CHICAGO -
The Woodstock Institute has issued a "Reinvestment Alert" called "Measuring the Provision of Banking Services For The Underbanked: Recommendations for a More Effective Community Reinvestment Act Service Test."
A research think tank focusing on community economic development, evaluated how the largest banks deliver financial services to communities throughout the Chicago area, examining how federal examiners evaluate the distribution of bank branches and the quality and relative affordability of basic financial services, such as checking accounts.
Woodstock said it found "glaring omissions, inconsistent evaluation methods and a lack of performance-driven measurements."
"The implementation of the service test needs major improvements before the test can capture the reality of an institution's delivery of banking services to lower-income people and communities," the institute said, suggesting the following changes would help to resolve the problem:
1. Branch distribution should be measured in a consistent manner against the percent of households living in low-and moderate income neighborhoods in the bank's assessment area.
2. Standardized data on new and existing retail checking and savings accounts should be collected and analyzed by regulatory agencies. These data should include information on account holder census tract, year opened, and average annual balance.
3. Since many lower-income people do not live in lower-income zip codes, examiners should also conduct sample surveys of the income and race/ethnic distribution of an institution's retail customers to determine the percent of those customers that are lower-income and/or members of minority groups.
4. Examiners should institute a systematic analysis of the full cost of retail products that will allow for comparisons among institutions.
5. Examiners should also construct and report a systematic analysis with quantitative data of the number and income/race of customers who use alternative ways of accessing financial products telephone and internet banking, smart ATMs with such features as automated money orders, and wire transfers to other countries.
6. Banks should report data on the services they provide to unbanked households and their success in using those services to recruit new customers.
7. Examiners should carefully examine banks' relationships with high cost fringe lenders and determine whether those fringe lenders' disclosure activities (as opposed to just disclosure notices) costs, terms and conditions have a deceptive impact on their customers.
8. Banks should be required to report quantitative details of their community development services including the number of people who attend financial literacy events and the number of new accounts that result from such events.
9. Large banks inundate customers with debt products including credit card solicitations and passive checks. Banks should be penalized if these offerings are likely to have a deceptive impact on the average customer.
10. Banks should also be examined to see whether they effectively market savings products to lower-income consumers.
For info: www.woodstockinst.org.
