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1 1 (August 2, 2024)

handle is hein.crs/goveqfr0001 and id is 1 raw text is: Congressional Research Service informing the legislative debate since 1914 Updated August 2, 2024 Financial Inclusion: Access to Bank Accounts Most U.S. consumers choose to open a bank account, such as a checking or savings account, because it 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 against an institution's failure. In addition, consumers gain access to payment services through checking accounts, such as the ability to make electronic payments online, direct deposit, paper checks, and frequently a debit card. For most consumers, a bank account is less expensive than alternative ways to access these types of services. Checking and savings accounts are often the first relationships that a consumer has with a financial institution, which can later progress into other types of financial products and services, such as loan products or financial investments. A key policy question is whether the unbanked population is interested in banking services but unable to access them and, if so, what is the most effective way to bring more unbanked households into the fold. Legislation introduced in the 118th Congress aims to address this issue through different means. H.R. 758 aims to incentivize new bank formation by reducing barriers to entry, while H.R. 8740 would direct the Consumer Financial Protection Bureau to identify the causes leading to and solutions for unbanked households. Economics of Bank Accounts Depository institutions, such as banks and credit unions, incur expenses to provide accounts to consumers, which include the costs of providing monthly statements, protecting against settlement and fraud risks, hiring staff, and maintaining retail locations. To recoup these costs and make profits, depository institutions make money from interest on loans and noninterest fees such as minimum balance or overdraft fees, discussed later. Historically, some banks have been willing to lose money on bank accounts to begin a relationship 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 bank to better underwrite and price loans to a consumer than without this relationship. Lower balance or less creditworthy consumers are generally not as profitable for banks to serve. Consumers with low checking or savings account balances provide banks minimal funds to lend out and make a profit with. Less creditworthy consumers may be less likely to develop into profitable relationships for banks if such consumers are not in a position to obtain loans from the banks in the near future. Therefore, bank fees may be seen as the best way for banks to recoup their account costs for these consumers. Because of the way bank fees are structured, consumers with lower balances tend to incur more fees than higher balance consumers. Some bank accounts require minimum account balances to avoid certain maintenance or service fees. Two common fees that checking account consumers incur are overdraft and insufficient fund fees. Overdraft services, where financial institutions temporarily cover insufficient funds in a checking account for a nominal fee, can help consumers pay bills on time. Overdraft fees can be costly, particularly if used repeatedly. For consumers living paycheck to paycheck or with less financial literacy, maintaining bank account minimums and avoiding overdrafts can be difficult. Since 2019, some major banks have drastically reduced or entirely eliminated overdraft fees. Unbanked and Underbanked Consumers According to the Federal Reserve Survey of Consumer Finances (SCF) in 2022, 6% of households in the United States were unbanked, meaning that they did not have bank accounts. This is a steep decline from the beginning of the survey in 1989, when roughly 14% of households were unbanked, and a modest decline from 2007, when 8% of households were unbanked (Figure 1). Figure I. Percentage of Unbanked American Households 16% Unbanked rate (%) 14% 12% 10% 8% 6% 4% 2% SCF -- FDIC 0% L .L 1989 1994 1999 2004 2009 2014 2019 Source: Updated from Boel and Zimmerman, Unbanked in America: A Review of the Literature. Note: The FDIC and SCF have separate estimates of unbanked households, relying on surveys of American households. These surveys have similar methodologies, but the SCF has a longer historical time series and a smaller sample size. Unbanked consumers are more likely to be lower income, racial or ethnic minorities, or in rural areas compared with the general U.S. population. According to the FDIC's 2021 National Survey of Unbanked and Underbanked Households, the states with the highest unbanked shares are Mississippi (11.1%) and Louisiana (8.1%). Unbanked households most frequently reported that they did not have bank accounts because they did not have enough money, did not trust banks, wanted to maintain

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