The Consumer Financial Protection Bureau stepped up efforts Wednesday to encourage banks to offer simple checking and savings accounts, but many institutions said they are already taking steps to try to reach the underbanked.
The CFPB sent a letter to the 25 largest retail banks calling on them to offer accounts without overdraft features and advertise them more widely, while expressing concerns about the industry's reliance on third-party data aggregators to determine whether a consumer can open an account.
But banking industry representatives countered that institutions are "eager" to offer the kinds of services that CFPB describes, but said there are many reasons why they can't.
"There are a wide variety of reasons why some people are not in the financial mainstream, and the thousands of banks across the country actively offer a multitude of deposit products to meet diverse customer needs," said Virginia O'Neill, senior vice president for the American Bankers Association's Center for Regulatory Compliance. "America's banks are continually working on innovative technologies and services to bring consumers without a bank account into the fold."
Richard Hunt, President and Chief Executive of the Consumer Bankers Association, said that the industry "strongly believes all U.S. consumers should have access to checking accounts with upfront fee disclosures and clear terms."
But Hunt said there are a variety of reasons why a consumer might be turned away for a checking account — reasons that are often based on regulatory mandates. For those customers who may not qualify for a traditional checking account, alternatives are often available.
"For the very small percentage of consumers who may not wish to have or may not be eligible for a traditional checking account, many of our member banks offer alternative accounts so these consumers will be able to continue to bank within the well-regulated banking system," Hunt said.
Some banks are responding to the CFPB's letter by saying that they already offer these kinds of products.
But others see an opportunity in expanding their offerings to customers that others may have turned away. Chad Borton, executive vice president and head of the consumer bank at Fifth Third, said the institution launched a program last fall called Express Banking explicitly to reach customers who might not have had accounts already or who may have no prior experience with the banking industry.
Borton said that while firm enrollment numbers for the accounts are not yet available, in the first 60 days since the launch it has brought in roughly double the number of customers it initially estimated. That suggests that making the kind of account that the CFPB is calling for available might be a smart business move, Borton said.
"We are not aware of any other competitor who offers a similar product," Borton said. "Although Express Banking is not a high-revenue program on its own, over the lifetime of the account these customers will stick with us and grow their relationship for other products, like credit cards, auto loans, mortgages. And I think this is also a very popular product with millenials."
The CFPB made its push as part of a field hearing Thursday in Louisville, Ky., where some institutions acknowledged that reaching the underbanked remains a vexing problem.
Lewis Goodwin, president and chief executive of Green Dot Bank, a small bank reliant primarily on prepaid debit cards, said that many potential customers get turned away for checking accounts and other basis services without finding out why.
Many of those customers either have never had accounts, are newly released from prison, or otherwise have little foothold into the banking system, and that experience of being rejected can turn them off from ever attempting to apply for another account, Goodwin said.
"If there is an element that comes up in those reporting systems, there has to be another product to allow them back into the banking system," Goodwin said. "Banks really need to concentrate on being able to say yes."