FDIC, OCC, NCUA Unbanked Efforts Need More Data, Says GAO

Diving brief:

• The Federal Deposit Insurance Corp. (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) should establish outcome-based performance measures to track progress toward reducing the unbanked population, according to a Government Accountability Office (GAO) Report made public on Monday.
• Nearly 5.4% of American households were unbanked in 2019, meaning they did not have checking or savings accounts with banks or credit unions, the FDIC found. However, this proportion is higher inlow-income, less-educated and non-white households.
• The GAO estimates that an additional 17.9% of U.S. households are underbankedmeaning that although they have opened at least one checking or savings account, they use alternative financial services like check cashing or payday loans, which are often more expensive than banking services.

Overview of the dive:

The GAO has found that while many agencies are trying to increase financial inclusion for Americans, they are simply not collecting enough data to know if their efforts are having the intended effect.

Monday’s report recommends the OCC implement performance metrics that quantify the impact of key efforts, such as the project To reach, on improving access to financial services. Collecting this data would demonstrate and measure results and provide useful information for regulatory decision-making, the GAO said.

The part of unbanked and underbanked households is at its lowest level in 30 years, the GAO found. And during that time, low-income, less-educated, non-white households made the greatest strides in increasing their access to banking services, he said.

For example, in 1989, only 56% of black households in the United States had opened a checking or savings account. This figure rose to 86% in 2019. In comparison, 89% of white households had a checking or savings account in 1989 and 95% in 2019.

Some of the main reasons why consumers might avoid using banking services include lack of money, unexpected or high bank charges, distrust of banks, and privacy concerns.

The GAO’s analysis underscores the stark divisions based on differences in income, education levels and race.

About 25% of U.S. households that take home less than $15,000 are unbanked and 22% are underbanked, the agency said, compared to 2% and 18%, respectively, of U.S. households earning more than $30. 000 dollars per year.

Among US households without a high school diploma, 22% are unbanked and 26% are underbanked. In contrast, 5% of US households with a high school diploma (or higher) are unbanked and 18% underbanked, according to the agency.

About 16% of black Americans are unbanked and 31% are underbanked, found the agency. That compares to 14% and 30%, respectively, of Hispanic Americans, while 3% of white Americans are unbankedand 14% are underbanked.

Actions taken by regulators can have a positive or negative effect on the cost and availability of banking services, affecting Americans’ access to and use of these services, according to the report.

Regulations that require consumers to take out overdraft protection can reduce the amount of fees some consumers pay, for example. But on the other hand, regulations that place limits on the interchange fees charged by banks may force banks to increase checking account fees to compensate for this loss of revenue, the agency said.