Chairman Sarbanes, Ranking Member Gramm and Members of the Committee, I appreciate the opportunity to be here today on behalf of Bank One to discuss our commitment to helping American families gain access to thee financial services mainstream and to share some of our experiences in doing so. We are particularly proud to share this panel with our colleagues and partners from Shorebank and the Woodstock Institute, whose dedication to this problem has been a source of inspiration and encouragement to us and to others in the banking system. We are also pleased to share the panel with Professor Barr, whose leadership we admired so much at the Department of the Treasury, and with Mr. Rufino Carbajal, Jr., President of the West Texas Credit Union and member of the Texas Credit Union Commission, whose initiatives in underserved communities in Texas set an example for us all.
Our commitment to the so-called "unbanked" stems from our core belief that helping families gain access to the banking system is good for these families, good for individual communities, good for the national economy, and good business for Bank One, both near and long-term.
But as the other witnesses at this hearing have so eloquently testified, the reasons that more than ten million American families do not have an insured bank account are complex and varied. So logically enough, there is no "one size fits all" solution for the unbanked population. To devise appropriate programs to help the unbanked population find footing in the banking system requires creativity, adaptability, and above all patience.
Before describing some of our programs, I would like to briefly summarize what we at Bank One have learned as we have pursued our commitment to help bring families into the mainstream financial system:
I would like to now briefly discuss four of our current programs for bringing more American families into the financial mainstream.
The Alternative Banking Program
I would like to turn first to Bank One’s Alternative Banking Program, or ABP, which we are proud to participate in through the Chicago CRA Coalition, an organization represented by one of my co-panelists today.
The ABP offers checking accounts designed to appeal to low-income, unbanked consumers. These accounts differ from our traditional accounts in that they are easier to qualify for and less expensive to maintain. Applicants may be approved with no credit history, or with a borderline credit history. An account can be opened with a balance of only $10, as opposed to $250 for a traditional account, and may be held with no balance at all.
In exchange for the more flexible credit criteria, ABP accounts do have some modest restrictions. For example, the limit on daily ATM withdrawals is $50 a day, as opposed to $300 for a traditional account, and the funds aren’t available until three days after deposit, as opposed to two. The ABP program is intended to be a transitional "starter" account; the goal of the program is to bridge account holders into mainstream financial services. After one year of successful account management, an account holder may apply to upgrade to a traditional account.
But, as is true of all of our programs for the unbanked, customers must be educated in the basics of consumer finance in order to succeed. For this reason, we conduct workshops in the "ABCs of Banking" in the neighborhoods surrounding each banking center where the program is offered. These workshops, staged with the help of community groups, offer training in basic skills such as check writing, balancing a checkbook, and family budgeting.
We are encouraged by the results we are seeing. Since we rolled out the program in March 1999, every single new ABP account holder would have been ineligible for a traditional Bank One account, mostly due to lack of credit. Yet, the average checking balance is approximately $1,100 and savings $1,600. We are very proud of this result as it represents significant savings for low-income individuals.
Although the majority of the ABP accounts perform very well, we have learned that applicants with preexisting credit problems are the least likely to succeed. These are the applicants who "put the cart before the horse." We are pursuing better ways to work with applicants who must not only learn the basics of consumer finance, but also must "unlearn" bad habits and attitudes about financial institutions. For example, credit impaired applicants might do better with a more limited account without check writing, and thus without the risk of overdraft.
Communities Banking for Safety
Many who are unbanked have an even more basic concern than financial security – and that is personal safety. A bank account promotes both. Sadly, people who deal only in cash, rather than keeping their money in a bank, put themselves at risk of violent crime. This is the concern underlying our Communities Banking for Safety Program. In partnership with the Dallas City Police Department, the Mexican Consulate, and other local banks, Bank One participates in ongoing community meetings to promote trust in the United States banking system among immigrants. They often have no comparable system in their home countries, and we help them understand the personal risk they take in carrying cash.
In conjunction with this outreach effort, we’ve made it easier for Mexican immigrants to qualify for accounts. As with the Chicago ABP pilot, applicants with no or minimal credit history may qualify, and, in deference to the special needs of immigrants, Bank One expanded the list of acceptable forms of ID to include the Mexican Consular ID, commonly called the "Matricula," instead of a driver’s license or Social Security card. The Matricula is accepted everywhere Bank One does business, not only in Dallas. And another form of ID, the Mexican Voter Registration card, is accepted as a secondary form of ID. We’ve sought to reassure undocumented immigrants that we’re interested in their safety, not their immigration status. Finally, although financial literacy is not formally a part of the police initiative, Bank One offers bilingual training in that subject.
Although the program began just two months ago, several hundred accounts have been opened already as a result of these outreach efforts and the more flexible qualification requirements. This means that several hundred individuals and families now have more personal safety and financial security.
Bank on the Job
It might surprise some members of the Committee to learn that many unbanked Americans work in regular paying jobs in the mainstream economy.
We see the workplace as a very promising arena for both financial education and initiating banking relationships. Last fall in Dallas we initiated a pilot as part of an ongoing program known as Bank on the Job. Through employers, we are offering low-income workers free checking accounts if they sign up for direct deposit of their paychecks. At the same time, representatives from Bank One’s Community Investment Department provide onsite training in a variety of subjects including budgeting, managing accounts, saving, and home buying.
One Dallas employer reported to us that a check cashing truck showed up outside his building every Friday, charging his employees as much as five percent of their hard-earned paychecks. The employer was only too happy to partner with Bank One and boost his employees’ take home pay. We are finding that with proper guidance many employers are beginning to realize that there are benefits for them, too. A financially secure employee is less distracted on the job and more productive.
Although this began as a Dallas initiative, Bank One now provides financial literacy training in Houston, Tulsa, Fort Worth and several other cities. We hope to expand this program eventually to all of the markets we serve.
Our Paycard program is another workplace initiative that we undertake in partnership with employers. The program allows companies to pay unbanked employees through credit to a Bank One Visa stored value card. Bank One is currently marketing this product to the employees of some of our large corporate customers, including McDonald’s and Lowe’s. In early summer, we hope to expand this program to middle market companies.
The Paycard has many advantages for the unbanked. First, it allows employees to circumvent the check cashers. Second, the Paycard is safer than carrying cash because it can be replaced if lost or stolen, enjoying the full protection of Visa’s security policy. Third, since the Paycard can be used to make online payments, its use helps to bridge the digital divide. Finally, while a Paycard is not the equivalent of a checking account -- its holder is still "unbanked" -- we believe that it may alleviate distrust in mainstream financial services and lead card holders to seek out a broader relationship with the issuing bank.
The Role of the Federal Government
Before concluding, I’d like to use this opportunity to recognize the leadership of the Treasury Department and this Committee in addressing the problem of the unbanked.
Chairman Sarbanes has done so much to raise the profile of this issue and to support efforts to resolve it. The Treasury Department has also demonstrated an ongoing commitment to bringing unbanked Americans into the financial mainstream. In 1999, Treasury introduced the Electronic Transfer Account, or ETA. This program, in which Bank One is proud to be an early participant, provides a basic, all electronic account for the receipt of Federal payments, including salaries and retirement benefits. Now, the Treasury Department is building on that earlier effort with its First Accounts program. As Assistant Secretary Bair has testified, this program awards grants to organizations – not only financial institutions but community groups, employers, labor organizations and others – that contribute to the goal of bringing basic financial services to the unbanked.
As I said at the outset, partnership is essential to the success of programs that reach the unbanked in meaningful ways. The First Accounts grants will support partners for future Bank One initiatives and will encourage other financial institutions to undertake programs similar to those I’ve described here today. Involving more institutions and experimenting with different strategies will help all of us bring more American families into the financial mainstream.
In conclusion, we emphasize Bank One’s commitment to helping the ten million American households who are outside the financial mainstream become full participants in the American economy through a banking relationship. We hope that the experiences we have shared with you today will add to our collective understanding of what works and what doesn’t, and that other institutions will take advantage of this knowledge. Perhaps the most important lesson we can share with the Committee is this: addressing the needs of the unbanked population will require a sustained team effort involving mainstream financial institutions, community institutions, advocacy groups and government. It will require diverse programs, trials and errors, and constant monitoring, reevaluation, readjustment and redesign. It will be hard work. But we believe it can succeed.
We thank the Committee for inviting us to share our experiences.
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