By Richard Neiman
This lingering recession is a time of change, both for families facing economic pressures and for organizations that support sustainable communities. I believe that to capture this moment and harness it for progress we must address the gaps in access to affordable financial products and services. These gaps contributed to the foreclosure crisis; when banks are absent from a community, non-banks or even predatory lenders may fill the vacuum. Lack of access is only part of the problem, however – we also need innovative products and services tailored to the needs of currently unbanked or underbanked consumers.
Banking Development District Program
New York’s Banking Development District (BDD) program provides financial incentives to banks to fill these gaps. The goal is to combine access with the right products and services, developing long-term customer relationships and greater opportunities for economic inclusion. Through the BDD program, banks that open branches in underserved areas have the opportunity to receive below-market rate deposits from the state. Branches within the five boroughs may also receive these deposits from the city of New York. But these privileges come with a special responsibility to partner with the community in meeting local needs. I am proud of the achievements of our program as a whole, but want to ensure that the program continues to be a force for change.
Last year we held community hearings across the state on the BDD program, to solicit feedback and ideas for improvement from a wide range of stakeholders. A report with detailed findings from these hearings is posted on our website at www.banking.state.ny.us. Most importantly, we are translating the findings into actions steps for meaningful change, such as:
Financial education. The provision of financial education will now be a requirement for program participation. We strongly recommend that branches consider fulfilling this requirement by partnering with a third-party for whom such services are a part of the organization’s primary mission.
Affordable products and services. As important as expanding branch access is, it is even more important to ensure that those branches are offering appropriate products. Therefore, applications for the BDD program will be required to include more detailed information on the features associated with their “affordable” products, including costs. Many branches have innovative offerings, such as small dollar loans, remittance products, technical assistance and free tax preparation services. However, we believe that more needs to be done. In fact, we have had to place several BDD banks on probation for failing to meet the goals laid out in their original application.
We are also ramping up our efforts, through programs such as “Bank on Manhattan,” to encourage all banks, and not just BDD branches, to provide affordable banking products and services.
Bank on Manhattan
A major initiative for the Banking Department is our collaboration with the Manhattan Borough President’s Office on the “Bank on Manhattan” campaign. To correct the high unbanked rate in Manhattan, the Bank On project takes a multi-pronged approach through coordinated efforts in product design, financial education, and multilingual outreach.
First, Bank On is developing a low-cost, low-risk checking account, with features designed to help underbanked households successfully transition into the financial mainstream. For example, customers will have a choice of having a debit card with opt-in overdraft protection or having an ATM card with no debit feature. This will help customers avoid being trapped by expensive and unexpected penalty fees. The account also provides a second chance to those with certain types of previous unfavorable account histories in the ChexSystem, subject to completion of financial education.
I am pleased that many banks and credit unions have signed on to offer products that will comply with these Bank On features. We expect to launch the public campaign to invite customers to open these accounts this summer.
This renewed emphasis on product design goes hand-in-glove with our focus on revitalizing CRA as a tool for economic inclusion. We want to foster a more holistic approach to CRA compliance, not just a check-the-box mindset, and emphasize qualitative results over quantitative ones in our examinations. To that end, we are meeting with stakeholders to discuss how we currently rate institutions for CRA and to gather their input.
With the continuing fallout from the financial crisis, helping the hardest-hit neighborhoods has only become harder. The right financial products and services are key to ensuring that low and moderate income families and small businesses weather this recession and are part of the future economic recovery.
Richard H. Neiman, superintendent of the New York State Banking Department, writes on regulatory issues for Banking New York.