By Richard Neiman
For almost two years, New York has been taking proactive steps to stem the foreclosure crisis, including direct consumer outreach, legislation, grants to support housing counseling, and increased enforcement efforts to combat mortgage fraud. As important as each of these actions is to helping borrowers at-risk, we need to do even more to ensure that a crisis like this never happens again and to provide greater economic security.
I believe that reduced access to traditional banking services was a contributing factor to the foreclosure rate in many of the communities hardest hit. And that has further motivated me to prioritize our economic development and economic inclusion efforts, which benefit all families in these challenging times.
We need to expand access to physical bank branches, but just as importantly we need the right mix of products and services. Significant mismatches between consumer needs and product offerings can present a substantial access barrier. Unbanked consumers are not helped if we simply exchange the higher fees they currently pay for services such as check cashing and money transmitting with account maintenance fees and overdraft charges. We need innovative products tailored to this customer segment, which meet the needs of consumers and the institutions. Such innovations could include savings accounts with ATM privileges that do not permit the balance to be exceeded. And other popular features like free checking are typically offered for customers who elect direct deposit for their paycheck, but many lower-wage workers are paid in cash. There could be alternate approaches, such as free checking tied to the purchase of multiple money orders.
These unmet consumer needs for tailored products and services can translate into significant business opportunities and increased customer loyalty for banks with the vision to develop new market niches. And, a campaign to reach the underserved and explain the benefits of bank accounts builds needed confidence in our financial system, at a time when many consumers are wary or skeptical of banks amid the chaos on Wall Street. Government has an important convening role in helping to bridge these gaps and supporting economic inclusion by bringing stakeholders together.
The Alliance for Economic Inclusion (AEI) Rochester
One way that we are moving forward on this agenda is through the Banking Department’s participation in the Alliance for Economic Inclusion, the FDIC’s program to expand access to affordable financial services. Rochester is the first city in New York to be chosen for the program. I had heard positive feedback on the AEI method, and suggested to our counterparts at the FDIC that upstate New York would be the right location for a new initiative.
The AEI pilot brings together community leaders, industry, and government in designing solutions that work and developing local infrastructure for sustainable results. The Department’s partnership with the FDIC in this economic inclusion effort is another strong example of the results that can be achieved by creative state-federal cooperation through the dual banking system.
Focal points for the AEI pilot are still under development, but are likely to include:
expanding the Banking Development District (BDD) Program upstate- through this program, the New York State and New York City Comptrollers place deposits at below-market interest rates at approved branches in locations determined to be underserved by the Banking Department;
developing “second-chance” deposit accounts for those who have had prior negative account histories; and,
promoting responsible small dollar loans, as alternatives to high-cost credit cards or payday-style lending.
It is anticipated that there will be results from the Rochester pilot that could be replicated in smaller communities across the state.
The Clinton Foundation
New York State is also participating in a new financial mainstreaming initiative with the Clinton Foundation. This multi-state effort launched December 12 in Sacramento, California, and is an opportunity for states to share economic inclusion ideas and collaborate in new ways. Models for reaching the unbanked, such as the “Bank On” approach first developed in San Francisco, are the kind of creative partnerships under discussion. While participating states do not need to adopt the Bank On model, there are helpful lessons learned from that example. I look forward to updating you on our developing role in this new initiative with the Clinton Foundation as we get underway.
The Governor’s Economic Security Cabinet
I am also proud to serve as a member of Governor Paterson’s Economic Security Cabinet, which brings together the heads of 20 state agencies to address a wide range of economic issues, including financial services and education. A current focus is to utilize volunteer income tax assistance (VITA) sites and local social services offices as access points for financial literacy and other forms of assistance such as direct deposit. The Cabinet’s efforts are centered on New Yorkers who are transitioning from welfare into the workforce, as well as on the millions of people who are now slipping out of the middle class.
The Cabinet is meeting regularly and is working toward four overriding objectives: first, to reduce New York’s high cost of living; second, to establish the educational and workforce development opportunities needed in a highly competitive economy; third, to mend the social safety net that has slowly eroded over the years; and fourth, to attract employers to bring sustainable jobs back into New York communities.
The banking industry is a key employer in the state, and the Cabinet is keenly interested in your views on the most effective way to improve the economic well-being of our residents and enhance your business competitiveness. Main Street and Wall Street are part of the same neighborhood. There is no one solution to deal with the fallout of the housing crisis and broader turmoil in the financial markets. I encourage your continuing suggestions for innovative approaches and take your ideas seriously.
I know I can count on the the banking industry in New York to continue supporting economic inclusion activities and find new ways to connect with a wide range of consumers. That’s something we can all bank on.
Richard H. Neiman, superintendent of the New York State Banking Department, writes on regulatory issues for Banking New York.