FDIC has tough task persuading unbanked to deposit stimulus checks

WASHINGTON — As the government urges the unbanked to open accounts to deposit pandemic relief funds, some experts highlight a somewhat obvious challenge for the effort. If someone was unwilling to become a bank customer before, why would they change their mind now?

The Federal Deposit Insurance Corp. and Internal Revenue Service have been encouraging more consumers to open low-cost checking accounts following enactment of the Biden administration's American Rescue Plan. The FDIC announced a public awareness campaign April 6 with television, radio and digital ads in Atlanta and Houston touting the benefits of federally insured deposit accounts.

To pull it off, however, the FDIC will have to convince some in lower-income and minority communities, who have historically been reluctant about joining a traditional financial institution, that they should trust a bank.

“It's a challenge to try and really reestablish, or establish, trust with any institution,” Leonard Chanin, a deputy to FDIC Chair Jelena McWilliams, said at an event this past week to kick off the #GetBanked campaign. He said a lack of trust was one of the “fundamental” reasons why many individuals in poor communities choose not to open bank accounts. “It’s not clear there’s any simple path to achieve that.”

But observers say the FDIC campaign offers hope by giving unbanked consumers concrete steps to identify and open safe and affordable accounts. The agency's last unbanked survey in 2019 reported that just over 7 million households lack access to a bank.

The agency’s television ad urges consumers to visit FDIC.gov/getbanked, where customers will have the option to use the FDIC’s BankFind tool to find insured bank accounts near them. The same page also links users to a similar page from Bank On, a nonprofit-led effort to certify certain affordable accounts that are endorsed by the American Bankers Association.

“If you don't have a message that includes some sort of a way for people to act upon something — if you can't give them an easy way to do what you want them to do — then you're not likely to have an effective message,” said Wendy Melillo, an associate professor of journalism at American University who has studied public awareness campaigns.

More than a year into the pandemic, the stakes behind the campaign are clear: Americans without bank accounts have had a far more difficult time receiving emergency funds from the government.

Additional funds are on the way after Congress passed the Biden administration's $1.9 trillion stimulus plan, which includes $1,400 checks to households. It also raised the annual child tax credit to $3,600 per child under 6 years old, and to $3,000 for children between the ages of 6 and 17. The IRS will now be required to distribute half the credit through direct cash payments between July and December.

Though the FDIC's 2019 survey showed a decline in the percentage of U.S. households that were unbanked — by about one percentage point to 5.4% — agency officials note that the rate remains considerably higher for communities of color.

“When you look more closely at which families are unbanked, the evidence shows a disturbing disparity: in 2019, nearly 14% of African American households and 12% of Hispanic households were unbanked,” Chanin told reporters. “This compares to about 2.5% of white households that were unbanked. Simply stated, we have to do better.”

The FDIC’s campaign will start with a focus on the Atlanta and Houston areas through a mix of television, radio and digital advertising in both English and Spanish. The FDIC also plans to coordinate webinars about opening affordable accounts.

“Before I had a bank account, I didn’t have much control over my finances,” the FDIC’s television ad tells viewers. “But I found a better way to protect and manage my money — with an FDIC-insured bank account, I know my money is safe and secure.”

According to FDIC research, not having enough money to meet minimum balance requirements was the most common reason why American households lack bank accounts, followed by a lack of trust in banks.

“What is not clear is whether or not alternative financial services are that much more expensive for low-income individuals,” said Vicki Bogan, an associate professor at Cornell University who studies behavioral finance. “Traditional financial institutions can charge customers without a lot of money, who don't meet the minimums in their bank accounts, really high fees.”

Overdraft fees, for instance, accounted for more than $11 billion in revenue for U.S. banks with over $1 billion of assets in 2019, according to a 2020 study from the Center for Responsible Lending. The vast majority of that revenue came from a small number of accounts with an average balance of $350.

“If you're in a lower income group, you could have high transaction costs like maintenance fees and automatic overdrafts when using traditional financial institutions,” Bogan said. “These types of fees could make [alternative financial service] providers close substitutes for traditional financial institutions from a transaction-cost perspective.”

But at the heart of the FDIC’s #GetBanked campaign is a new kind of account that has emerged as a potential industry standard for low-income depositors: checking and savings accounts with Bank On certification. Developed by the Cities for Financial Empowerment Fund, Bank On-certified accounts must meet a series of standards designed to reduce costs that affect poorer customers the most, including a ban on overdraft fees, a $5 dollar monthly maintenance fee cap, and no fees for account inactivity or insufficient balances.

The groups says the universal standards behind Bank On — currently offered in more than 76 bank accounts covering 28,000 branches across the country — are a key ingredient to building trust with the customers who use them.

“The trust comes from positive experiences,” said David Rothstein, a senior principal at the CFE Fund who leads the Bank On initiative. “What we’re seeing is, people are using these accounts as they’re intended to, and they’re not getting burnt.”

“When the account says no overdraft or surprise fees, and that you can pay bills with the account, and you have a surcharge-free ATM network,” Rothstein added, “that’s a quick way to build up trust: delivering on a product like it’s being advertised.”

Another essential ingredient of an effective public awareness campaign, Melillo said, is research into the problem and the populations affected by it. “I can't stress enough the kind of foundational research that has to go into this before you even start talking about launching a campaign,” she said. “It's a much more risky endeavor if you really don’t do your homework.”

FDIC staff said the much of the #GetBanked campaign was informed by the agency's own research on the unbanked dating to 2009. In one of the campaign's radio ads, for instance, one woman tells another that getting a bank account "can save you money on check cashing fees" — a service the FDIC identified in its 2011 survey that unbanked consumers frequently needed.

Other details from the #GetBanked campaign stem from research beyond the FDIC's biennial unbanked surveys. The television ad tells viewers that a bank account can make it easier to put money aside “for things like school supplies and car repairs.” That echoes research by the Federal Reserve showing that car repairs are a frequently cited example of financial burden for low-income families.

At the same time, other analysts stress that closing the gap in trust between poor communities and banks may not fully address the more fundamental problems posed by a lack of inclusion in the financial system.

“Trust is an important issue … but it’s not clear that it's always the main reason” that individuals in low-income communities lack bank accounts, Bogan said. “I think a lack of wealth is also a significant reason. Instead of focusing on the tangential reasons, wealth inequality in the U.S. could be an even bigger factor to consider.”

There’s also the matter of banks’ commitments over the long term to keep accounts affordable.

“I am not advocating for excessive regulation,” Bogan said. “But I do think it's important as you design these types of programs to look at the whole system and understand how, if one revenue stream is affected, a rational firm may try to find another way to fill that revenue gap.”