Banks
The Internal Revenue Service and the Federal Deposit Insurance Corp. have been on a mission to get more unbanked consumers to open low-cost checking accounts that offer direct deposit so stimulus payments can be disbursed swiftly and safely under the Biden administration’s American Rescue Plan. More than 70 banks and credit unions, which hold nearly half of the nation's deposits, have joined the effort.
A White House senior advisor emphasized the need to reach unbanked consumers by June when expanded child tax credits from the stimulus bill start rolling out.
“We need to get those people banked,” Cedric Richmond, a White House senior advisor, said Wednesday at a virtual summit hosted by the American Bankers Association. “As we go into June, when those child tax credit payments will start to come, that's another time that I think that people having a banking relationship will be important.”
The IRS has a link to the FDIC’s website, which in turn connects consumers to a list of those financial institutions that offer low-fee bank accounts along with instructions on how to sign up to receive stimulus payments through direct deposit.
Consumers without bank accounts often wait longer to get paper checks or prepaid debit cards in the mail and also tend to pay check-cashing or ATM fees to access their funds.
“We are encouraging consumers to think about opening a bank account, [and] many depository institutions are offering bank accounts with no overdraft fees and no-or-low minimum balance requirements,” said Leonard Chanin, deputy to FDIC Chair Jelena McWilliams.
The FDIC’s latest household survey, from 2019, found that 5.4% of U.S. households — or 7.1 million households — did not have a checking or savings account at a bank or credit union.
Another 22% of households are considered “underbanked,” meaning they have a bank account but also use an alternative financial product such as a payday loan, paycheck advance or auto title loan outside a traditional bank or credit union, according to a 2019 Federal Reserve
Last year, more than 12 million people accessed the IRS portal that allows consumers to input their bank account information and get Economic Impact Payments deposited immediately into a bank account. The IRS website only accepted the information for the first round of stimulus payments, with the goal of moving quickly for the second and third rounds.
While the current IRS portal does not include a way to input new account information, the IRS continues to partner with the FDIC and to include the
Though the IRS doesn't know what percentage of people opened accounts for the first time, the numbers reflect strong demand for direct deposit to obtain federal funds, said Jonathan Mintz, founding president and CEO of Cities for Financial Empowerment Fund, a New York-based nonprofit that sets national standards for low-fee bank and credit union accounts through its Bank On initiative.
"It's led to a huge volume of new people opening up these accounts and entering the account data into the IRS portal so they could get their stimulus payments," said Mintz, who worked for 12 years as New York City's commissioner of consumer affairs under then-Mayor Michael Bloomberg.
Mintz created the Bank On program in 2012. The program certifies that banks are adhering to specific standards including an initial minimum deposit of $25 or less, a $5 maximum monthly maintenance fee, a $2.50 maximum out-of-network ATM charge, no overdraft fees, free online bill pay and in-network ATM access, and direct deposit.
The Bank On-certified accounts were inspired by the FDIC’s Safe Accounts Pilot program in 2011 that sought to reach low- and moderate-income consumers with accounts that offered online billpay and debit cards but had no overdraft fees. The accounts also provide a benefit to banks by fulfilling obligations under the Community Reinvestment Act.
“We want to bring people safely into the mainstream banking system,” said Mintz. “When we saw those stimulus funds come out of the IRS, we knew there were millions of people who were going to have to wait months and months, and then they were going to get a paper check and have to figure out how to get that check converted into funds to pay their bills.”
Last year, the FDIC, IRS and Consumer Financial Protection Bureau held two outreach calls each with 250 people from local community groups nationwide in an effort to contact eligible consumers on the ground who had not yet received their stimulus funds. After a session that included Hawaii's banking commissioner, community groups began distributing flyers at local food banks with instructions on how to open a bank account in order to get their stimulus payments, Ortiz said.
"This is an effort to reach people who don’t know what is available or even how to open a bank account," said Elizabeth Ortiz, the FDIC’s deputy director of consumer and community affairs.
About 792,000 Bank On accounts were opened in 2018, a 32% increase from a year earlier, according to the Federal Reserve Bank of St. Louis, which first began tracking the program in 2019. Roughly 75% of those customers were new to the financial institution that opened the account. But at the same time, roughly 30% of Bank On accounts were closed from 2017 to 2018, which the St. Louis Fed said was in line with financial institutions’ expectations. In total, roughly 3.4 million Bank On accounts have been opened since the program's inception.
There are plenty of reasons behind the push for low-cost bank accounts beyond helping consumers get stimulus payments faster.
Direct deposit is quicker than receiving funds in the mail. The accounts are FDIC-insured, so stimulus payments cannot be lost or stolen, which protects consumers from fraud. A bank account also allows consumers to save money rather than just spend it, and creates a relationship with a financial institution if a consumer needs a personal or auto loan in the future.
“You’re always better off with a bank account that is insured, because you’re not going to lose your money,” Ortiz said.
However, the FDIC is quick to point out that FDIC-insured accounts do not have identity theft insurance, and consumers are encouraged to monitor their account and notify their bank in a timely manner of any unapproved transactions.
The FDIC also does not officially endorse any specific account Bank On account but rather wants consumers to have information about different types of accounts that are available and encourages relationships with insured institutions, Ortiz said.
Last year, the American Bankers Association called on every bank to consider offering Bank On accounts in an effort to reduce the number of unbanked and underbanked consumers. Roughly 45% of banks, based on deposit market share, have Bank On-certified accounts.
“The reason behind a certification is it allows the government to comfortably and responsibly steer people into these accounts,” said Mintz.
Opening a bank account also can prevent fraud since many paper checks and prepaid cards tied to stimulus funds have been reported stolen. Though millions of consumers have received past stimulus payments on prepaid cards, fraudsters are known to have drained
“If you lose your prepaid card and if it’s not registered, it’s highly unlikely you will get your money back," said the FDIC's Chanin.
Consumer advocates also see an opportunity for unbanked and underbanked consumers to increase their savings rather than being encouraged to spend the funds.
“There’s no reason for federal stimulus payments or state unemployment benefits to just be loaded onto prepaid cards that are only designed for spending,” Mintz said. “They should be used to open and maintain accounts that people can use to save their money and manage their finances.”
The $1.9 trillion aid packaged signed by President Biden last week includes $410 billion of direct payments to consumers.
Individuals who earn up to $75,000 or couples making $150,000, plus their children or dependents, qualify for the full $1,400 per person. Single parents who earn $112,500 or less also will get the full amount. Those who do not qualify for stimulus payments include individuals who earn $80,000 or more and couples making $160,000 or more.
This story has been updated to include comments from the White House.
