WASHINGTON — The Federal Deposit Insurance Corp. is reinstating the “underbanked” analysis to the agency’s biannual unbanked survey, according to three sources familiar with the matter.
Under former chair Jelena McWilliams, who resigned from the agency earlier this year amid a policy struggle between her and Democrats on the agency’s board, the FDIC cut a section of its unbanked report that analyzed the underbanked.
The term underbanked refers to consumers who have a bank account, but who also often use nonbank services such as money orders or payday lenders. Similar to unbanked consumers, the underbanked tend to be Black and have lower income than their fully banked counterparts. The topic is also of increasing interest to banks because of the increasing use of crypto services among underbanked individuals.
At the time the FDIC pulled the underbanked section from its report, Democrats in Congress characterized the move as political. A
But in a previously unreported response to the lawmakers, McWilliams said she was “disappointed” by the characterization. She said that the FDIC made the change because, in the past, the agency’s definition of “underbanked” has been inconsistent, making it difficult to compare underbanked rates from survey to survey.
McWilliams said the FDIC eliminated the term underbanked “simply because the term is inaccurate due to the intrinsic subjectivity of the definition and the evolution of the financial services system. Importantly, the FDIC’s past practice of changing the definition from one report to another makes it impossible (and potentially misleading) to compare results over time.”
The agency has used five different definitions of underbanked in six reports, McWilliams said, and the reports warn against comparing the underbanked number against previous iterations of the survey.
McWilliams also said that the popularization of nonbank fintechs such as PayPal or Venmo changes the understanding of the term underbanked.
“It would be misleading to classify as ‘underbanked’ a well-educated, higher-income individual with a bank account, who uses a non-bank P2P service such as Venmo or PayPal, rather than a bank offered service such as Zelle,” McWilliams wrote. “Characterizing these households as ‘underbanked’ solely because they used a P2P service offered by a non-bank seems not only inaccurate, but also inapposite to the underlying statutory purpose of the survey: gaining a better understanding of the efforts by banks to bring the unbanked into the conventional finance system.”
Brown applauded the return of the underbanked analysis under acting Chairman Martin Gruenberg.
“Many Americans have a relationship with a bank but do not get all the banking services they need. Under Chair McWilliams, the FDIC eliminated ‘underbanked’ communities from their report. This move completely disregarded this underserved population’s relationship with banks and ignored how the financial system fails to meet their financial needs,” said Brown. “Ultimately, the FDIC is responsible for adequately tracking whether banks are providing all communities with affordable financial services. Including the underbanked as part of their survey will help the FDIC ensure that the banking system serves the American people.”
In response to American Banker’s questions, an FDIC spokesperson said that “underbanked measurements shed light on opportunities for banks to serve households that have joined the banking system, but still use products and services from non-bank providers.”
An FDIC official said that the agency had all the components to calculate the underbanked rate in its last report, but did not publish it. The official said that restoring the underbanked analysis would provide context to the public’s use of the banking system.
