The Path Forward
We can improve access to financial services through public, private, and novel systems. First, we can improve legislation that has been stalled for decades to encourage more community investment in banking services; second, we can improve digital access to banking services; and third, we can improve the overall system of banking services by not penalizing people for poor banking choices made in the past that might not have been their fault.
🏘 Enhance the Community Reinvestment Act - The Community Reinvestment Act (CRA) is meant to ensure that banks invest in underserved communities. The CRA was first turned into law in 1977, but has not been updated since 1995. The 3 organizations in charge of enforcing the CRA - the Federal Reserve, the FDIC, and the OCC - are working to modernize the CRA, but are in disagreement about how to actually do this. In 2008, the FDIC proposed giving banks higher CRA grades if they provided safe alternatives to payday loans, but this was never incorporated into the actual legislation. This would be a strong step towards reducing reliance on payday lenders and helping borrowers avoid the debt trap. Additionally, the CRA should continue to expand how it defines “Assessment Areas” to support communities that may not have a physical bank branch present.
📱Increase Access to Digital Banking - Bank branches are no longer essential for banking. 71% of Americans bank online now and mobile banking has accelerated particularly during the COVID-19 pandemic, with increases of 200% in the early days of lockdowns. While generational differences exist, banks can do more to encourage people to bank online through two major steps. First, people need to be able to get online in order to bank online and so we need to improve internet access. 21 million Americans do not have access to broadband internet, and therefore would not be able to bank online even if the service were available to them. Second, digital banking companies should increase their security so that users trust their products more. Hundreds of hacks against banks have led 1 in 3 Americans to say they don’t trust mobile banking.
🏦 Help People Manage Past Banking Challenges - We need to change the credit checking system so we don’t continually penalize simple mistakes. Many new banks are working to create “second chance” bank accounts, which help people manage past banking challenges. When you apply to open a bank account, that bank will generate a ChexSystems Report that shows any bad practices you may have engaged in previously. If the bank decides you’re too risky based on that report, you’ll be denied due to your past financial troubles or poor credit history. However, many of those faults may have been made by mistake, or may be products of a broken system that failed you. A “second chance” bank account skips the ChexSystem report to give you an intermediate account. If we can increase access to these second chance accounts, we can help Americans build credit history and ultimately open standard accounts with more features.