Today, I will focus my remarks on the more general need to increase access to affordable payments, credit, and other financial products and services. One of the most significant drivers leading us to double down on our efforts to broaden access is the expansion of electronic payments. Electronic payments are quickly supplanting cash and are now an essential part of the economy. Their increasing omnipresence came into full view during the pandemic as the un- and under-banked faced considerable challenges making purchases and receiving payments, including the Economic Impact Payments.
Banks Role in Supporting Access
Banks have both an obligatory and leading role to play in this effort. Chartered banks are granted unique powers and privileges not possessed by ordinary commercial firms. Banks are special. They have access to Federal Reserve System liquidity, and enjoy the FDIC’s guarantee on insured deposits. Depositors are assured their money is safe, and banks are therefore able to attract large volumes of deposits that their customers treat as “cash”. This provides banks with a valuable source of low-cost, stable funding.
It is, then, neither a surprise nor a tall order that the government expects banks to meet their statutory requirements to serve a broad range of communities and customers. By meeting their obligations to increase banking access and reduce banking and financial inequities, banks can play a key role, for example, in reducing the persistent and growing homeownership gap between Black and white families1 and closing the economic gap between the banked and the under- and un-banked.2
Indeed, considering the significant benefits banks derive from their unique relationship with the public, banks should ensure that arbitrary customer-level revenue or profitability targets do not impede lower-income households’ access to affordable banking products, including the most basic of all: a checking or savings account. Achieving this most basic access will require 1) offering low monthly fees and further reducing the cost of overdraft and non-sufficient fund fees – while still providing lower-balance customers flexibility to help manage their expenses – and 2) serving consumers in all areas of the country, including in banking deserts in rural areas and within communities of color.
Actions to Build out Banking Access
Director Chopra, as a member of the FDIC Board, recently voted in support of an effort to update and modernize the Community Reinvestment Act’s regulatory framework.
First, the proposal takes steps to address past problems with grade inflation on the CRA exam, which almost every bank currently passes.
Second, the proposed regulatory framework will eventually rely upon small business lending data, which will allow for a more in-depth understanding of small business lending issues and include detailed data broken down by race and ethnicity.
Third, the proposal would increase incentives for banks to finance community development projects in areas experiencing persistent poverty, as well as areas with low levels of past community development financing, including in banking deserts. The proposal also includes explicit incentives for community development financing and services in Native communities.
Finally, the proposal would recognize banks that assist low- and moderate-income communities with clean energy transition and climate resiliency. For example, Native families who depend on farming for both subsistence and commercial gain face increasing threats from drought, flood, and rising temperatures, with limited resources at their disposal to invest in climate mitigation solutions.3
Overall, the proposed CRA rule would help put low-income communities on stronger financial footing and provide people increased opportunities to access financial products and services that can help purchase homes, start small businesses, or otherwise build financial wealth.
In addition, the CFPB is working to ensure that banking access and access to credit is not unfairly affected by algorithmic models. Along with other federal financial regulators, we will be working to implement a dormant authority in federal law to ensure that algorithmic home valuations are fair and accurate.4
We also released guidance to lending institutions confirming that it is unlawful to use black box models that do not allow for clear understanding of adverse actions, such as denial of credit.5 Adverse action notices are an important part of the Equal Credit Opportunity Act both because they serve as a consumer education tool to improve future chances of accessing credit, and because they serve as a deterrent to discrimination.
1. Weekly, Faith. “Narrowing the Racial Homeownership Gap.” Federal Reserve Bank of St. Louis. Nov. 3, 2021. .
2. “How America Banks: Household Use of Banking and Financial Services.” Federal Deposit Insurance Corporation. Dec. 17, 2021. .
3. Chopra, Rohit. “Statement of CFPB Director Rohit Chopra, FDIC Board Member, on the Notice of Proposed Rulemaking Regarding the Community Reinvestment Act.” Consumer Financial Protection Bureau. May 5, 2022. https://www.consumerfinance.gov/about-us/newsroom/statement-of-cfpb-director-rohit-chopra-fdic-board-member-on-the-notice-of-proposed-rulemaking-regarding-the-community-reinvestment-act/.
4. “Consumer Financial Protection Bureau Outlines Options to Prevent Algorithmic Bias in Home Valuations.” Consumer Financial Protection Bureau. Feb. 23, 2022. https://www.consumerfinance.gov/about-us/newsroom/cfpb-outlines-options-to-prevent-algorithmic-bias-in-home-valuations/.
5. “CFPB Acts to Protect the Public from Black-Box Credit Models Using Complex Algorithms.” Consumer Financial Protection Bureau. May 26, 2022. https://www.consumerfinance.gov/about-us/newsroom/cfpb-acts-to-protect-the-public-from-black-box-credit-models-using-complex-algorithms/.