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Remarks to the National Association of Affordable Housing Lenders

Chairman (Acting) Martin J. Gruenberg
 Speech, National Association of Affordable Housing Lenders  
November 2, 2022

Good afternoon. I would like to begin by thanking Buzz Roberts and the National Association of Affordable Housing Lenders for the invitation to speak with you today. NAAHL has worked for more than three decades to promote inclusive neighborhood revitalization and to ensure that all Americans can find safe and affordable housing.

NAAHL brings together banks, community development financial institutions and others with the ability to direct capital to address needs in communities across the country. This approach has given NAAHL unique expertise to contribute to important policy conversations over the years from tax credits to small business lending programs, and, of course, the Community Reinvestment Act.

On this last point, as you know, the FDIC, the Office of the Comptroller of the Currency and the Federal Reserve put forward earlier this year a joint Notice of Proposed Rulemaking on CRA.

While comments are under review, I assure you that the agencies remain committed to strengthening the impact of CRA and to increasing transparency and predictability in its application. We have received about 1,000 unique comments. Many are detailed and thoughtful, and the agencies are carefully reviewing them as we work toward a final rule.

NAAHL’s work on both policy and practice continues to be critical. Today, many Americans find it difficult to find and afford housing in their communities. According to a June report from the Joint Center for Housing Studies of Harvard University, the number of existing homes available for sale at the start of this year was lower than any point since the late 1990s.1 New units, the Center reports, were selling quickly and - with a majority costing more than $400,000 - carried prices out of reach for many.

In addition to these concerns about the cost and supply of housing units, recent increases in interest rates mean that mortgage financing costs themselves will likely be challenging for aspiring homeowners in the short run. Last week, rates for 30-year mortgages climbed over 7 percent for the first time in two decades. The monthly principal and interest payment a well-qualified middle class family might expect to pay on a $300,000, 30-year loan has increased from just under $1,300 to more than $2,000 in only one year’s time.

And while affordability issues are broadly felt, certain communities, including those that were most affected by the foreclosure crisis feel its effects more keenly. While African American homeownership has started to recover from its post-crisis low, African Americans today remain far less likely (at 45.3 percent) to own a home than the general population (65.8 percent).2

In fact, at nearly thirty (29.3) percentage points, the gap between African American and white homeownership rates currently reported by the Census is larger than it was in 1960.3

Renters, too, are facing increasing challenges. The Joint Center report details that rents across the nation grew by 12 percent on a year-over-year basis in the first quarter. Even before the latest run up, renter households were shouldering significant housing cost burdens. As the report notes, almost half (46 percent) of renter households paid more than 30 percent of their income on housing costs, and 24 percent paid more than half of their income.

NAAHL’s work to promote investment in housing and local economies across America is vital to ensuring that all Americans can share in and contribute to their communities.

Homeownership, in particular, is an achievement that both opens up opportunities to build wealth and provides a foundation from which families may participate in a full range of civic and economic activities. Seen in this light, the work of NAAHL is the work of inclusion.

Of course, before families can achieve sustainable homeownership, they need to develop sound financial capabilities, including acquiring perhaps the most elementary financial asset of all, a relationship with an insured depository institution.

The FDIC has a long-standing commitment to advancing economic inclusion in the banking system. By forming a banking relationship, families gain a safe place to receive and store hard-earned wages and the ability to access a range of products and services that can help them manage their financial affairs, build savings, and establish and make use of consumer credit. Moreover, relationships with an insured financial institution come with a wide range of protections including deposit insurance, guaranteed timely availability of funds, and protections against unauthorized transactions.

Unbanked and Underbanked Survey Results 

Since 2009, the FDIC has conducted and reported results of its National Survey of Unbanked and Underbanked Households. This survey measures the extent to which Americans participate in the banking system and highlights opportunities to expand economic inclusion. Conducted in partnership with the Census Bureau, this survey provides authoritative data at the national, state and local level.

With more than 30,000 responses, the survey also affords insight into how results differ across demographic segments of the population. Today, it is widely used by financial institutions, community-based organizations and other practitioners, as well as by researchers and policy makers.

Our most recent survey report was released just last week. While the results reveal that substantial progress has been made, they also demonstrate that much work remains to ensure all Americans have meaningful access to and can benefit from a banking relationship.

This release marked the fifth straight survey over more than a decade to show a decline in unbanked rates. In all, 4.5 percent of households were unbanked in 2021, meaning they did not have an account at an insured depository. To place this figure in perspective, in 2011, 8.2 percent of households were unbanked. Put another way, the gains over the last ten years have resulted in almost 5 million additional households with banking relationships. Those households would be expected to be comprised of 9.6 million adults and 2.3 million children.

While it should be acknowledged that this was generally a period of economic growth that may have aided the results, nevertheless the progress is notable.

Also, in 2021, the results indicate that 14.1 percent of households were underbanked. That is defined as owning a bank account but still using one of several nonbank products and services tracked in the survey. In terms of trends, the survey reports diminished demand for these nonbank products and services.

For example, the share of households using nonbank check cashing has now fallen by half over the prior four years, from 6.4 percent to 3.2 percent. The data also reveal declines among the share of households using nonbank consumer credit products that households may turn to for small amounts of money, such as borrowing from pawn shops, payday loans, or auto title lenders. Just 4.4 percent of households used such nonbank credit products in 2021, down from 7.4 percent four years prior.

Even if encouraging on the whole, it is important to recognize that these aggregate results mask stark differences across the population. These differences help illustrate that substantial challenges and opportunities remain to expand participation in the banking system.

While the unbanked rate among white households stands at 2.1 percent, unbanked rates among Black and Hispanic households, respectively, were 11.3 and 9.3 percent. Moreover, these gaps cannot be understood as a simple product of differences in income.

At every income level tracked in the survey, the unbanked rates of Black and Hispanic households exceeded those of white households. Among those earning between 30 and 50 thousand dollars per year, the unbanked rate for white households was 1.7 percent, but was 8 percent for Black households and 8.4 percent for Hispanic households.

Other population segments also have lower levels of engagement with the banking system. Single-mothers (15.9 percent), households headed by a working-age individual with a disability (14.8 percent), lower income households (13.5 percent for households earning less than $30,000 per year), and households with lower levels of formal education (9.8 percent for those with high school education or less) all were significantly more likely to be unbanked.

It should be clear that the different experiences detailed in these data on homeownership, on access to bank credit, and on ownership of a bank account have significant implications.

The FDIC’s mission is to ensure public confidence in the nation’s banking system. That confidence is bolstered when as many people as possible are connected to and benefit from their relationships with insured institutions. While we appear to have made meaningful progress since the inception of the survey, we are still far from ensuring that Americans of all backgrounds can fully participate in and benefit from our nation’s banking system and economy.

Importance of Bankable Moments and Safe Accounts 

In addition to providing insightful measurements of current engagement, the survey also yields important information about the opportunities to expand economic inclusion in the banking system. We learned some interesting lessons during the pandemic. For example, the most recent survey asked questions about what motivated households to establish a banking relationship.

The results show that a sizeable majority of households that recently established a banking relationship had received an economic impact payment or other public benefit, such as expanded unemployment insurance, during the pandemic. Among these, almost half (44.8 percent) reported that the payment contributed to their decision to open a bank account. Similarly, a slightly lower proportion (33.1 percent) of recently banked households that reported starting a new job said that the new position contributed to their decision to open an account.

These findings point to the importance of taking advantage of these sorts of bankable moments, by ensuring consumers are aware of and able to locate and open bank accounts that can meet their needs.

During the pandemic, the FDIC partnered with the Internal Revenue Service to support consumers as they opened accounts so that they could receive stimulus payments in a secure and timely manner, as a direct deposit. As you may know, consumers without accounts faced potential delays in receiving checks and the added burden of cashing those checks during the pandemic.

Together, the agencies provided resources to help consumers understand their options for opening an account, including options for opening an account online during a time when some may not have been able or willing to travel to a branch in person. The FDIC also invested in a national outreach campaign to raise consumers’ awareness of the benefits of getting banked.

Importantly, though, it wasn’t just the FDIC or the federal government invested in these kinds of efforts. Trade organizations such as the American Bankers Association and the Independent Community Bankers Association and other nonprofit groups such as the Cities for Financial Empowerment Fund and their colleagues in the Bank On movement helped consumers find and open accounts.

Connecting consumers with bank accounts only works, of course, if banks offer accounts that are well-suited to meet households’ needs. Over the last decade, an increasing number of institutions have offered accounts specifically designed to help address the needs of a wide range of consumers, including low- and moderate-income consumers.

These accounts, typically patterned off a template initially put forward by the FDIC known as “safe accounts”, feature no or low minimum balance requirements; low, transparent monthly fees; and are designed to ensure that consumers cannot incur overdraft or insufficient fund fees. The Cities for Financial Empowerment Fund certifies accounts as meeting a set of national standards that include these and other key features.

Evidence from the survey and other sources are consistent with these accounts having their intended effect of removing obstacles to households achieving and sustaining account ownership. One interesting result from this year’s survey is associated with changes in the reasons unbanked households give for not holding an account: The proportion of households citing reasons related to minimum balance requirements or fees decreased in this survey to 28 percent, down from 38 percent in 2019. Addressing these concerns were central motivations for the development of the safe accounts concept.

In addition, data supports the proposition that banks are increasing the availability of these accounts. Recent work by FDIC analysts has documented that certified accounts are now available from institutions that collectively hold more than 60 percent of all domestic deposits in FDIC-insured institutions. Finally, in terms of net effect, an independent analysis of data from the Federal Reserve Bank of St. Louis tracking the adoption of these accounts concluded that their availability has helped support consumer participation in the banking system. The analysis noted that safe accounts appeared to be expanding access to banking in important ways, with a disproportionate share of account opening in areas with greater proportions of minority and lower-income households.4

Bankable moments represent key opportunities to join the system. But, we should not lose sight of the importance of also ensuring that households are able to sustain banking relationships. After all, FDIC surveys have consistently revealed that about half of unbanked households were previously banked.

New research from FDIC economists demonstrates that even temporary job loss can be associated with families experiencing periods of time during which they do not maintain a bank account.5 Financial institutions and support agencies may have opportunities, the researchers observe, to mitigate this risk if they can identify and provide timely information or material support, such as temporarily waiving monthly maintenance fees that may be triggered when direct deposits previously associated with a job cease. While the research bolsters the case for such approaches, these are not unprecedented suggestions. In fact, during the pandemic, bank regulatory agencies encouraged financial institutions to be accommodative in a similar fashion, including by waiving ATM fees as families struggled with challenging conditions.

Challenges from a Complex Landscape of Options 

The survey has also helped bring to light the extent to which households are turning to an increasingly diverse set of providers for financial services. Almost half (46.4 percent) of households reported that they had used a nonbank on-line payment service in the last year. The survey specifically asked about on-line payment providers that had a feature that allowed consumers to receive and store money with the service.

While banked households were significantly more likely to use nonbank online payments services than unbanked households, the most common use cases were quite different between the two groups. Banked households most commonly reported that they used these services primarily to send or receive money from family or friends and to make online purchases, as a complement to a bank account. In contrast, the most common use cases among unbanked households revealed that they were using these services as they might otherwise have used bank accounts: paying bills, receiving income and as a vehicle to save or keep money safe.

Other results for unbanked households showed that they were more likely to hold a prepaid card and were also more likely than banked households to use the prepaid card for the kinds of activities typically associated with bank accounts. Large majorities of unbanked households with prepaid cards reported using them to receive income and pay bills, for example.

Taken together, these findings raise important questions about whether consumers are aware of potential consequences when selecting from the options available to them. For example, the availability of deposit insurance and certain consumer protections may depend on the product and provider they select. The easiest way for most consumers to have confidence that their money is safe and to access key consumer protections is to place it in an insured bank account. However, for consumers using other options, it is important that they understand the risks that may be involved.

While helping consumers to educate themselves to these ends is an important objective, so too is ensuring that the information consumers receive in the market is accurate and complete. Consequently, in July, the FDIC finalized a rule to help address instances in which firms misrepresent the availability of deposit insurance in violation of the law. As part of the rule, the FDIC established a portal to allow the public to lodge complaints and inquiries related to such concerns. To date, more than 325 submissions have been made through the portal.

In addition, the FDIC took action issuing cease-and-desist letters to six firms that were misrepresenting the availability of deposit insurance, including some firms that made the claim in connection with the offering of crypto assets.

Conclusion 

As you can see, the work of expanding economic inclusion is ongoing. This has consequences for participation in the banking system, access to homeownership, and the economic vitality of communities across the country.

I appreciate the work that NAAHL is doing to advance these important objectives, and the opportunity to share the results of the FDIC’s work. While our recent survey results on participation in the banking system are encouraging, it is clear we have much more work to do.

Thank you.

Last Updated: November 2, 2022