman, for this opportunity.
    [The prepared statement of Sheila Bair can be found on page 66 in the appendix.]
    Mr. GILLMOR. Thank you very much, Ms. Bair.
    We will now go to Mr. Brian Satisky, who is the President of the Maryland Association of Financial Service Centers, testifying on behalf of Financial Service Centers of America.
STATEMENT OF BRIAN SATISKY, PRESIDENT, MARYLAND ASSOCIATION OF FINANCIAL SERVICES CENTERS, INC., ON BEHALF OF THE FINANCIAL SERVICES CENTERS OF AMERICA
    Mr. SATISKY. Good afternoon, Mr. Chairman, subcommittee members.
    My name is Brian Satisky and I am here today to testify on behalf of Financial Service Centers of America, also known as FSCA, where I serve on the board of directors. I am the Vice President of A&B Check Cashing and I also serve as President of the Maryland Association of Financial Service Centers, Incorporated.
    FSCA represents more than 5,000 businesses which provide consumers with a variety of financial services, including check cashing, money orders, ATMs, electronic bill payment, money wire transfers, transit tokens and passes, and a host of other financial and related services. Today, we hope to dispel some myths and make it very clear that we are in the financial mainstream serving millions of Americans on a daily basis.

 Page 55       PREV PAGE       TOP OF DOC

    All consumers deserve access to essential financial services whether they are offered by banks or our service centers. The policy goal should be to assure that choices are available and not just shoe-horn consumers into a financial model which may not fit their circumstances. Everyone needs financial services; not everyone needs to get them from a bank.
    For many consumers, the traditional banking model is not the best choice. The Federal Reserve Board reported in the year 2001that half of those who do not currently have checking accounts used to have them. For these consumers, the choices not to have an account are appropriate. Comptroller of the Currency John Hawke said last year that appearances to the contrary notwithstanding, check cashing customers do business outside the banking system for practical and economically rational reasons.
    The un-banked are actually the self-banked. These individuals understand the costs and benefits of maintaining a banking relationship and have voted with their feet to utilize our financial services. Consumers know that banks will not cash checks in amounts later than the amount of funds on deposit. Check-cashers will do so and make funds readily available to these consumers so they do not have to wait for a check to clear.
    Unlike banks which primarily derive their income from the spread between interest paid on deposits and their loan portfolios, we rely on transaction fees. Our success depends on providing a high level of service. It is not realistic to expect banks to welcome customers who do not add much to their bottom line, but these are our customers and they are pleased with our services. Eight-one percent of survey respondents rated our service either excellent or very good.
    Many consumers prefer to obtain their financial services at check-cashers despite the efforts of government to direct them to banks. There will always be some consumers for whom a depository account does not make economic sense, but those who choose to obtain depository accounts should have the opportunity to do so. We believe that our infrastructure could serve as a conduit for them into the banking system. Check-cashers directly serve the people the policymakers are trying to reach.

 Page 56       PREV PAGE       TOP OF DOC

    When the banks abandoned many of our nation's neighborhoods, our industry continued to serve these neighborhoods. Does it really make sense to ask these very banks now to offer them accounts? Or should government turn to the industry which has continued to serve the public without subsidies? Government has subsidized banks to serve our customers, but these programs can and do come with substantial costs to taxpayers.
    As the House Appropriations Committee has pointed out, for some consumers the cost to open each first account averages almost $250. Last year, the GAO questioned the efficiency of the ETA, stating, ''Given the limited appeal of the ETA, we question whether the program would generate savings sufficient to offset Treasury's costs of maintaining and promoting this program.''
    Although many banks have abandoned neighborhoods, FiSCA members have found some financial institutions with which partnerships can be formed to benefit all parties involved. My company, A&B Check Cashing, is involved in a project in Southwest Baltimore City in which we have partnered with a federal credit union to provide services to a community that has lacked banking for the past five years. We call it Our Money Place. This partnership arose after a community group, Operation Reachout Southwest, sought a bank to serve the community, but was rejected time and time again. Finally, they came to the Social Security Administration Baltimore Federal Credit Union which agreed to serve the neighborhood, but did not want to provide cash services. That is where we come in.
    Our company provides all the cash services that are necessary for a full-service financial institution to have. We will not only cash checks, but dispense free money orders to the customers to use as they see fit. If a customer has a savings account and wishes to make a deposit, A&B will cash their check and issue them a free money order in the amount of the deposit they want to make. They simply walk over to the credit union window and make the deposit.
    Additionally, Operation Reachout Southwest maintains a desk in our lobby that answers questions and provides financial literacy education and counseling. A neighborhood that had no banking at all now has a full-service financial institution to serve them.

 Page 57       PREV PAGE       TOP OF DOC

    In New York, another FiSCA member, RiteCheck Cashing, is in a cooperative venture with Bethex Federal Credit Union. In that case, the idea is to permit the credit union to expand its reach without incurring the expenses of constructing and servicing new branches. In California, some Nix Check Cashing locations are co-located with Union Bank facilities, allowing consumers full access to depository services. The partnership teams up with Operation HOPE, a community group represented here today by its Chairman John Bryant.
    While FiSCA members are working with some institutions to expand services, other banks continue to abandon our customers by refusing to serve all check-cashing businesses. They are following guidance from the OCC suggesting that check-cashers and a few other businesses are at high risk for money laundering. This designation is false, misleading and damaging. Our record of compliance is exemplary. The Financial Crimes Enforcement Network, FinCen, has found our industry not to be at any higher risk than any other industry.
    This problem could be acute for our customers. There are now only two major banks serving the industry in New York City, and with the loss of competition, fees are likely to rise. Many banks have also stopped verifying funds availability for our customers' accounts. It makes it difficult for our customers who are attempting to cash payroll checks as check-cashers need to be able to determine that there is a likelihood that the funds are available. Even the recently passed USA PATRIOT Act encourages all financial institutions to verify funds to help fight against fraud and suspicious transactions. How can we comply if the banks refuse to assist us? FiSCA intends to pursue these issues of bank discontinuance and lack of verification of funds with this subcommittee.
    I thank you and I would be pleased to answer any questions that you may have.
    [The prepared statement of Brian Satisky can be found on page 121 in the appendix.]

 Page 58       PREV PAGE       TOP OF DOC

    Mr. GILLMOR. Thank you very much, Mr. Satisky.
    Let me begin and I would like to go to Mr. Manjarrez. You stated in your testimony that the Bank of America's policy is to accept Matricula Consular as a valid form of identification when it is presented with a secondary form of identification. In your experience, what other forms of identification do holders typically present when they are seeking to cash checks and open an account? And what standards does the bank apply in determining whether the secondary form of ID is sufficient?
    Mr. MANJARREZ. Thank you very much for your question, Congressman Gillmor. As primary form of identification, we take the Matricula Consular along with a number of other identifications, including any U.S. Government-issued identifications. As a secondary form, we will take either a driver's permit or other photo identification that are assessed by our risk department to comply with our efforts to not permit fraud and to comply with all federal regulations.
    Mr. GILLMOR. So it would have to be a government-issued photo ID of some type?
    Mr. MANJARREZ. That is right.
    Mr. GILLMOR. Okay. Let me go to Ms. Bair. Those who oppose the acceptance of the Matricula Consular by depository institutions have argued that the cards lack adequate security features which make them susceptible to fraudulent misuse. Does your research support or refute that claim? I might also ask you, what are the security features of the matricula? Also, I have been told and I just want to ascertain if it is true, that it would be relatively easy for someone who is not a Mexican citizen to obtain one, and is that accurate as well.
    Ms. BAIR. I think the standard under section 326 regulations is one of reasonableness and is based on available identification. We looked at the security features in the high security Matricula Consular and talked to a number of bank officials. B of A was one of the institutions surveyed and written up as an institution with best practices in our report. I would add, incidentally, that they are not alone. Most of the banks and credit unions we surveyed also require an additional form of ID. The Matricula Consular is accepted as the primary form, but their requirements are typical of the other institutions we looked at.

 Page 59       PREV PAGE       TOP OF DOC

    Certainly I think a number of forensic specialists, which I am not, in this area would say that the security features are comparable to those that the U.S. government has tried to instill in our own documents, and superior to a number of the state driver's licenses in terms of the safeguards they have against counterfeiting. So I think in terms of that I think the Mexican government has made a good case that they have made a number of efforts to enhance the security of the card against counterfeiting. It is much more foolproof against counterfeiting than a number of state driver's licenses.
    Mr. GILLMOR. From your knowledge, what standards does the Mexican government use before they would issue one?
    Ms. BAIR. I can just read to you from our report. To obtain a Matricula Consular, the applicant must present an original birth certificate, another official ID with a photo, personal information, their name, address and all that, plus a document with their current address such as a utility bill. The matricula has nearly a dozen security features which are designed to deter falsification and counterfeiting. These include a holographic image with hidden marks such as the person's name appearing over the picture when viewed with a decoder, an official seal appearing over the photo that changes color in natural light, and issuance on green security paper with the Mexican seal printed in a special security pattern.
    Again, these are standards that they tried to learn from the types of security measures we put in our own documents and use them with the matricula.
    Mr. GILLMOR. Switching ground a little bit, you said in your testimony the possibility of a large volume of remittances from the U.S. to Latin America could have a significant positive effect on local economies in Latin America. Has the Inter-American Development Bank or any other organization compiled statistical data which would show that effect? I guess based on your research, how would you expect any effect to show up in the data?
    Ms. BAIR. I don't know. They have obviously the aggregate numbers of dollars that are sent. In terms of gauging local economic impact, no, I am not aware of any comprehensive studies. But it is a good idea they should do some, because it is quite a large amount of money going to a lot of these small impoverished communities. I can only assume anecdotally that it having a positive impact.

 Page 60       PREV PAGE       TOP OF DOC

    Mr. GILLMOR. I guess we assume that if you dump a lot of money somewhere it will have an impact.
    Ms. BAIR. That is right.
    Mr. GILLMOR. Going now to the gentleman from Texas.
    Mr. HINOJOSA. Thank you, Chairman Gillmor.
    Mr. Beltran, I am very glad to see you here in Washington and that you accepted to come to this subcommittee hearing.
    Mr. BELTRAN. Thank you, Mr. Congressman.
    Mr. HINOJOSA. What would you think if legislation were introduced to authorize $4 million for the First Accounts program, but $1 million of that was used to study the effectiveness of the 15 First Account pilot programs, basically using the money to contract out the funds to a private company to research the methodology each pilot program used?
    Mr. BELTRAN. I believe that by doing what you just said, using the money to research, I would hope that it would benefit the programs that we have and increase the understanding of the value of why we need those programs. I think we could find the study probably to reflect some of that in some of the programs that we offer.
    Mr. HINOJOSA. Thank you.
    Ms. Bair, if you could pick one thing to do to reach out to the un-banked, other than through the First Accounts or IDAs, what would it be?
    Ms. BAIR. That is a hard question. I assume your question goes to un-banked populations generally, not just to the Latino immigrant community which was the focus of our report. If we are talking about the recent Latino immigrants, clearly documentation is first and foremost. I think for the larger population, I do think I would agree with what Mr. Abernathy said on the first panel that access has really been a key issue, and I would agree with you that a lot of large banks got out of a lot of low-to moderate-income neighborhoods in the 1990s. You saw a precipitate decline, a lot of bank closings, and a precipitous rise in alternative service providers going into these neighborhoods. They have offered an important service in terms of convenience and they have been there when other banks have not been.

 Page 61       PREV PAGE       TOP OF DOC

    I welcome that there is a trend in the other direction, that big banks and small banks are moving back into these neighborhoods. They need to be there. They need to be physically present and accessible. They need to be open during nontraditional hours. I think particularly for the Latino immigrant community, they need to have a less institutional atmosphere. At a lot of banks, B of A again and Wells Fargo, as well as the smaller community banks, the decor is friendlier. There are play areas for the children when they come in. There is a lot of hands-on intensive attention when a person comes in to open an account, a lot of extensive counseling and explanation of the bank and the appropriate way to use a bank and the bank products.
    So I think that physical presence and access and being active partners in the communities that these banks large and small are trying to serve is really the most important thing.
    Mr. HINOJOSA. Thank you.
    Mr. Gabriel Manjarrez from Bank of America, in your testimony you note that some critics of the Consular ID card have raised concerns about increased risk of fraud; that you have thoroughly considered these risks and have significant controls in place for screening potential customers and monitoring their accounts for fraudulent activity. I was pleased to hear that. You go on to state that your bank is also working closely with government agencies to comply with any and all the requirements, including those resulting from the USA PATRIOT Act. What is your opinion of Section 326?
    Mr. MANJARREZ. Thank you, Congressman Hinojosa. I am no expert on Section 326. Our opinion is that we will comply with any and all federal regulations. We currently are simply trying to support our customer base and serve a large portion of underserved and un-banked customers. To do that effectively right now, the use of the Matricula Consular has been an incredibly effective way. We obviously support its use and we are continuing to work, and we thank the subcommittee for inviting us here to talk about its value.

 Page 62       PREV PAGE       TOP OF DOC

    Mr. HINOJOSA. Chairman Gillmor, to try to save some time, and I know that you are trying to finish this hearing by 1:00 p.m., I want to ask unanimous consent that some of the letters that have come in to my office from different organizations that are interested in this issue be inserted in the record.
    For example I have a statement from the National Council of La Raza submitted to me by Brenda Y. Muniz, Policy Analyst for National Council of La Raza. She goes into detail about the identification card. In the conclusion, she says, ''In conclusion, the matricula is simply an identification card. It does not legalize the status of any immigrant. It cannot be used to obtain any immigration or citizenship benefits such as work authorization or the right to vote. And it cannot be used to obtain public benefits. Its continued use and acceptance, however, does have a positive impact on immigrant workers, their families and the communities where they reside, fostering greater transparency and integration into the U.S. society which benefits us all.''
    It is a very well written document and I wish to ask that it be made a part of today's proceedings.
    Mr. GILLMOR. Without objection, the Chair hearing none, it will be made a part of the record.
    [The following information can be found on page 177 in the appendix.]
    Mr. HINOJOSA. Also without reading them, there are two other documents that I would like to ask unanimous consent that they be accepted and made a part of today's record. One is the Citigroup's efforts on Banking the Un-Banked and Financial Literacy. It is a study that they made which is also very informative. The third one is one that is submitted by the Mexican-American Legal Defense and Educational Fund, better known as MALDEF. It is entitled ''Acceptance of Mexican Consular ID's Is Not Only Legal, It Improves Public Safety and Enhances the Economy.''

 Page 63       PREV PAGE       TOP OF DOC

    Mr. GILLMOR. Without objection it will be a part of the record.
    [The following information can be found on page 155 and 137 in the appendix.]
    Mr. HINOJOSA. Finally Mr. Chairman, I was very pleased to hear some of the presenters today talk about the fact that the Matricula Consular, or the Consular ID card as some call it, has invisible security features. I was able to obtain one for use at this public hearing from the Mexican embassy as a sample of the Matricula Consular or Consular ID card. In looking at it and comparing it with my driver's license, I find great similarity. It has lots of invisible security features contained in this document that I want to be made part of the record. I obtained it from the Embassy of Mexico here in Washington. It gives an explanation of those features. The document explaining that the term ''Matricula Consular card'' is printed on the card itself. It has invisible security features where, using a fluorescent light lamp, capital letters SRE can be seen all over the front.
    All of this is to say that I want this document to be made a part of the record because I am convinced that what we are trying to do with this hearing is to simply say that we want banks to be able to use the matricula identification card for identification purposes and that we do not want to complicate it or let anyone say that we are trying to use it for immigration purposes or allow it to be used for terrorism. The Consular card an identification card, and hopefully Congress will treat it as such when my legislation comes to a vote.
    Mr. GILLMOR. Without objection, the Chair hearing none, the copies will be made a part of the record.
    Mr. HINOJOSA. Thank you, Mr. Chairman. With that, I yield back.
    Mr. GILLMOR. The gentleman yields back.
    The gentlelady from California.
    Ms. WATERS. Thank you very much.

 Page 64       PREV PAGE       TOP OF DOC

    Mr. Satisky, I would like to raise a few questions with you about some of the testimony that I had an opportunity to read prior to coming in today. I was in and out of the room, so I don't know if it was the same testimony that I see with the written testimony that was provided to us before the hearing.
    First, let me just say to you that I am not opposed to any organization providing services to poor communities. What I am opposed to is exploitation. I am opposed to exorbitant rates. And I am opposed to poor people being a convenient group of people by which to make money off of. Every scheme in America finds its way to the poor community. I have spent my life trying to articulate what is happening in poor communities and fighting on behalf of poor people. We have been able over the years since I served in the legislature and prior to coming here, to stop a lot of schemes.
    So I am very, very versed in the ways that these things are done. I am not an elected official who turns a blind eye because I can get a campaign contribution or because I can cut a ribbon or be a part of a ceremony sending a signal to people that I am doing something when I am not doing something. So I am only concerned with whether or not poor people are being treated differently because they find themselves in a particular situation.
    I would like you to explain to me the relationship that you have with credit unions. It could be that what you have described in this testimony is an answer to some of my concerns about how to provide services to poor people. I note that you describe some relationships between credit unions and payday loan operations or financial services, whatever you call it. And that it has worked out in such a way that the people able to benefit and even get checks cashed for free or for very little amounts of money because the credit union helps to reduce the cost of paying for the cashing of those checks.
    Would you describe to me the A&B-federal credit union relationship? I think it is in combination with Operation Reachout in southwest Baltimore.

 Page 65       PREV PAGE       TOP OF DOC

    Mr. SATISKY. Yes, I would be happy to, Congresswoman. I am also happy to say today that we both oppose the very same things. So all those issues that you oppose, we do as well.
    I got a phone call a little over a year ago from the Bon Secours Foundation, which is a nonprofit hospital-based foundation in southwest Baltimore City.
    Ms. WATERS. Which foundation was that?
    Mr. SATISKY. The Bon Secours Foundation, asking if A&B Check Cashing would be interested in partnering with a federal credit union to bring full financial services back to a community which had not had them for quite a long time. We were interested in such a program and we met with the groups of people involved, including Operation Reachout, which is a very active community group in that neighborhood.
    What we found out at that meeting is that they had been searching for a bank or a credit union to supply that community with full financial services for quite a time and to no avail. They could get a little of this and a little of that, but not the whole package which was really what they needed. They needed somebody to handle cash services as well as non-cash services. They wanted to do the loans and the savings accounts and the checking accounts. They also needed the people to cash checks and get money orders and all those sorts of things that are traditional banking services.
    We were surprised to hear that they had failed in such an attempt. Then the Social Security Baltimore Federal Credit Union came and stepped forward and said that they would in fact be interested, but it was not viable for them to handle the cash services. It just simply was not profitable for them and they just didn't see a way that they could do it reasonably. So if they could find a partner that would handle the cash services, then they would be interested as well.
    Well, all parties got together at that point and we hammered out some deals. It really was very easy for us, to be perfectly honest with you. We were very anxious for the opportunity to be involved in an FDIC institution and provide the cash services where the credit union could not. We also were very anxious to be involved in the financial literacy aspect of the whole program as well, of being able to provide a service desk in our lobby, educating people on how to obtain checking accounts; to determine is they even need a checking account, because it may not be for everybody.

 Page 66       PREV PAGE       TOP OF DOC

    Ms. WATERS. I am going to interrupt you for a minute now. In addition to the check cashing services, do you provide payday loan services?
    Mr. SATISKY. No, ma'am. Short-fund payday lending is not available in Maryland at this time.
    Ms. WATERS. Okay, so this is check cashing for the most part.
    Mr. SATISKY. Yes, ma'am.
    Ms. WATERS. Did your relationship reduce the amount that the consumers pay for cashing their checks?
    Mr. SATISKY. Yes. Maryland is a regulated state and it has good quality regulations in line there as far as rate caps are concerned. I would tell you that in Maryland, especially in the Baltimore area that I am most familiar with, check cashers provide services for much less than the cap. The regular cap is 4 percent for payroll checks, 2 percent for government checks, and 10 percent for personal checks. Most check cashers provide check-cashing between 1 and 2 percent. So it is a very competitive thing.
    Ms. WATERS. Let me ask now, the credit union is nonprofit?
    Mr. SATISKY. That is correct.
    Ms. WATERS. For the community group Operation Reachout Southwest that got involved, do they receive payment of any kind?
    Mr. SATISKY. I don't think so, but I am not 100 percent sure about that. That is a part of the negotiations that I have not had anything to do with.
    Ms. WATERS. Okay. Also, with the New York operation that you described at RiteCheck Cashing, and I think it is Bethex Federal Credit Union, it seems that there are no fees for check cashing and it is paid for by the credit union at a different rate, and the marketing materials for Bethex as available at the check-cashing locations and loan applications are available so that folks can join the credit union and they can make loans and those loans are at rates that other credit union users would be charged.

 Page 67       PREV PAGE       TOP OF DOC

    Mr. SATISKY. Or less.
    Ms. WATERS. Or less. Now, so I guess what I want to be very clear about is this, I am not opposed to alternative banking operations. Again, I am opposed to people pretending to do good for the poor when the poor are being exploited in the name of civil rights or anything else. So I say to you that one of the operations that was described here today, the cooperative so-called nonprofit group, is making 5 percent from the check-cashing payday loan operations, which means that the price of the product has increased when you have to pay everybody up the line for producing this product. If you show me operations such as you are describing now, I have no problems with that, none whatsoever.
    So what the people have to understand is the difference. Most elected officials do not know this. They are not concentrated on financial services and they can be sold a bill of goods any day of the week because it looks good and they want to do something for their people. But of course my job serving on this committee is to be able to know the difference and to be able to call it like it is. So as a representative of the alternative banking that is described as something that is desperately needed, if you could begin to talk within your industry about what some of our concerns are, people who represent poor communities, and how we welcome the opportunities for real nonprofits such as the credit unions who have real services that they can provide and reduce costs, those kind of operations we have no problems with whatsoever. There is a difference in what you have described here and some of the others who purport to be doing something for the poor, when in fact they are just fattening their pockets on the backs of the poor and talking trash. Okay? Thank you.
    Mr. SATISKY. Thank you.
    Ms. WATERS. I yield back the balance of my time.
    Mr. GILLMOR. The gentlelady yields back.
    That concludes the questioning. I want to thank all six of our panelists for coming and for your very helpful testimony.

 Page 68       PREV PAGE       TOP OF DOC

    Mr. HINOJOSA. Mr. Chairman?
    Mr. GILLMOR. Yes, Mr. Hinojosa?
    Mr. HINOJOSA. Mr. Chairman, I apologize that I had overlooked a document that was prepared by my staff. In keeping with this hearing, which is entitled ''Serving the Underserved,'' Initiatives to Broaden Access to the Financial Mainstream, some of the presenters talked about the importance of education. This document that I ask unanimous consent be made a part of the hearing today is entitled ''List of Several Financial Literacy Programs.''
    In the record there should be a listing of these programs because anybody doing research would be helped a great deal if they knew that America's Community Bankers launched MoneyRules, a financial literacy campaign in which community bankers share their financial knowledge with the community. Others like the Federal Deposit Insurance Corporation initiated a national financial education campaign by developing a program called MoneySmart. There are many others, including Fannie Mae and Freddie Mac with their programs. The Independent Community Bankers of America have another program on MoneySmart. Again, I believe that this would be a good way to close our hearing today because I think it has wonderful information on the education that is necessary to help our un-banked community.
    Mr. GILLMOR. Without objection, the Chair hearing none, the document will be made a part of the record.
    Once again, my thanks to the panelists and we stand adjourned.
    [Whereupon, at 1:25 p.m., the subcommittee was adjourned.]

3