When banks make changes to improve services for some customers, those same moves could put up new barriers to minorities and other underserved groups, a Treasury Department official warns.
Barriers to access for many Black and Hispanic Americans go beyond the costs of services, Janis Bowdler, a counselor for racial equity at Treasury said Tuesday during a panel discussion on financial inclusion hosted by The Clearing House and Bank Policy Institute.
Underbanked consumers may choose predatory institutions over mainstream banks because, despite
"Consumers out there, lower-income consumers, people of color, those that have had different experiences with financial institutions, they're fundamentally rational actors," Bowdler said. "They're making choices to go to payday lenders and alternative financial services. It's not because they don't know that those things are pricey, necessarily. It's because they're not getting what they need in one way or another from their financial institution, whether that is rapid access to cash, the ability to control their spending, and so on."
The panel was part of a two-day conference hosted by The Clearing House and BPI in New York City. Aaron Klein, a senior fellow in economic studies at the Brookings Institution; Kelvin Chen, vice president and senior associate general counsel at Capital One Financial; and David Rothstein, senior principal of the nonprofit Cities for Financial Empowerment Fund, also participated in the discussion.
Bowdler warned that by shifting resources toward online services — lowering costs and barriers for customers with greater access to the internet — banks run the risk of running off lower-income customers, either by pricing them out or making them feel alienated.
"In addition to the legacy of structural racism and the perception that people have and the direct lived experience people have had, there are these subtle changes that say to people whether or not they belong in a certain place," she said. "If you were used to being able to go in and cash a check with a teller and now that's all remote capture and you don't have that technology available to you for whatever reason, that just starts to skew the experience that people have."
Bowdler did not offer any solutions or policy requirements on behalf of Treasury, but she encouraged banks to create "systems and products that meet people where they are." These include broadening factors that go into credit ratings — such as
Klein, a former Treasury deputy assistant secretary for economic policy, called for a bevy of policy changes including an end to overdraft fees and a regulatory mandate that all banks offer low-cost bank accounts.
Klein also called for Treasury to stop using the Federal Reserve's Automated Clearing House payments system. The slowness in receiving payments is a driving factor for low-income people moving outside the banking system, he said, calling ACH "antiquated."
The use of ACH to distribute stimulus payments during the pandemic led to millions of Americans going without food for days, Klein said.
"One in four Americans were reporting their children didn't have enough food, right?" Klein said. "There are solutions out there. Better, faster payment systems do exist. Let's use them."
Rothstein, whose nonprofit operates the Bank On platform that helps set up low-cost checking accounts at banks and other financial institutions, said the screening process for granting a checking account can be onerous not only for financial reasons, but for technical ones. For example, an applicant who may encounter friction if they don't have a permanent address, as can be the case with tribal communities.
If banks do not update their policies for granting accounts, they will continue to
"We have made something that should be and could be very easy much harder," he said. "Fintech companies, who are not banks themselves, have started to … make it easy to open accounts."
Chen said Capital One is among the 270 financial institutions across the country that offer Bank On accounts. These accounts are the bank's "flagship product," Chen said.
The bank has had success bringing in unbanked customers through its entry-level cards and using them to build relationships that are extended to auto loans, mortgages and other products down the line.
Chen said it is important for banks that have these types of programs to do a better job of putting them forward for regulators and customers to see.
"I'm not even talking about changing the way we or you do banking — it's just wearing that on our sleeves," he said. "Helping the policymakers understand that we have embraced this as a policy, helping the general public understand that and … quite frankly, not letting nonbanks own this messaging in ways that they don't deserve."
