Banks Support National Strategy to Identify Opportunities and Barriers to Financial Inclusion

The Consumer Bankers Association, Bank Policy Institute and American Bankers Association made recommendations yesterday to the U.S. Department of Treasury in response to its request for information to inform its establishment of a nationwide financial inclusion strategy. The percentage of consumers with access to banking account services is at historic highs and significant progress has been made to help all Americans realize the benefits of banking access. Banks are continuing to support this success by investing in a wide range of activities to serve consumer needs. “Banks are committed to making financial services accessible to all Americans and value the opportunity to partner with regulators to identify opportunities to overcome barriers to achieve that goal,” stated the Associations. “A national financial inclusion strategy should acknowledge the substantial industry contributions already underway and support these efforts by proactively addressing regulatory obstacles impeding future progress.” An example of some of the efforts underway include:

• Expanding access to low-cost transaction accounts through initiatives like “Bank On”
• Investing in Community Development Financial Institutions and Minority Depository Institutions
• Supporting small and minority-owned businesses through debt and equity capital investments
• Partnering with state and local governments through programs such as Project REACh, aimed at improving credit underwriting practices
• Speeding the availability of funds through real-time payments and peer-to-peer payment services

However, several regulatory actions threaten the success of these initiatives by imposing stringent new requirements on banks. The consequence of these regulatory proposals could cause banks to reduce lending or reconsider product offerings.

• Restricting banks’ lending abilities by requiring substantially higher capital requirements. Basel III endgame requires banks to hold significantly higher capital requirements, which risks limiting banks’ ability to offer mortgages, credit cards and small-business loans.
• Imposing price caps on debit card interchange revenue. Changes to Regulation II, which limits what banks can charge merchants to cover the cost of processing debit card transactions, serve as a profitable handout to big-box retailers while reducing the amount banks can invest in low-cost checking accounts and fraud and scam prevention.
• Eliminating incentives for customers to pay on time. Arbitrarily reducing the safe harbor on credit card late fees reduces incentives for customers to pay on time, which may lead to higher delinquencies that harm consumer credit scores. The reduced safe harbor would also make credit cards more expensive for consumers who pay their bills on time each month.
• Stigmatizing banking services that customers value. Surveys have shown that customers overwhelmingly prefer paying an overdraft fee to having their payment declined. Efforts to eliminate these products risk forcing customers to use less-safe alternatives outside of the banking system, like payday, pawn and refund anticipation loans.
• Failing to account for the role of nonbanks in financial services. Nonbanks play a significant role in financial services but are not subject to the same comprehensive, robust regulatory and supervisory framework that is applied to banks. Regulatory inaction in this space, as well as the decision not to apply important frameworks such as the Community Reinvestment Act to nonbanks, risks undermining the goals of financial inclusion.

Additional Background

The Financial Services and General Government Appropriations Act of 2023 requires the Department of Treasury to develop a national strategy for financial inclusion. The request for information was issued in December 2023 and comments were due on February 20, 2024.