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1 1 (August 27, 2020)

handle is hein.crs/govdbmh0001 and id is 1 raw text is: August 27,2020 Financial Inclusion: Access to Bank Accounts Most U.S. consumers choose to open a bankaccount, such as a checking or savings account, becauseit is considered a safe and secure way to store money, particularly as the Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 per depositor againstan institution's failure. In addition,consumers gain accessto payment services through checking accounts, such as the ability to make electronic payments online, direct deposit, and paper checks. Frequently, a checking account includes access to a debit card, which increases a consumer's ability to make payment transactions through the account. For most consumers, a bank account is less expensive than alternative ways to access these types of services. Opening abankaccountis relatively easy formost people. Consumers undergo an account verification process, and they sometimes provide a smallinitial opening deposit of money into the account. Many consumers open their first bankaccounts whentheyget theirfirstjobs or start post- secondary education. Checking and savings accounts are often the first relationships thata consumer has with a financial institution, whichcan laterprogress into other types offinancialproducts andservices, such as loan products or financial investments. However, many U.S. households-often those with low incomes, lack of credit histories, orcredit histories marked with missed debt payments-donotusebanking services. Bank Accounts Er o-omius Depository institutions, such as banks or credit unions, incur expenses to provide bank accounts to consumers, which include providing monthly statements, settlement risks, and fraud. In addition, physicalbanking branches incur costs to hire staff and maintain retail locations. To recoup these costs and make profits, depository institutions make money from interest rate spreads (i.e., loaning out funds they takein from checking and savings accounts at a higher interest rate than they pay the account holders) and account fees. Historically, some banks have been willing to lose money on bank accounts to begin arelationship with a client and later get more profitable business, such as a credit card or mortgage loan. Checking and savings account data might allow a bankto betterunderwrite andprice loans to a consumer. In this way,banks with a checking account relationship with a consumer might be able to provide more attractive loanterms than otherbanks withoutthis relationship. Lower balance or less creditworthy consumers may generally be less profitable for banks to serve. Consumers with low checking or savings account balances provide banks minimal funds to lend out and make aprofit with. Less creditworthy consumers may be less likely to develop into profitable relationships for banks if such consumers at not in a position to obtain loans fromthe banks in the near future. Therefore, bankfees may be seen as the best way for banks to recoup their accountcosts for these consumers. Because of the way bank fees are structured, consumers with lower balances tend to incur more fees thanhigher balance consumers. In the past decade or so, the availability of free or low-cost checking accounts has reportedly diminished, and fees associated with checking accounts have grown. Some bank accounts require minimum account balances to avoid certain maintenance or service fees. The most common fees that checking account consumers incur are overdraft and nonsufficient fund fees. Overdraft services can help consumers pay bills on time, but the associated fees canbe costly, particularly ifused repeatedly. For consumers living paycheckto paycheck, maintaining bank account minimums and avoiding account overdrafts might be difficult. Unpaid fees can lead to involuntary account closures, making it more difficult to obtain abankaccountin the future. Th'-,e Unhanked and Under-baknked Accordingto the FDIC's 2017 National Survey of Unbankedand UnderbankedHouseholds, 6.5% of households in the United States were unbanked, meaning that these households did not have abank account (Figure 1). In addition, another 18.7% of households were underbanked, meaning that although thesehouseholds had a bankaccount, they obtained certain nonbankfinancial services at least oncein the past year. These nonbank financial products, called alternativefinancial services, include checkcashing, money orders, paydayloans, auto title loans, pawn shop loans, refund anticipation loans, and rent-to-own services. Figure I.Percentage of American Households Unbanked or Underbanked Source: Gerald Apaam et al., FDIC National Survey of Unbanked and Underbanked Households, October 20 I 8, p.2, at https://www.fdic.gov/ householdsurvey/201 7/201 7reportpdf. Unbanked consumers are more likely to be lower-income, younger, a racial or ethnic minority, disabled, less formally educated, or have more variable monthly income compared with the generalU.S.population. xa S 1,k pgpg\\\ \\

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