    [House Hearing, 108 Congress]
    [From the U.S. Government Publishing Office]

                      SERVING THE UNDERSERVED: INITIATIVES
                       TO BROADEN ACCESS TO THE FINANCIAL
                                   MAINSTREAM

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                   FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 26, 2003

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 108-45

    91-773              U.S. GOVERNMENT PRINTING OFFICE
                                WASHINGTON : 2003
    ____________________________________________________________________________
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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        MICHAEL G. OXLEY, Ohio, Chairman

    JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
    DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
    RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
    SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
    MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
    PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
    EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
    FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
    ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
    SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
    RON PAUL, Texas                      BRAD SHERMAN, California
    PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
    JIM RYUN, Kansas                     BARBARA LEE, California
    STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
    DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
    WALTER B. JONES, Jr., North          CHARLES A. GONZALEZ, Texas
        Carolina                         MICHAEL E. CAPUANO, Massachusetts
    DOUG OSE, California                 HAROLD E. FORD, Jr., Tennessee
    JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
    MARK GREEN, Wisconsin                KEN LUCAS, Kentucky
    PATRICK J. TOOMEY, Pennsylvania      JOSEPH CROWLEY, New York
    CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
    JOHN B. SHADEGG, Arizona             STEVE ISRAEL, New York
    VITO FOSSELLA, New York              MIKE ROSS, Arkansas
    GARY G. MILLER, California           CAROLYN McCARTHY, New York
    MELISSA A. HART, Pennsylvania        JOE BACA, California
    SHELLEY MOORE CAPITO, West Virginia  JIM MATHESON, Utah
    PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
    MARK R. KENNEDY, Minnesota           ARTUR DAVIS, Alabama
    TOM FEENEY, Florida                  RAHM EMANUEL, Illinois
    JEB HENSARLING, Texas                BRAD MILLER, North Carolina
    SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
    TIM MURPHY, Pennsylvania
    GINNY BROWN-WAITE, Florida           BERNARD SANDERS, Vermont
    J. GRESHAM BARRETT, South Carolina
    KATHERINE HARRIS, Florida
    RICK RENZI, Arizona

                     Robert U. Foster, III, Staff Director

           Subcommittee on Financial Institutions and Consumer Credit

                       SPENCER BACHUS, Alabama, Chairman

    STEVEN C. LaTOURETTE, Ohio, Vice     BERNARD SANDERS, Vermont
        Chairman                         CAROLYN B. MALONEY, New York
    DOUG BEREUTER, Nebraska              MELVIN L. WATT, North Carolina
    RICHARD H. BAKER, Louisiana          GARY L. ACKERMAN, New York
    MICHAEL N. CASTLE, Delaware          BRAD SHERMAN, California
    EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
    FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
    SUE W. KELLY, New York               DENNIS MOORE, Kansas
    PAUL E. GILLMOR, Ohio                CHARLES A. GONZALEZ, Texas
    JIM RYUN, Kansas                     PAUL E. KANJORSKI, Pennsylvania
    WALTER B. JONES, Jr, North Carolina  MAXINE WATERS, California
    JUDY BIGGERT, Illinois               DARLENE HOOLEY, Oregon
    PATRICK J. TOOMEY, Pennsylvania      JULIA CARSON, Indiana
    VITO FOSSELLA, New York              HAROLD E. FORD, Jr., Tennessee
    MELISSA A. HART, Pennsylvania        RUBEN HINOJOSA, Texas
    SHELLEY MOORE CAPITO, West Virginia  KEN LUCAS, Kentucky
    PATRICK J. TIBERI, Ohio              JOSEPH CROWLEY, New York
    MARK R. KENNEDY, Minnesota           STEVE ISRAEL, New York
    TOM FEENEY, Florida                  MIKE ROSS, Arkansas
    JEB HENSARLING, Texas                CAROLYN McCARTHY, New York
    SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
    TIM MURPHY, Pennsylvania
    GINNY BROWN-WAITE, Florida
    J. GRESHAM BARRETT, South Carolina
    RICK RENZI, Arizona

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        June 26, 2003................................................     1
    Appendix:
        June 26, 2003................................................    49

                                   WITNESSES
                            Thursday, June 26, 2003

    Abernathy, Hon. Wayne, Assistant Secretary Financial
      Institutions, Department of the Treasury.......................     6
    Bair, Sheila, Dean's Professor of Financial Regulatory Policy,
      University of Massachusetts....................................    36
    Beltran, Al, President and Chief Executive Officer, Security
      First Hidalgo Federal Credit Union, McAllen, Texas, on behalf
      of the Credit Union National Association.......................    28
    Bryant, John, Founder, Chairman and CEO, Operation Hope..........    30
    Dollar, Hon. Dennis, Chairman, National Credit Union
      Administration.................................................     8
    Manjarrez, Gabriel, Senior Vice President, Hispanic Marketing
      Executive, Bank of America.....................................    34
    Satisky, Brian, President, Maryland Association of Financial
      Service Centers, Inc., on behalf of the Financial Service
      Centers of America.............................................    38
    Young, James E., President and CEO, Citizens Trust Bank, Atlanta,
      Georgia........................................................    24

                                    APPENDIX

    Prepared statements:
        Bachus, Hon. Spencer.........................................    50
        Barrett, Hon. J. Gresham.....................................    54
        Gillmor, Paul E..............................................    55
        Hinojosa, Hon. Ruben.........................................    56
        Scott, Hon. David............................................    59
        Abernathy, Hon. Wayne........................................    60
        Bair, Sheila.................................................    66
        Beltran, Al..................................................    72
        Bryant, John.................................................    85
        Dollar, Hon. Dennis..........................................   104
        Manjarrez, Gabriel...........................................   116
        Satisky, Brian...............................................   121
        Young, James E...............................................   130

                  Additional Material Submitted for the Record

    Hinojosa, Hon. Ruben:
        Acceptance of Mexican Consular IDs is Not Only Legal It
          Improves Public Safety and Enhances the Economy............   137
        Citigroup Efforts on Banking the Unbanked and Financial
          Literacy...................................................   155
        Embassy of Mexico-USA, Invisible Security Features...........   159
        List of Several Financial Literacy Programs, America's
          Community Bankers..........................................   165
        The Role of Matricula Consular at Financial Institutions,
          National Council of La Raza................................   177

                      SERVING THE UNDERSERVED: INITIATIVES
                       TO BROADEN ACCESS TO THE FINANCIAL
                                   MAINSTREAM

                                  ----------

                            Thursday, June 26, 2003

                 U.S. House of Representatives,
                Subcommittee on Financial Institutions,
                                    And Consumer Credit
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to call, at 10:05 a.m., in
    Room 2128, Rayburn House Office Building, Hon. Spencer Bachus
    [Chairman of the subcommittee] presiding.
        Present: Representatives Bachus, Gillmor, Hensarling,
    Barrett, Maloney, Sherman, Waters, Velazquez, Hinojosa, Lucas
    of Kentucky and Davis. Also present were Representatives Baca
    and Scott.
        Chairman Bachus. [Presiding.] Good morning. The
    subcommittee will come to order.
        Today, we are holding a hearing entitled Serving the
    Underserved: Initiatives to Broaden Access to the Financial
    Mainstream. This hearing was requested by Mr. Hinojosa to
    address issues relating to the un-banked, including the use of
    international remittances and the acceptance of Consular
    identification cards. I applaud him for requesting this
    hearing. I think it is going to be an exciting hearing, a
    hearing that has tremendous potential to improve both citizens'
    abilities to benefit from financial prosperity from the banking
    system and also be of great benefit to our economy when all our
    citizens are given the opportunity to contribute.
        The witnesses on the first panel will include Mr. Wayne
    Abernathy from the Treasury Department, and Mr. Dennis Dollar.
        Our second panel is going to be made up of representatives
    from some of our minority-owned banks, representatives from the
    academic world. Those witnesses, as well as our witnesses from
    the first panel, will talk about innovative ways that we are
    now attracting the un-banked. There are as many as 10 million
    households or 60 million Americans who for one reason or
    another do not avail themselves of banking services. When they
    either do not have an opportunity to use Federal Deposit
    Insurance institutions or because of suspicions that they may
    have, choose not to avail themselves of these institutions, we
    find that they are prejudiced and handicapped financially. They
    normally end up paying more for remittances, check cashing
    privileges, than they would if they chose to avail themselves
    of a credit union or a bank.
        We also find the importance of educational programs, of
    financial literacy programs. When citizens avail themselves of
    those and banking services, we find that financially they are
    better able to manage their finances. It is an indication of
    their ability to keep and retain property, wealth,
    homeownership. So oftentimes, becoming associated with a
    Federally Deposited Insurance financial institution leads to
    more success on their part.
        One debate that is going on in the Congress today does
    involve the use of Matricula Consular cards. There is a bill
    before the Congress to actually prohibit a federally insured
    institution from accepting those cards as identification. There
    is another bill before the Congress by Mr. Hinojosa which would
    on the other hand require federally insured deposit
    institutions to accept those cards. Mr. Abernathy will testify,
    and I agree with his approach to it, that we should basically
    allow each financial institution to determine what they believe
    is proper identification, and neither prohibit nor require
    certain forms of identification. Several of our banks--we are
    going to have a witness from Bank of America--but several of
    our large banks have very much increased their services and
    outreach to the un-banked. We are going to hear some of those
    success stories.
        Furthermore, we have several government initiatives. The
    FDIC MoneySmart program, the Federal Reserve has just announced
    an initiative. The National Credit Union Administration, we
    will hear from Administrator Dollar about Access Across
    America. The Treasury First Accounts program--we will hear
    about those from Under Secretary Abernathy.
        I think there are a lot of great things happening. There
    are some very aggressive campaigns underway by both the
    government and by large banks, and by minority-owned banks. We
    are going to hear from minority-owned banks, many of whom have
    several programs and offer tellers who speak the language of
    the people seeking the service. That is a big help.
        I think my time has about expired, but I do want to commend
    Bank of America, Wells Fargo and Citigroup, three of our
    largest institutions, for their increase in making remittance
    services available to the un-banked.
        At this time, I am going to recognize Mr. Hinojosa for an
    opening statement.
        [The prepared statement of Hon. Spencer Bachus can be found
    on page 50 in the appendix.]
        Mr. Hinojosa. Thank you, Mr. Chairman.
        Chairman Bachus, thank you for your leadership as Chairman
    on this very important issue. I am grateful that you and my
    friend, Ranking Member Sanders, have agreed to hold this
    hearing today as a result of our colloquy on my amendment to
    H.R. 1375, the Financial Services Regulatory Relief Act of
    2003, considered in the Financial Institutions Subcommittee on
    April 9, 2003. My amendment would have deemed Consular ID cards
    issued by the Embassy of Mexico, which refers to them as
    Matricula Consular cards as a valid form of identification
    under Section 326 of the USA PATRIOT Act.
        I appreciate Chairman Bachus's efforts and those of his
    staff and of the staff of Ranking Member Barney Frank in
    pulling together this hearing. This issue is extremely
    important to me, to my constituents, to all my state of Texas,
    and to the un-banked throughout the United States. Opening an
    account at a financial institution is often impossible for
    foreign nationals who lack the generally required two forms of
    identification. As a consequence, they are often forced to use
    expensive check cashing services to cash payroll checks and
    wire services to send money to relatives back home.
        In addition, these same un-banked foreign nationals have
    had to carry large sums of cash, which has increasingly made
    them targets of crime. The Mexican government has attempted to
    resolve this problem by issuing their own Consular ID cards. I
    want to say that they have been doing this not for a year or
    two, but for close to 132 years. They have through the years
    gone through three stages of improving this identity card that
    I will be showing you later on during this presentation that is
    going to be made by our panelists. I want you to know that when
    I compared the present Consular card that Mexico is issuing
    with my own identification card that I carry for a driver's
    license, it is equal to, or superior to, the identification
    card that I use to identify myself wherever I bank or cash a
    check or conduct other financial services activities.
        I should stress again that these cards are over 130 years
    old and have been accepted in the United States for quite some
    time. In March 2002, the Mexican government significantly
    improved the ID card by adding several security features,
    including those that are invisible except when exposed to
    infrared light. Acceptance of the Consular ID card by local
    U.S. authorities and governments does not encourage illegal
    immigration. The Consular ID card serves as proof of Consular
    registration as established by the Vienna Consular Convention.
    Thus, the mere acceptance of this document as a means of
    identification does not constitute a violation of federal
    immigration laws because it is not intended to aid nor give
    foreign nationals in the United States the understanding that
    they can continue to reside without documents in the United
    States. Moreover, Mexican consulates clearly explain the nature
    of the documents to assure that Mexican nationals know that it
    does not regularize their immigration status.
        To address the un-banked issue, I introduced on February
    13, 2003, H.R. 773, the ``21st Century Access to Banking Act.''
    This legislation will make several key reforms to the USA
    PATRIOT Act of 2001, which was enacted to safeguard our U.S.
    banking system against terrorism. The key reforms include: (1),
    authorizing U.S. financial institutions to accept these
    Consular ID cards as valid identification for the purposes of
    opening an account; (2), bringing un-banked individuals into
    the U.S. banking system; and (3), allowing for more efficient
    regulation of currency in the United States.
        My legislation will allow these hard-working families to
    enter the mainstream financial system, thus enabling them to
    open checking accounts, savings accounts, establish a credit
    history, and possibly even purchase a car or home. Although my
    legislation runs on a parallel track to Treasury's recently
    promulgated Section 326 regulations, it goes further. It
    requires institutions to accept these identification cards.
    Consequently, my legislation will help improve our sagging
    economy by enabling these struggling families to avoid being
    preyed upon by sometimes unscrupulous check cashers and payday
    lenders, and instead permit them to enter the mainstream
    financial system, thus infusing our banks, credit unions, and
    ultimately our economy with much-needed cash.
        Think about it. If individuals were denied use of the
    Consular ID card, foreign nationals would not be able to open
    accounts at U.S. financial institutions and send remittances to
    their loved ones abroad at significantly reduced cost. Funds
    transferred from foreign nationals in the United States to
    their families allows them to purchase goods imported from the
    United States, thus creating a rather desirable economic cycle.
        The recent increase in competition for remittances by Wells
    Fargo, Citibank, Bank of America, Texas State Bank, and the
    credit unions, particularly Security First Federal Credit Union
    represented here today by its CEO and my constituent Al
    Beltran, has helped reduce the cost of remittances these
    families send back to their loved ones. We should continue to
    encourage such activity. Furthermore, improving and encouraging
    the development of financial literacy programs can only help
    increase the living standards of these nationals and of
    Americans in general. As I always say, education is the
    foundation for economic development. This hearing is a step in
    that direction.
        There are numerous financial literacy programs out there:
    FDIC's MoneySmart for Adults, both in English and Spanish;
    NCEE's K through 12 Program; ACB's MoneyRules program; Fannie
    Mae's homeownership program in both English and Spanish;
    Freddie Mac's CreditSmart Espanol; the SIA's online Stock
    Market Game; ICI's Investing for Success; Operation HOPE's
    Banking on our Future, and others that are improving financial
    literacy for our entire population. I would especially like to
    commend the Independent Bankers Association of the state of
    Texas for encouraging the Texas state legislature to pass
    legislation requiring two semesters of financial literacy to
    graduate from high school.
        Finally, Mr. Chairman, I would like to acknowledge all the
    hard work put into this hearing by Carter McDowell, Dina Ellis,
    Kevin Macmillan, Karen Lynch, and especially Jim Clinger of the
    majority staff, and special thanks also to Jaime Lizarraga and
    Jeanne Roslanowick of Ranking Member Frank's staff. As a result
    of all of their efforts, we have crafted a truly bipartisan
    hearing. I look forward to hearing the testimony of our
    witnesses.
        I yield back the balance of my time.
        [The prepared statement of Hon. Ruben Hinojosa can be found
    on page 56 in the appendix.]
        Chairman Bachus. Thank you.
        Mr. Lucas?
        Mr. Lucas of Kentucky. In the interest of time, I will
    pass.
        Chairman Bachus. Thank you.
        Mr. Scott, the gentleman from Georgia. I applaud your
    leadership on this issue and recognize you for an opening
    statement.
        Mr. Scott. Thank you so very much, Chairman Bachus. First,
    I want to congratulate and commend you for providing great
    leadership on this very important and timely issue of serving
    the underserved and getting forth the initiatives to broaden
    access to the financial mainstream hearing.
        I would like to also congratulate my friend, Ranking Member
    Sanders, for holding this hearing today as well.
        Yesterday, the annual survey of African American investors
    by Ariel Mutual Funds and Charles Schwab was released. It found
    that of black families with annual incomes of $50,000 or more,
    only 61 percent had money in the stock market, compared to 79
    percent for white families. Many of these middle-class families
    were moving their money into their homes, but this must be a
    small group because from 1998 to 2002, African American
    homeownership rates only rose from 45.6 percent to 47.3
    percent, compared with the national average increase from 66.3
    percent to 67.9 percent. With interest rates at a historical
    low, I believe that we must push even harder to help increase
    minority homeownership rates, but we cannot even begin to
    encourage low-and middle-wage earners to invest in the stock
    market or consider a home mortgage if they do not have basic
    economic understanding of savings and credit.
        I have worked, as you know Mr. Chairman from our
    discussions with you, to coordinate and improve homebuyer
    education to prevent predatory lending, and to increase
    investment and financial education and literacy. Our
    legislation, H.R. 1865, will help educate consumers about
    predatory lending by providing easy to locate counseling
    services. The legislation is based on our belief that consumers
    can best help themselves if they are armed with information and
    not confusing regulation.
        Specifically, H.R. 1865 would do the following. One, it
    would provide grants to states and nonprofit agencies for
    programs that educate consumers, especially low-income
    borrowers and senior citizens about lending laws, counseling
    programs for homeowners, and prospective homeowners regarding
    unscrupulous lending practices, and referral services for
    homeowners and prospective homeowners. Secondly, and which I
    think is one of the most creative features of our legislation,
    this bill will create a nationwide toll-free number to receive
    consumer complaints regarding predatory lending practices,
    provide information about unscrupulous lending practices, refer
    victims to consumer protection agencies or organizations, and
    create a database for information for consumers.
        Third, it will coordinate government agencies and nonprofit
    organizations that provide education, counseling to consumers
    who have been victims of predatory lending practices. And
    fourth, it will establish a predatory lending advisory council
    under the Department of Housing and Urban Development,
    comprised of community-based groups, homeowners, government
    officials, and the private industry. The council will advise
    the HUD Secretary and conduct a study on the root causes of
    default and foreclosure of home loans.
        I would like to ensure that all investor education programs
    are targeted in ways that reach the intended audiences and have
    a maximum impact. Many federal agencies, nonprofit groups and
    private sector firms have public investor education programs
    and plans. However, I believe that the unsophisticated consumer
    is not aware of these many overlapping programs. I believe that
    we can improve the delivery vehicle for many of these worthy
    programs, especially with the institution of our nationwide
    toll-free number.
        I would like for this committee to determine if some of the
    financial literacy programs in federal agencies can be combined
    or streamlined to reduce overhead, reduce overlapping missions,
    and be easy to find in a one-stop shop that even the
    unsophisticated consumer can find help. I would also like for
    the committee to continue to review the standards of investor
    education curriculum and discuss the best ways to help much of
    the investors with these programs.
        I look forward to the hearing and the testimony from
    today's panel. And Mr. Chairman if I may on a personal note, I
    do understand that we have Mr. James Young with us, who is the
    CEO of Citizens Trust Bank from my home town of Atlanta. We are
    delighted to have him. He is one of the pioneering leaders in
    our community and providing excellent banking services. Glad to
    have you, James. Thank you very much for being here, my friend.
        Mr. Chairman, I thank you for giving me the opportunity to
    make this statement.
        [The prepared statement of Hon. David Scott can be found on
    page 59 in the appendix.]
        Chairman Bachus. I appreciate your remarks, Mr. Scott.
        What the committee will now do is recess for votes on the
    floor. What we then intend to do with Mr. Hinojosa's consent is
    we will come back here probably about 11:45 a.m., as soon as we
    can return from the floor. Our first panel, which is two
    basically old friends to this committee, will offer their
    opening statements. And then my hope is that we will have
    probably about 30 minutes of questions by the members, so that
    we can try to get our second panel up by, say, noon, at least
    by noon, 11:45 a.m. or noon.
        Actually, I am going to resume as soon as we can. And I am
    hoping that in about 15 minutes we can do that. I keep getting
    indications to come back at 11:00 a.m., but I would just assume
    use all our time. So we are going to recess and we are going to
    come back as soon as the last vote. There are three votes on
    the floor, but the last vote is just about over. So we will
    come back. The others are 5-minute votes.
        I am sorry. We will shoot for 10:45 a.m. or 10:50 a.m.
        [Recess.]
        Chairman Bachus. Welcome back. I want to welcome everyone
    back.
        Our first panel is the Honorable Wayne Abernathy, Assistant
    Secretary for Financial Institutions, Department of the
    Treasury. Our second panelist is the Honorable Dennis Dollar,
    Chairman of the National Credit Union Administration. As I said
    before the break, you all have testified before our committee
    on many occasions. We have enjoyed your testimony in the past
    and look forward to your testimony here today.
        Secretary Abernathy, we will let you start the testimony.

      STATEMENT OF HON. WAYNE ABERNATHY, ASSISTANT SECRETARY FOR
           FINANCIAL INSTITUTIONS, DEPARTMENT OF THE TREASURY

        Mr. Abernathy. Thank you, Mr. Chairman.
        It is a pleasure to be here, Mr. Chairman and members of
    the subcommittee. I appreciate the opportunity to appear before
    you this morning. The Treasury Department strongly believes
    that everyone should have the opportunity to establish a
    banking relationship with an insured depository institution.
    While most Americans already have the comfort of keeping their
    money in insured accounts, other Americans use financial
    services of a different sort. They cash checks at the
    neighborhood storefront and pay bills with cash or money
    orders. There may be a variety of reasons for this, but it is
    usually expensive, occasionally dangerous, and rarely the best
    option.
        Establishing a banking relationship is a key step toward
    building a promising financial future. Without a bank account,
    it is nearly impossible to establish a strong credit record,
    which in turn is necessary to qualify for a good car loan, home
    mortgage or small business loan at reasonable rates. A
    traditional banking relationship offers the account holder an
    opportunity to become familiar with the fundamental concepts
    that are critical in asset building. Bank accounts are tools to
    help families establish and fulfill their savings goals, and
    manage their money. Saving is the foundation for good financial
    management.
        Greater use of mainstream banking services also aids in our
    country's fight against money laundering. As individuals move
    their money from informal financial services providers and rely
    more upon safer insured depository institutions, the funds are
    removed from paths more likely to be frequented by those
    engaged in illegal activity. The Treasury Department's most
    visible initiative to provide greater access to financial
    services is the First Accounts program. The 15 First Accounts
    pilot projects provide an opportunity for the Treasury to
    evaluate a variety of experiments intended to increase
    participation in mainstream financial institutions. Our next
    step is to evaluate the success of the funded projects and to
    understand which are most effective in achieving our goals.
        Let me also highlight some other initiatives that Treasury
    is working on related to this effort. A key function of the
    Office of Financial Education is to identify sound, effective
    financial education programs around the country and highlight
    their efforts. Many of the individuals who need these programs
    do not even know of their existence. The attention that the
    Treasury Department can bring will help connect individuals in
    need to good financial education projects. For instance,
    earlier this week Treasurer Rosario Marin was in Columbus, Ohio
    to recognize the Ohio Credit Union League's Latino Financial
    Literacy Program which has provided classes for more than 200
    Hispanics in the Columbus area. The program incorporates many
    of the criteria that we have identified for effective programs,
    especially the inclusion of tools to measure results. Hopefully
    this program and many others like it will expand throughout
    Ohio.
        Another topic in this discussion is remittance activity.
    Many immigrants send remittances through a small number of
    alternative financial services providers. The limited
    competition has contributed to high costs, but this is
    changing. With our encouragement and support, more and more
    traditional financial institutions are recognizing that there
    is a positive opportunity to reach a diverse consumer base by
    offering low-cost remittance products. This can lay the
    foundation for new customers to save and build assets,
    establish a banking relationship, and acquire important tools
    of personal finance.
        At the same time, the increased competition will result in
    lower remittance costs. We support these and other efforts to
    make remittances more affordable for the people who send them,
    most of whom are low-wage earners and for those who receive
    them, people who often are in very great need. We should
    encourage this outreach and do nothing to discourage it.
        Expanding access to financial services is a nonpartisan
    issue that contributes to improved financial well-being.
    Opening an account at an insured depository institution
    provides the accountholder with a number of benefits: the
    opportunity for wealth building; lower costs for financial
    services; security; knowledge of and familiarity with the
    fundamentals of personal finance; and the chance to build a
    credit history and qualify for credit on better terms. Because
    of these benefits, Treasury is committed to promoting policies
    that will encourage individuals to establish traditional
    account relationships with insured banks and credit unions.
        Thank you for the opportunity to appear before you today. I
    look forward to working with the subcommittee on these
    important issues in the future.
        [The prepared statement of Hon. Wayne Abernathy can be
    found on page 60 in the appendix.]
        Chairman Bachus. Thank you, Assistant Secretary.
        At this time, we will hear from you, Chairman Dollar.

      STATEMENT OF HON. DENNIS DOLLAR, CHAIRMAN, NATIONAL CREDIT
                          UNION ADMINISTRATION

        Mr. Dollar. Thank you, Mr. Chairman and Ranking Member
    Sanders and members of the subcommittee.
        On behalf of the National Credit Union Administration, I
    truly appreciate the invitation to appear here today and I am
    extremely pleased to have this opportunity to be able to
    testify and discuss NCUA's role in facilitating credit unions's
    ability to meet the needs of millions of underserved Americans
    in their desire for financial self-sufficiency.
        NCUA has initiated a number of successful efforts over the
    course of the years, and a number that we have streamlined in
    recent years designed to extend lower-cost financial services
    to more underserved individuals through member-owned, not-for-
    profit financial cooperatives. We want to see more of the un-
    banked be empowered to bank themselves through the self-help
    approach that member-owned credit unions can provide. We
    recognize that many residents of underserved neighborhoods find
    themselves in a vicious pawnshop payday lender cycle that can
    only be broken when they have access to the lower-cost and
    user-friendly alternatives provided by traditional financial
    institutions.
        The three initiatives I would like to briefly discuss here
    this morning in the little time that we have, and to offer as a
    results-oriented model of how NCUA's Access Across America
    program is making a difference in extending credit union
    services to the underserved, are our agency's Underserved Area
    Adoption program, our agency's interagency and credit union
    partnerships, and the Community Development Revolving Loan
    Fund.
        Very briefly, I would like to discus Access Across America.
    This is an NCUA initiative that is designed to facilitate the
    extension of lower-cost credit union services to underserved
    communities and create opportunities for economic empowerment
    for people from all walks of life. As of the year 2002, there
    were over 90 million Americans living in census tracts
    designated by the U.S. Treasury Department's Community
    Development Financial Institutions program, the CDFI program,
    as investment areas. These criteria are based upon income and
    economic criteria which certainly warrant the distinction as
    being underserved areas. In many of these instances, the
    residents of these underserved areas often find themselves
    largely at the mercy of higher-cost outlets such as pawnshops,
    check-cashing stores, rent-to-own companies in the absence of
    an affordable financial alternative.
        Mr. Chairman, without sacrificing safety and soundness,
    without lowering oversight standards, in fact without changing
    a single existing regulation, NCUA made the decision that we
    could further the goals of Access Across America by
    streamlining where appropriate, without sacrificing the
    integrity of our regulations, the process for credit unions to
    adopt underserved areas into their field of membership, an
    option that has been allowed to federal credit unions by
    regulation since 1994 and statutorily was incorporated by
    Congress into the Credit Union Membership Access Act of 1998.
        The removal of unnecessary regulatory impediments has
    resulted in the unbridling of innovation in service to
    underserved areas at what had become record levels. It has
    certainly served to put the ``access'' into our Access Across
    America initiative. Some numbers briefly, to help make this
    point. In 1999, under the same field of membership rules and
    statutes regarding underserved areas that we have today, there
    were seven federal credit unions that adopted CDFI-designated
    investment areas into their field of membership. There were
    approximately 235,000 people who lived in those underserved
    areas that became eligible for credit union membership.
        In 2001, just two years later, with the procedural
    enhancements incorporated under the umbrella of NCUA's Access
    Across America initiative, there were a total of 164 federal
    credit unions that adopted 281 CDFI-designated investment
    areas. Some adopted more than one. The result was a record-
    setting 16.1 million Americans living in these underserved
    neighborhoods that at the end of the year had access to the
    lower-cost financial services of a credit union that had not
    had such access at the beginning of the year.
        In 2002, thinking we could never see the record-setting
    numbers of 2001 duplicated, we were pleased to see that
    applications were approved of 223 federal credit unions
    adopting 424 underserved neighborhoods, totaling over 23.5
    million residents. That is a 45.9 percent increase over 2001
    and a total increase 100 times greater than the results just 3
    years before had been in 1999.
        But we have not just stopped with encouraging and
    facilitating the adopting of underserved areas. We have tracked
    the results from this adoption program so that we can verify
    and monitor that his local and lower-cost financing alternative
    has indeed resulted in a significant number of the over 45
    million Americans residing in these underserved areas actually
    making the decision to take advantage of their eligibility and
    to become members of their local credit union.
        In fact, through our monitoring of our NCUA call report
    data, we find that the average annual membership growth since
    January 2000 in federal credit unions that expanded into
    underserved areas has been 4.80 percent. The national average
    for annual membership growth in all federal credit unions was
    2.49 percent in that same three-year period since January 2000.
        In other words, the membership growth for federal credit
    unions who adopt underserved areas is 93 percent greater than
    the average annual growth rate for all federal credit unions.
    Not only are the residents taking advantage of the access
    extended to them through this initiative, but credit unions are
    finding that there is good business in these communities as
    long as there is proper due diligence and risk management in
    place.
        That leads briefly to the second of our initiatives that I
    just want to briefly discuss, and that is the interagency and
    credit union partnerships that we are facilitating through
    Access Across America. My testimony in writing clearly states
    how we are dealing with various federal agencies to facilitate
    the extension of credit union services and to work in
    partnership and even in synergy with them to extend our
    programs into their areas and their programs into ours.
        We have partnerships with the U.S. Department of
    Agriculture, U.S. Department of Housing and Urban Development,
    U.S. Treasury Department's Community Development Financial
    Institutions program, the Internal Revenue Service through
    their VITA initiative, the Corporation for National Community
    Service, the FDIC through its MoneySmart financial literacy
    that we chose to endorse ourselves rather than reinventing the
    wheel. We felt that there was no reason for there to be a
    separate credit union financial literacy program endorsed by
    NCUA when the FDIC program was as strong as it was. The
    Neighborhood Reinvestment Corporation, Small Business
    Administration, these are all agencies that we are working
    together in partnership to extend this service.
        Another issue of importance, quickly, in extending lower-
    cost financial services to underserved individuals is the issue
    that was discussed earlier of international remittance. The
    predatory high cost of international remittance has been a
    concern of NCUA for a number of years. We have tried to
    facilitate where appropriate the innovative services and
    technologies available through credit union partnerships such
    as the IRnet service facilitated by the World Council of Credit
    Unions. The savings to individuals remitting funds
    internationally can be sizeable when the not-for-profit credit
    union sector can offer a lower flat-fee alternative to the
    percentage of funds which is often charged by some
    international transmittal outlets. Credit unions, of course,
    must fully comply with all U.S. USA PATRIOT Act regulations and
    verify their customers' identity. But NCUA strongly believes
    that encouraging individuals to use traditional financial
    institutions actually provides greater security.
        NCUA will continue to facilitate these lower-cost
    international remittance alternatives wherever possible under
    existing law and regulation through credit union partnerships
    such as the IRnet and others.
        Lastly, I just want to mention the Community Development
    Revolving Loan Fund, Mr. Chairman, because I don't think that
    we could look at ways that the Congress and NCUA have worked
    together to further the extension of credit union services into
    low-income communities without briefly addressing the Community
    Development Revolving Loan Fund. It was established by Congress
    in 1979 through an initial appropriation of $6 million to
    assist officially designated low-income credit unions in their
    efforts to provide basic financial services to underserved
    communities. Over the years, Congress has continued its
    commitment to CDRLF program by increasing the number of
    appropriated dollars available for loans to $13 million.
        Now, for more than 13, almost 14 years, NCUA has
    successfully administered this ongoing program, providing more
    than 217 revolving loans totaling $32.8 million. We have been
    able to revolve your $13 million appropriation into $32.8
    million worth of loans to low-income credit unions during its
    history. In 1992, the NCUA board began funding technical
    assistance grants by using the interest that was generated from
    these loans.
        In fiscal year 2001, you began to recognize the success of
    that grant program by reserving certain funds, and you have
    reserved up to this point a total of $1 million of additional
    appropriation for technical assistance grants to assist low-
    income credit unions. We have awarded more than 1,000 grants
    totaling $2.4 million between the two sources, both the
    interest from the loans and your $1 million appropriation. By
    providing an alternative to the higher-cost lenders, we believe
    that the CDRLF program furthers the goal of credit unions
    extending service into underserved areas.
        So Mr. Chairman, as you can see, the NCUA takes seriously
    its responsibilities to not only ensure the safety and
    soundness of the American credit union system, but also to make
    sure that it is both viable and valuable in meeting the needs
    of folks from all walks of life. We are building today's NCUA
    Access Across America initiative on the foundation of decades
    of outreach by financially sound credit unions. That has
    established a successful model of individual and community
    empowerment that we feel can have a positive impact on future
    generations and lead millions of individuals no longer in the
    ranks of the underserved, and giving the self-help empowerment
    through member-owned credit unions to bank themselves out of
    the category of the un-banked.
        I appreciate the opportunity to testify before you today. I
    will be more than glad to answer any questions that you or
    members of the subcommittee have. I respectfully ask that my
    full statement be entered in the official record.
        Thank you, Mr. Chairman.
        [The prepared statement of Hon. Dennis Dollar can be found
    on page 104 in the appendix.]
        Chairman Bachus. Thank you.
        In the interest of time, I am going to actually forego my
    questions. I would like to make one comment that I think is
    particularly important. That is that more Americans do have a
    bank account if for no other reason than to provide a safe
    place for deposit of their Social Security benefits or other
    government benefits, veterans benefits, electronic transfers,
    which can be a tremendous advantage to them.
        I am sure that the United States Government, the people of
    America have probably saved hundreds of millions of dollars on
    direct deposit programs. Because as you know, a prevalent
    problem in our country is people stealing benefit checks out of
    the mailbox.
        At this time, I am going to recognize Mr. Hinojosa for
    questions.
        Mr. Hinojosa. Thank you, Mr. Chairman.
        I want to commend all of you for your efforts to bank the
    un-banked. I am going to ask my first question of Wayne
    Abernathy. I recently obtained a copy of a letter from Treasury
    Secretary Snow to Chairman Sensenbrenner of the House Judiciary
    Committee announcing that you would reopen the regulations for
    a 45-day comment period. Why are you reopening these
    regulations that you recently promulgated and that were two
    years in the making? And what questions will you ask of
    financial institutions?
        Mr. Abernathy. Thank you, Congressman, for asking that
    question, because there has been some confusion as to exactly
    what it is that Treasury is doing in that regard. We are not
    reopening those regulations. Those regulations were promulgated
    on July 9. They will go into effect I believe in October. What
    we have made a promise to do, however, is because of the
    increased interest that there is on the impact of those
    regulations, the request was made to us from Congressman
    Sensenbrenner and others to continue to evaluate some of the
    concerns that they raised. We are very happy to do that.
        We don't have the view that any regulation, any answer is
    ever permanent, so we are always willing to gather additional
    information. We frankly would encourage everyone who has a view
    on these particular questions that we are putting forward to
    let us know what their views are, pro or con. And the two
    questions we are putting forward, one of the concerns that was
    raised in our regulation was whether or not financial
    institutions should be required to maintain photocopies of the
    identification documents that were used to open an account. The
    regulation does not require a lengthy retention of that kind of
    paperwork for a number of reasons that I think were explained
    during that two-year comment period that you mentioned.
        There are some in the law enforcement community who think
    that maybe that does not aid law enforcement. We are open to
    hear whatever comments the people may have on that. We would
    like to have people comment on that and tell us, does it assist
    law enforcement to retain that paper, or does it actually cause
    some additional vulnerabilities to retain that paper?
        And then the other question is, particularly with regard to
    the Consular identification cards, whether those are
    appropriate means of identification. We have the policy in the
    regulation as you know of saying that financial institutions
    have a very important responsibility that their new customers
    are who they say they are. But the regulation says that
    responsibility is yours, as a financial institution. You should
    be sure, as a financial institution, that you have in place a
    good system that makes you feel very comfortable that the
    people who are opening accounts with you are who they say they
    are, and your particular financial regulator when they come to
    examine you in your periodic examinations will be asking, what
    is your system? What procedures do you have in place to verify
    that your customers are who they say they are?
        That is where that question should be asked. It should be
    between the financial institution and their examiner. The
    burden is on the financial institution. The examiner will make
    sure they have looked at it properly. Treasury has said that is
    where the duty is.
        Mr. Hinojosa. I appreciate that. Let me ask you, is it
    accurate to say that the Section 326 regulations as recently
    promulgated would leave the decision of whether or not to
    accept Consular ID cards at the discretion of the financial
    institution?
        Mr. Abernathy. By and large, but not wholly. The
    responsibility is on the financial institution to have a good
    process in place, and they can be questioned about their
    process by their financial regulator. So it is partially a
    shared responsibility, but the primary responsibility is with
    that financial institution. We do not think that it is wise for
    the Treasury or for the government to come up with lengthy
    lists of which forms of identification are appropriate and
    which forms are not, for a very important reason.
        If we try to maintain those lists, we will always be behind
    the times. We will always be behind the times of putting on the
    list things that banks should not be using and putting on a
    list things that they ought to. We do not want to be behind the
    times. We want that to be a current process. It is best left to
    those who understand it best and in their community what works
    best.
        Mr. Hinojosa. Let me ask another question, and possibly
    Chairman Dollar can answer it. I am glad that NCUA recognizes
    the Consular ID card as a legitimate identification source for
    an individual to become a member of a credit union, and that
    you all are working closely through your office of general
    counsel to assist credit unions in the effective use of the
    matricula card.
        If Treasury decides to reopen the Section 326 regulations
    of the USA PATRIOT Act, how will this impact the NCUA and
    credit unions?
        Mr. Dollar. Congressman, we are very comfortable with the
    USA PATRIOT Act regulations as they were put into effect. The
    Treasury regulations, as you referred to, have also been
    adopted by the other financial regulatory agencies as our
    regulations. So we are in the process of, as Secretary
    Abernathy said, implementing them even as we speak.
        Our office of general counsel is working in close
    consultation with credit unions who are seeking our guidance as
    to the acceptance of the matricula card. We have made very
    clear to them that not only is it allowed in the regulation,
    but that we recognize it and that we will work with them to
    facilitate their use of the card. Then through, as Secretary
    Abernathy said, the oversight and supervision process, we will
    then be able to monitor the effective use of that.
        It is working very well among those credit unions,
    particularly in the southwest part of the United States, who
    have been looking for a way to be able to bring these
    individuals into the traditional financial institution, to show
    them the value of a credit union or another traditional
    financial institution as an alternative to the check-cashers,
    the international remittance sources that are so highly priced.
    So we think it is working well.
        We don't see a reason to revisit it at this particular
    stage, but we do see that there is an importance in all the
    financial regulators having consistent regulation. So if it is
    revisited by others, we would feel obligated to at least
    examine those issues, but we are very comfortable with the
    regulation as it is presently constituted.
        Mr. Hinojosa. Thank you, Mr. Dollar.
        Mr. Hensarling. [Presiding.] The chair now recognizes Mrs.
    Waters.
        Ms. Waters. Thank you very much, Mr. Chairman.
        I am very pleased that we are holding this hearing today
    and I would like to thank Chairman Bachus for paying attention
    to a subject that I am very much involved with and have spent
    an awful lot of time dealing with.
        I am very pleased to see the National Credit Union
    Administration here today talking about the efforts that are
    being made through your Access America campaign. This is
    something that I strongly support and I have urged the credit
    unions to move faster to locate in these underserved
    communities and to become very visible, because as you know, we
    are at the mercy of payday loan operations, check-cashers,
    rent-to-own and a whole host of services that have evolved in
    the poor communities that charge exorbitant amounts of monies
    and fees and they are just robbing poor people of their limited
    resources in order to be able to cash checks and have other
    kinds of limited services.
        I recognize that there are many people who end up without
    money prior to payday and that they need to have the ability to
    borrow money, but also recognize that there needs to be some
    kind of education that goes along with the borrowing of money
    for just very basic needs.
        What I would like to know is, could you give me an example
    of the difference in the kind of fees that the credit union
    would charge, the difference between the credit union and a
    check-cashing operation or a payday loan operation, for
    borrowing money or for check cashing? I will tell you why that
    is very important to put on the record. I have researched some
    of the payday loan and check-cashing operations. I have found
    with the payday loan operations we have people that are paying
    as much as 400 percent interest, in some cases 1,000 percent.
        I see these post-dated checks that are required, and of
    course people are intimidated with the post-dated check, that
    if you can't pay when you have agreed to pay, then you could be
    in violation of the law. And then an agreement often worked out
    where you flip it and you create another loan with additional
    interest rates. How would the credit union service this
    population? I am just sick and tired of poor people being
    ripped off. What can you do differently? You mention in your
    testimony low-cost services. Describe to me what you could do
    different than these payday loan rip-off operations?
        Mr. Dollar. Congresswoman, the first answer is the most
    statutorily fixed answer of all, and that is that federal
    credit unions have a usury limit of 18 percent that can be
    charged. So federal credit unions will charge no more for any
    loan than 18 percent. An 18 percent alternative to the costs
    that you were referring to in your statement makes a good
    comparison at any time. Even if because of risk these
    individuals were charged the highest amount that would be
    allowed, it would be an 18 percent alternative to what many
    times you are correct is a 400 percent and a 500 percent rate.
        I would like to make one quick point, if you don't mind. I
    really believe that the not-for-profit sector, the credit union
    sector is an important part of breaking this cycle of the
    check-cashing, rent-to-own, pawnshop mentality that is so
    prevalent in many underserved communities. One of the reasons
    that we believe we have had the success with Access Across
    America that we have is not only that credit unions are
    adopting these areas, but as a part of our requirements, they
    must establish a physical presence in that community. They
    cannot do it through home banking. They cannot do it through
    audio response. They cannot even do it through a mere ATM,
    although they can open ATMs in that area, but they must
    establish a physical presence.
        The pawnshop has a physical presence. The check-casher has
    a physical presence. The rent-to-own company has a physical
    presence. And if they have to take 28 bus stops to get to the
    credit union, then it is not as viable of an alternative. I
    believe that this physical presence has made a key contribution
    to the success of Access Across America. It is the reason that
    those membership numbers in credit unions that adopt
    underserved areas is so much higher than it is in the general
    credit union population.
        Ms. Waters. Thank you very much. I would request unanimous
    consent for one more minute. I see the light has gone on.
        Mr. Hensarling. Without objection.
        Ms. Waters. Thank you very much.
        I would also like to ask you if you are aware that the
    payday lenders are established near our Army bases, and that
    our Army personnel are now getting involved in getting these
    short-term loans and robbing these families of their limited
    resources. What can you do as you pay attention to the un-
    banked and the underserved to also pay attention to what is
    happening around our bases? Because payday loans are sprouting
    up around all of our military bases, and it is another whole
    problem that I have got to try and address in this Congress.
    Are you aware of that and can you include that in the areas
    that you pay attention to?
        Mr. Dollar. Yes, Congresswoman. Let me say this, I do not
    know of a military installation in America that does not have a
    credit union that is associated with its field of membership.
    It is one of our goals in Access Across America to encourage
    those credit unions to get outside the doors of the base, to
    get outside the fences and the security by the base, and to get
    out in those surrounding communities to adopt those surrounding
    communities.
        Some of those bases even have the choice of more than one
    credit union. We see nothing wrong with that. We hope that
    someday residents of underserved communities will have the
    choice of as many credit unions as they do of pawnshops. When
    that day comes, I think we will have made a great contribution
    and we will be much more successful in this initiative.
        Ms. Waters. Thank you so much. Some of us would like to
    help promote that and would be willing to do ads and to go to
    events to help talk about the difference between the credit
    unions and the payday loan rip-off operations.
        Thank you.
        Mr. Dollar. Thank you. We will take you up on that offer.
        Ms. Waters. Yes, I would be happy to.
        Mr. Hensarling. Ms. Velazquez is now recognized.
        Ms. Velazquez. Thank you, Mr. Chairman.
        Mr. Dollar, in your testimony you note that the NCUA has
    partnered with key federal agencies including the Small
    Business Administration to 7(a) communities across the country.
    SBA has recently expanded credit union access to the 7(a) loan
    program, SBA's flagship loan program. In doing so, it was hoped
    that credit unions will greatly expand the reach of the 7(a)
    program. I believe that providing access to capital to would-be
    entrepreneurs in underserved areas must be part of any strategy
    aimed at bringing people into the financial mainstream. Access
    to capital is essential to spur economic development in many of
    these underserved areas.
        Mr. Dollar, how have credit unions made use of the 7(a)
    loan program to increase small business lending in such
    underserved areas?
        Mr. Dollar. Congresswoman, the last communication that I
    have had from SBA, there have been over 100 credit unions since
    they were authorized to participate in the 7(a) loan program,
    which was just several months ago, who have already made
    application and are in the process of either being approved or
    have been approved. May I say that I agree 100 percent with
    your contention that if we are truly going to make a long-term
    difference in these underserved communities, that the access to
    start-up entrepreneurial capital is key.
        Yes, it is a noble cause within itself to offer an 18
    percent alternative to a 400 percent payday loan, but I believe
    that with start-up entrepreneurial capital, there may well be
    the possibility that people will be able to have their own
    jobs, have their own businesses, and not need the payday
    lender. That is how we will most positively impact these
    communities. So not only through participation in the 7(a) loan
    program, NCUA has been working where we can within statutory
    restrictions to allow more member business lending by credit
    unions. This is a source for investment in these communities
    that we think will pay long-term dividends.
        Ms. Velazquez. Do you believe that credit products such as
    the 7(a) loan program should be part of any un-banked outreach
    strategy?
        Mr. Dollar. Yes, unquestionably.
        Ms. Velazquez. Mr. Abernathy, do you have a comment on
    this?
        Mr. Abernathy. Yes, I do, Congresswoman. Our view is that
    there are so many different reasons why people are not making
    full use of the financial services that are available to them
    that we need to address it in as many ways as we can. The
    credit unions have a multitude of different programs, working
    together with SBA and other governmental programs.
        One comment I would make on the question from Congresswoman
    Waters with regard to military bases, one of the things that we
    have tried to emphasize is to deal with this problem of people
    who do not have accounts is helping them understand what the
    options are. The option may be there. There may be a credit
    union on-base, but do they understand what it means to have an
    account with a credit union? Can we educate them?
        Very recently we had the Defense Department present, we
    convened a meeting in the Office of Financial Education of all
    of the different governmental agencies that have financial
    education programs. We had the Defense Department and the
    Agriculture Department who have excellent programs explain to
    these others what their programs are. What the Defense
    Department is doing is they are saying now to their military,
    ``You will come to this class; and you will learn what it means
    to manage your pay and your various accounts; and you will then
    take a test to see if you understood,'' because they understand
    that it is a real problem. It harms the efficiency of a soldier
    if he is worried about the financial health of his family. So
    it is very important.
        Ms. Velazquez. Mr. Abernathy, in your testimony you noted
    that through the Partnership for Prosperity with Mexico,
    Treasury has encouraged the entry of new providers into the
    U.S.-Mexico remittance market. What sort of specific steps has
    the Treasury taken to encourage financial institutions to enter
    this market?
        Mr. Abernathy. I have discovered one of the biggest tools
    that we have at Treasury is we have a podium that we can talk
    from and people listen to us. We have been very encouraged at
    our continual jawboning of major financial institutions,
    pointing out to them that there is a real market opportunity
    for you to enter into, both in Mexico and here, in these
    important financial underserved markets that will be very good
    for your bottom line and very good for these populations.
        One of the most recent examples of that has really
    encouraged me, a major financial institution not long ago made
    a hefty investment in a large bank in Mexico. They have just
    recently leveraged that investment to make it possible for
    someone in Mexico to go to an ATM in Mexico and draw money from
    an account here in the United States at almost no cost at all.
    That is the kind of progress that we are happy to see.
        Ms. Velazquez. As you stated in your testimony, the
    international remittance market is growing rapidly. It is my
    hope that the prices will continue to fall. I also hope that
    consumer protections of such products will be enhanced. Are new
    entrants addressing some of the consumer protections issues
    with remittances, such as providing customers with clear notice
    and making the pricing of remittances more transparent?
        Mr. Abernathy. We have seen a lot of good work in that
    regard. Some of the banks that are getting into this business
    lately have discovered that they might not make any money on
    the actual remittance transfer. Where they will make money is
    they have discovered that is a great opportunity to build a
    relationship with their customer. As they build a relationship
    with their customer, they need to convince their customer that
    it is a good thing to bank with them. Those banks that are
    doing that, part of building that customer confidence is being
    very transparent in what your policies and programs are.
        Ms. Velazquez. Thank you, Mr. Chairman.
        Chairman Bachus. Thank you.
        Mr. Davis, and then we will go to Mr. Baca.
        Mr. Davis. Thank you, Mr. Chairman. I appreciate that.
        Mr. Dollar, welcome to you. You and I shared a platform
    together last Friday and I appreciate your coming to
    Birmingham.
        Let me start with you, if I can. One of the things that I
    am struck by as I look at your written testimony and a lot of
    other data, is how successful the credit unions have been in
    reaching the underserved population. I want to focus on one
    particular aspect of that, financial literacy, as I assume that
    is a critical component to whatever you are doing effectively.
    If you would talk a little bit about how you manage and how
    your entities manage to reach out to the underserved
    communities to help them with financial literacy, that would be
    helpful.
        Mr. Dollar. I think we begin with the fact that a credit
    union by its nature is a member-owned institution, and also by
    its structure it is a not-for-profit institution. So therefore,
    there is a tie to the membership, either through an employer,
    an association or a local community that enables them to
    perhaps have a little more of a high-touch approach. I think
    then we have been very serious and diligent in our
    encouragement of credit unions to look at ways to promote
    financial literacy. We have even gone to the point of realizing
    that this is a combination effort, that is not just a credit
    union effort, but it is a financial institution effort from
    banks to thrifts to mortgage companies to credit unions.
        So as I stated in my earlier remarks, we have partnered
    with the FDIC on their MoneySmart financial literacy program.
    Rather than spending several hundred thousand dollars to
    develop our own credit union financial literacy program to be
    endorsed by NCUA to further this initiative, we chose to
    endorse theirs. I issued a credit union letter to all federal
    credit unions encouraging them to examine the program. From my
    reports at FDIC, there have been several hundred credit unions
    that have taken the FDIC MoneySmart program, adapted it, put it
    in their high-touch approach that they have as a member-owned,
    not-for-profit institution. I think the results are
    demonstrating themselves in the various statistics that were
    included in my testimony.
        Mr. Davis. Let me shift, Mr. Abernathy, to a slightly
    different area, and it is the earned income tax credit and the
    potential impact the credit unions can have about the earned
    income tax credit. Some of your colleagues and some people in
    this institution have raised concerns about what they view as
    being rampant fraud or abuse that takes place around the earned
    income tax credit, and that is a discussion for another day.
    But I want to raise what I think is a more pressing problem.
        I think that there are a lot of people who frankly would
    benefit from the earned income tax credit, but do not know how
    to take advantage of it, people who are not getting it. One of
    the things that I think we need to talk about when we talk
    about reaching the underserved is that population of people who
    would be able to take advantage of the earned income tax credit
    if they were more financially literate and were better educated
    about it. Do you agree with me that there is a problem in this
    country with people who are eligible for the earned income tax
    credit not getting it and not being able to take advantage of
    it?
        Mr. Abernathy. I think there is a very big problem with a
    lot of people not understanding a whole panoply of what their
    tax benefits are. We have been very encouraged. A number of
    these pilot projects that are currently taking place under the
    First Accounts program include not just getting you into a bank
    account, but giving you the financial education that is needed.
    Part of that financial education, many of them are focusing on
    how the tax program works; how tax benefits can be obtained;
    how you file your tax forms; and how to take advantage of what
    is being extended to you through the tax system. I think that
    is an excellent combination of all the different aspects that
    any family needs to know if they are going to be managing their
    finances effectively.
        Mr. Davis. And would you agree, Mr. Abernathy, that that
    problem of people who should be getting the earned income tax
    credit or should be taking advantage of it, the problem of they
    are not being accessed into the system is, if anything,
    probably a more pressing problem than that of people abusing
    the earned income tax credit?
        Mr. Abernathy. I couldn't comment with regard to the earned
    income tax credit program itself. I am no expert on that. I can
    certainly envision that as being a problem. If people don't
    know how to fill out their tax returns properly, they do not
    understand how the tax system works, then they are not going to
    be able to take full advantage of the programs that are there
    to help them.
        Mr. Davis. Mr. Dollar, if you could just comment on some
    things that your credit union has done to educate people about
    the earned income tax credit and to position people to take
    advantage of it.
        Mr. Dollar. It is an important part of the MoneySmart
    financial literacy program. Another partnership that you will
    see listed in my testimony is one that I entered into and
    signed with officials of the Internal Revenue Service, in which
    we agreed to work with them in the promotion of the VITA
    program and the informational campaign that they have to make
    sure that those who are eligible to take advantage of the
    earned income tax credit and other tax opportunities that are
    available to them, are aware of and do so. They can do that and
    can provide that information through credit unions.
        Mr. Davis. Thank you, Mr. Chairman.
        Chairman Bachus. Mr. Hensarling, and then we go to Mr.
    Baca, and then I am not sure if we have to recess for a vote on
    the floor. We will try to get all of the questions in.
        Mr. Hensarling. Thank you, Mr. Chairman.
        I believe that it is a good thing that we are holding this
    hearing today. I believe this is a subject worthy of our
    attention. I believe there probably is a problem with the un-
    banked and, I am here to learn about the scope of this problem.
    I suppose there are several reasons why one might be un-banked.
    One is, they know what banks are about and they have chosen not
    to do business with a bank.
        Another reason perhaps is for some reason the banks are
    barring their doors to some certain subset or class in our
    society, and I would be curious to know if we have any evidence
    of that. I suppose a third reason is simply ignorance of what
    banks and financial institutions have to offer, and education
    is often a good remedy for ignorance.
        So number one, Mr. Abernathy, is there any evidence that
    Treasury has that there is some class of people in our society
    that are being prevented from entering the banking system?
        Mr. Abernathy. I don't believe that there is any evidence
    that there is a systematic bar in place keeping people from
    entering into the banking system. The reason why I say that is
    we have laws against that. We have not heard any indications
    from the financial regulators that there is a systematic
    problem of redlining currently occurring. So I think the
    fundamental causes for why people don't have bank accounts
    probably are elsewhere.
        What we would like to do, though, is move away from the
    current situation where we are in now where most of the
    evidence of why people don't have bank accounts is pretty
    anecdotal. We think there is a good opportunity and need to
    have a more systematic evaluation of why it might be that
    people are not opening up bank accounts. A lot of evidence
    seems to point that people don't have access to bank accounts
    because there is not a bank nearby. There isn't a financial
    institution close enough to do business. Other concerns are,
    people just aren't familiar with their opportunities, what it
    means to have a bank account, why it's important and why that
    is of benefit to them. It can be intimidating if people don't
    understand what a bank does. They can have a very imposing
    exterior that makes it hard for people to walk in and feel,
    ``will I be comfortable there.''
        I think we need to study it better, but we have not heard
    from the bank regulators that there is a systematic problem of
    redlining today.
        Mr. Hensarling. I appreciate the sentiment that perhaps a
    study is certainly needed in this area. I, for one, would be a
    member interested in working with you on that, so we can
    understand better perhaps the reasons that this phenomena
    exists. We have had testimony that there are a number of
    people, and perhaps mainly low-income people, who choose to
    deal with payday lenders and rent-to-own and check-cashing
    services for some their quasi-banking or monetary needs.
        It seems to me in a free society people would have the
    choice whether to deal with these institutions or banks, but
    perhaps Treasury has some other observation. If people are
    choosing to use these various services, does Treasury have any
    evidence that there is widespread fraud among these particular
    institutions?
        Mr. Abernathy. There certainly have been cases from time to
    time of people who have been taken advantage of in the informal
    financial sector. But I think you make a good point that banks
    are not the only financial services providers in the nation.
    What we want to make sure is that everybody has a real choice
    of whether they want to have a bank account or not. To do that,
    you have to do a couple of things. First, you have to make
    banking available to people. Secondly, you also have to educate
    them as to what their choice really is so that they can make an
    educated choice.
        If some consumers decide that they don't want to choose for
    whatever reason to have a bank account, that is fine, provided
    they really had a meaningful choice. That is the goal that
    Treasury wants to achieve, that everybody in this country has a
    full and meaningful choice to open a bank account, be it in a
    credit union, a bank, or savings and loan. And then the
    knowledge and ability to exercise that choice.
        Mr. Hensarling. Speaking of choices, sometimes I choose to
    buy my bread and milk at 7-11 and sometimes I choose to buy it
    at Tom Thumb. When I choose to buy it 7-11, typically it is
    more expensive. I choose to do that because I can find a 7-11
    on every street corner and I know that I will never face a line
    of more than two or three people. At Tom Thumb, I have to drive
    some distance and the lines quite often are long.
        So might it be a rational decision by an informed consumer
    that they prefer the ubiquitous nature of some of these other
    institutions and prefer the convenience as a factor of why they
    might be using these payday lenders and rent-to-own and check-
    cashing businesses for their banking needs?
        Mr. Abernathy. I think convenience is probably the number
    one driving reason why people use these other financial
    institutions. It is more convenient because it is in their
    community. It is more convenient because they are willing to
    provide funds when another financial institution might not be
    willing to provide funds. I think what we would like to do and
    what we see happening is banks are becoming more convenient.
    They are feeling that pressure. And so they are offering
    products to increase their convenience. But nevertheless, as
    long as the consumer knows what his options are, understands
    them, let the consumer make the choice as to what meets their
    needs best.
        Mr. Hensarling. Thank you. My time is up.
        Chairman Bachus. Thank you.
        The gentleman from California, Mr. Baca?
        Mr. Baca. Thank you, Mr. Chairman.
        My question is for Mr. Abernathy. On May 9, the Treasury
    Department published the final rule requiring financial
    institutions to establish consumer identification programs to
    identify the identity of each consumer opening an account. Many
    in the financial service industry supported this rule because
    it allowed them to accept Matricula Consular cards.
    Unfortunately, the Treasury Department is, I state,
    ``reexamining the rule.'' Shouldn't banks be the ones to
    determine what they are going to use for foreign ID? That is
    question number one. And do you think that banks need the
    flexibility of identifying the risks? That is question two.
        In my district in Rialto, the police department recently
    decided to accept Matricula Consular cards, joining the police
    departments in Chino, Colton, Fontana, Rialto, Indio and San
    Bernardino and Upland. Do you think the Treasury Department is
    in a better position to evaluate the risk than local law
    enforcement? That would be the final question.
        Mr. Abernathy. Very good questions, Congressman, I
    appreciate the opportunity to comment on them. I think you have
    presented exactly the correct distinction. The regulation went
    into effect or was promulgated and will go into effect in the
    fall. At the request of members of the Congress and others, we
    have agreed to reexamine the rule. We are not reopening the
    rule, and that is important to understand. We are willing to
    receive additional comments on the advisability of going
    forward with the rule, which has been published as a final
    rule.
        I think you have touched upon the reason why we have
    promulgated the rule the way we have. It is very difficult for
    us to understand why Treasury should put itself in the position
    of trying to second-guess people who in their communities are
    making the decisions as to what are the best forms of
    identification, particularly with regard to financial services.
        So the rule says, you as a financial services provider have
    a requirement to be sure that who is doing business with you is
    who they say they are. But it is up to you to find out the way
    that works best for you to fulfill that requirement, knowing
    that you might have to justify your decision and your process
    and your procedures with your bank regulator. That is the
    principle. We think that is the best way to do it. We think
    that way we are more likely to have the solution that really
    fits the needs of that particular community.
        Mr. Baca. You mentioned that members of Congress have asked
    you. Is this Tancredo and his groupies?
        Mr. Abernathy. A number of congressmen have asked questions
    and we are happy to respond to requests from Congress. I want
    to make this very clear. The results of the information that we
    get during this comment period, we intend to come and discuss
    with this committee. It is this committee that has jurisdiction
    and responsibility over that particular part of the law. I do
    not think that we would even contemplate making any changes to
    the regulation without having close consultations with this
    committee.
        Mr. Baca. Earlier you talked about choice in banking
    availability and educating the knowledge that is important.
    Well, you have got to create the climate that is there. And by
    offering matriculas, at least then people feel a sense of
    comfort going into a bank, so attitudes then change in terms of
    perception towards individuals. So it is a lot easier to be
    educated if you create the kind of climate and attitude that is
    going to be there. But if you claim the attitude in terms of
    the identification and not accepting matriculas, it becomes
    very difficult. And that is why people choose to go somewhere
    else other than one of our banking institutions. So we have got
    to change those kind of climates and those kind of attitudes.
        Mr. Abernathy. I agree with you fully. What we need to be
    doing is finding ways to attract people into financial
    institutions, not erecting new barriers.
        Mr. Baca. Thank you.
        Mr. Abernathy. Thank you.
        Chairman Bachus. Instead of asking questions, I am simply
    going to make a statement. I want to associate myself with your
    remarks and those from Mr. Baca that a lack of documentation by
    legal immigrants is one of the main barriers to them
    establishing a bank account. I believe that federal regulations
    allowing these institutions if they so choose, credit unions
    and banks, to accept these foreign government-issued
    documentation is the right approach and really the humane
    approach. I very much support the use of Matricula Consular
    cards as identification and I applaud those banks which are
    accepting them.
        Ms. Maloney?
        Mrs. Maloney. Thank you, Mr. Chairman.
        I would like very much to be associated with your remarks
    on this subject, as well as Mr. Baca's and Mr. Abernathy's.
    Following up on Mr. Baca's line of questioning, some in
    Congress, as you mentioned, and I would add other anti-
    immigration groups, have turned what is essentially a debate on
    curbing money laundering into a debate on immigration policy.
    My question is, can you tell us Treasury's view about whether
    it is appropriate for financial institutions to take on the
    role of participating in the immigration policy debate?
        Mr. Abernathy. I don't pretend to be an expert on
    immigration issues, but I can say that certainly Congress has
    decided that immigration issues are to be determined in two
    focal points, by and large: at the border and at the workplace.
    Congress has not placed in any statute that I am aware of that
    we should be using the financial institutions and access to
    them as a means of enforcing immigration policy.
        Mrs. Maloney. In enforcing the anti-money laundering
    provisions of the USA PATRIOT Act, which Treasury and others
    are very involved in, have you seen any evidence that Mexican
    nationals are using matricula cards to launder money? Has there
    been any evidence of that?
        Mr. Abernathy. Certainly not in any more noticeable way
    than any other forms of identification are abused. We see
    driver's licenses abused. We see birth certificates abused. We
    don't see Consular identification cards being abused any more
    frequently than those other documents are.
        Mrs. Maloney. Earlier in your testimony, Mr. Abernathy, you
    mentioned that a United States bank had opened up a branch in
    Mexico, whereby one could go to the Mexican branch and use an
    ATM card and get money from America. Is that correct? Is that
    what you said?
        Mr. Abernathy. Actually, what they have done is even more
    expansive than that.
        Mrs. Maloney. May I ask which bank is it? I am curious.
        Mr. Abernathy. Bank of America.
        Mrs. Maloney. Bank of America.
        Mr. Abernathy. Bank of America made an investment of well
    over $1 billion in Banco Santander Serfin, I believe it is, a
    major bank in Mexico.
        Mrs. Maloney. Was it just one branch or are they all over
    Mexico?
        Mr. Abernathy. No, all the branches of Banco Santander
    Serfin, their branches can be accessed to reach money in an
    account in a Bank of America operation here in the United
    States. So it is very large and very extensive. I believe Banco
    Santander Serfin is the third largest bank in Mexico.
        Those kinds of relationships are the kinds of benefits,
    frankly, that we expected would occur from NAFTA, and the
    greater penetration of U.S. banks into Mexico, and we are
    beginning to see those benefits.
        Mrs. Maloney. I think it is fair to say that we have an
    interest in stabilizing and helping the economies of other
    countries, particularly those that border us. It appears to me
    to have been a good policy decision for this to happen. I
    further would like to follow up and ask about the current
    Section 326 rules for financial institutions. These
    institutions can decide for themselves whether to accept
    identification documents in opening an account for non-U.S.
    citizens. As you discussed earlier, these document may include
    the matricula cards issued in Mexico, but they might also
    include driver's licenses issued in Canada. Is there any anti-
    money laundering reason why we should be concerned with Mexican
    matricula cards, but not Canadian driver's licenses? I have
    heard this debate all over the place on the matricula cards,
    but no one seems to be questioning the Canadian driver's
    licenses. So is there any difference in Treasury's mind?
        Mr. Abernathy. Our view is that Treasury does not want to
    weigh in on the debate of whether a bank should use a Consular
    ID or should use a Canadian driver's license, what they should
    use. The responsibility is on the financial institution, with
    the oversight of their particular financial regulator to make
    sure they have the answer right. But they have the
    responsibility to decide what really does successfully work for
    them as a financial institution to be sure that their customer
    is who he says he is.
        Mrs. Maloney. Mr. Abernathy, have any other American
    financial institutions opened up branches in Mexico? Is Bank of
    America the only one that has opened up branches or is it
    growing?
        Mr. Abernathy. Yes, there are other U.S. banks that have
    their own branches and operations in Mexico. We expect that as
    the benefits of NAFTA continue to develop that you will have
    increased penetration of U.S. banks in Mexico for the benefit
    of Mexican consumers.
        Mrs. Maloney. Thank you very much. My time is up. I would
    like to really thank Mr. Hinojosa who pushed very hard to have
    this hearing. It is a tremendously important one. I thank the
    Chairman for responding to the concerns of the minority request
    on this important hearing.
        Thank you.
        Mr. Gillmor. [Presiding.] That will conclude the first
    panel. I want to thank you both, Mr. Abernathy and Mr. Dollar,
    for your testimony and your help. Thank you.
        We will call forward the participants in panel two.

    STATEMENT OF JAMES E. YOUNG, PRESIDENT AND CEO, CITIZENS' TRUST
                         BANK, ATLANTA, GEORGIA

        Mr. Young. I am pleased to appear before you today to offer
    comments on the topic, Serving The Underserved: Initiatives to
    Broaden Access to the Financial Mainstream. I thank you for the
    invitation and opportunity. You are to be commended for holding
    hearings on this matter best known in the financial services
    arena as banking the un-banked. I am also pleased to see
    Congresswoman Waters here, who has been a long-time supporter
    of minority-owned financial institutions.
        I am here of course representing Citizens Trust Bank,
    headquartered in Atlanta, Georgia. Citizens Trust Bank was
    founded in 1921 and in fact gained its experience in serving
    the un-banked for very different reasons in 1921 and years
    thereafter. It is currently the Southeast's largest African
    American-owned commercial bank and we are the third largest
    African American-owned commercial bank in the nation, with
    nearly $400 million in total assets. I would remind you,
    though, that is smaller than the branches of some of the major
    banks.
        Citizens Trust Bank is a community development financial
    institution, a designation received from the U.S. Treasury
    Department by banks and other financial institutions with the
    primary mission of promoting and meeting community development
    needs in distressed areas of its market area. Recently,
    Citizens Trust acquired the historic Citizens Federal Savings
    Bank of Birmingham, Alabama and currently has 11 branches
    throughout metropolitan Atlanta, the Columbus, Georgia area,
    two branches in Birmingham and one in Eutaw, Alabama.
        We have for many years been involved in banking the un-
    banked. In January of this year, we began a program called the
    CT Beginnings program, which is a retail services program
    designed to provide a DDA, demand deposit account and savings
    account to low-to moderate-income individuals, in conjunction
    with the U.S. Department of Treasury initiative on bank the un-
    bankable.
        We have in fact been utilizing the FDIC's MoneySmart
    financial literacy program and we have been teaching that in
    conjunction with faith-based community services operations. We
    are employing the human resource department's educational Lunch
    and Learn series. We conducted evening seminars through our CTB
    branch network. As of June, we had conducted 10 seminars, some
    of them running as long as six weeks; three at local churches
    and seven through the branch network. Seminars are held twice a
    month at our branches. However, since March, we have opened
    only 27 accounts. Small impact.
        However, what we require before accessing the CT Beginnings
    initiative and a new account is in fact that there be this
    educational process. The direct deposit from employers is
    helpful in this regard and we have a minimum deposit to open an
    account of only $10.
        In the context of how the financial services industry
    currently works, low-income citizens must establish a deposit
    account as a means to enter the financial mainstream and begin
    asset accumulation. It is also my contention that economic
    vitality can flourish in low-income communities if, and only
    if, significant numbers of the members of that community are
    able to move forward on an asset-building track. Therefore,
    access to financial mainstream for the un-banked is more than
    simply being able to open bank accounts. It is more than simply
    being able to simply open bank accounts. Indeed, equal access
    to the financial mainstream is a critical component of local
    development.
        Insured depositors should take on providing such access,
    and in general these institutions offer useful services to
    support an individual asset-building program by taking direct
    deposits, providing a safe place for electronic payrolls,
    government benefit checks and other deposits to be received;
    promoting savings by paying interest and often limiting access
    to funds on deposits; providing account statements to track the
    customer's savings and checking balances and interest earned;
    providing access to regulated loan products which have minimum
    standards of customer protection; providing a means to
    establish good credit; encouraging homeownership through
    mortgage loans; lower the cost of basic financial services for
    customers with qualifying balances; combining the delivery of
    financial services with informal customer education on
    financial planning, including appropriate loans and savings for
    college, homeownership, home improvement or retirement.
        The question is, what are the challenges facing most
    mainstream financial institutions in making such banking
    services available to the un-banked? As a banker, I would
    submit the following observations for your consideration. Such
    financial institutions do not offer the types of retail
    services that meet the particular needs of the un-banked
    because they do not find such transactions cost-effective. Many
    low-income customers need personal high-touch services at odd
    hours. In addition, many banks and credit unions prefer not to
    underwrite the small short-term loans those low-income
    customers require. Because low-income households barely have
    sufficient funds to meet their day-to-day needs, many need
    short-term credits, especially when unexpected expenses arise.
        However, we know the profile of the un-banked individual, a
    history of bounced checks, account closures, poor financial
    management, cash-only basis for household expenses, and the
    low-to middle-income levels.
        Therefore, the challenge in banks and other financial
    institutions face in providing banking services to the un-
    banked is that they must build a significant volume of
    customers within an array of products and a level of service
    that meets the immediate financial needs of the un-banked;
    builds a strong interest on the part of the un-banked in
    establishing a deposit account; and a healthy credit
    relationship that promotes asset accumulation; and finally turn
    a profit.
        There have been many studies done by such organizations as
    the National Community Investment Fund, Fannie Mae and the
    Federal Reserve Bank. They have been conducted to quantify and
    explain the high proportion of Americans who have no checking
    or savings account in regulated banks and credit unions. The
    National Community Investment Fund is an independent trust and
    certified community development financial institution whose
    mission is to increase the number and capacity of depository
    institutions that are both effective agents of local community
    development and sound financial institutions.
        In May, with the support of a grant from the Fannie Mae
    Foundation, the NCIF conducted a comprehensive study on the un-
    banked and published one of the most thorough reports that I
    have read on this subject. The report is entitled, A Report on
    Innovative Products and Services for Low-Income and Un-Banked
    Customers. It was published in May 2002. In order to support
    the products and services described in this report, I believe
    that community banks, those relatively small and locally based
    financial institutions, are best prepared to deal with this.
        Going even further, minority-owned financial institutions
    such as mine are even more focused on communities where our
    low-to moderate-income fellow citizens live. The fact of the
    matter is that the initial owners of these institutions founded
    them with that notion in mind. They remain in those communities
    today, although most of them were founded more than 50 years
    ago. Today, there are 167 minority-owned depository banks in
    the country. Of these, 49 are black or African American, 69 are
    Asian or Pacific Islander American, 30 are Hispanic American,
    17 are Native American or Alaska Native American, and 2 are
    multiracial American. These banks are located in 96 cities in
    30 states and two U.S. territories. In the aggregate, these
    institutions control some $93 billion in assets.
        However, it should be noted that there are no special
    charters granted to these banks and they must comply with all
    the banking laws and regulations governing all banks. In fact,
    the regulators have the ability to look in every nook and
    cranny of our small institutions, something they cannot achieve
    with the major institutions. While almost all of these are
    profitable and meet minimum standard capital requirements, they
    can ill-afford to incur the losses attributed to providing
    normal banking services to the un-banked. Yet they have been
    less than profitable and less profitable than major banks; less
    profitable than those who serve the majority market. We are
    measured on profitability. We are measured on capital adequacy
    by the very regulators who now promote serving the un-banked.
        There have been funding initiatives by the federal
    government such as the Bank Enterprise Award program of the
    U.S. Treasury Department, and the most recent New Markets Tax
    Credit Allocation program administered by the same department.
    However, when applying for such funding, minority-owned banks
    find themselves competing for the limited resources against
    much larger majority-owned financial institutions.
        Mr. Gillmor. Mr. Young, to try to stay on schedule, could
    we ask you to wrap up?
        Mr. Young. Yes. I will be finished in 2 minutes, please.
        The result is that many of these smaller minority-owned
    financial institutions are often overlooked and shut off from
    the kind of financial support needed to offer normal banking
    services in disadvantaged communities. To give you an example,
    there was $2.6 billion available in tax allocations to
    encourage the private sector to support the development and
    redevelopment of projects in these underserved communities.
    When it all came out, there were $26 billion in applications, a
    number of them minority-owned banks. There was only one
    minority-owned bank in this country that received a tax
    allocation for such work.
        I do not quarrel with the process. I do quarrel with the
    outcome. While you invited me here to make comments, I would
    also like to make the following recommendations for your
    consideration. One is to form a true partnership with minority-
    owned banks in this country to foster the implementation of the
    integrated products that are described in the NCIF report.
    These institutions need to have initiative funds allocated only
    to those banks. They should not have to compete with the major
    banks. After all, these institutions are heavily regulated
    already, regularly examined by governmental agencies, and have
    to meet strict criteria for the maintenance of their respective
    banking charters.
        Number two, one of the critical problems facing the nation
    is financial illiteracy. Our children are not being taught the
    importance of participating in the financial mainstream even
    though they attend public school daily. If we must teach
    science, math and art, surely our presence here dictates that
    we should empower our children in financial matters long before
    they are ready to be first-time homebuyers or before they
    become un-bankable.
        Within this city is the National Bankers Association, which
    is a 70-year-old trade organization for the nation's minority-
    owned banks. It represents a convenient access to those banks
    that have labored long and hard to provide the affordable
    banking services we would all like to see available to all.
        I want to thank you again, and as I stated at the outset,
    access to the financial mainstream of the un-banked is more
    than simply being able to open bank accounts. Indeed, equal
    access to the financial mainstream is a critical component of
    local development.
        Thank you again, and I apologize for taking advantage of
    the opportunity.
        [The prepared statement of James E. Young can be found on
    page 130 in the appendix.]
        Mr. Gillmor. Thank you, Mr. Young. It was an 11-minute 5
    minutes.
        Mr. Young. They told me I had 10 minutes before I came
    here.
        Mr. Gillmor. Okay. Well, that is fine.
        Next we will hear from Mr. Al Beltran, who is the Chief
    Executive Officer of Security First Hidalgo Federal Credit
    Union in McAllen, Texas. You are here on behalf of the Credit
    Union National Association. Mr. Beltran?

     STATEMENT OF AL BELTRAN, CEO, SECURITY FIRST HIDALGO FEDERAL
      CREDIT UNION, MCALLEN, TEXAS, ON BEHALF OF THE CREDIT UNION
                          NATIONAL ASSOCIATION

        Mr. Beltran. Thank you.
        Good morning, Representative Gillmor and my good friend,
    Representative Ruben Hinojosa, and members of the subcommittee.
        I am honored to appear before you this morning to present
    testimony on the plight of the un-banked and underserved. I am
    Al Beltran, President and Chief Executive Officer of Security
    First Federal Credit Union, a $137 million community-chartered
    credit union serving nearly 21,000 members in McAllen and the
    Rio Grande Valley of South Texas.
        I appear before you today on behalf of the Credit Union
    National Association. My written statement includes detailed
    descriptions of a recent CUNA modest-means survey, a study on
    serving new Americans and fairly lengthy descriptions of many
    programs credit unions are employing in an effort to meet the
    financial needs of the un-banked and the underserved. Because
    of time constraints, I will only briefly mention some of those
    programs.
        Before I do that, let me quickly say that CUNA and credit
    unions are extremely grateful to Chairman Dollar for his tenure
    on the NCUA board. His leadership in the area of reaching out
    to the underserved has been unparalleled in credit union
    history.
        Many of the un-banked still depend on some entity to help
    them wire much of their hard-earned money back to their
    families in their native countries. CUNA, along with the World
    Council of Credit Unions, has for a long time recognized the
    desperate need for affordable remittance services and the
    difficulties in providing these services. This recognition has
    resulted in an aggressive effort by credit unions to address
    these needs.
        I am proud to say that Security First Federal Credit Union
    has been offering its members the opportunity to wire money
    back to Mexico and use the World Council of Credit Unions
    service called International Remittance Network, or the IRnet.
    This service saves our users at least one-third the cost of
    using a high-cost money transfer agent. As you know, many of
    the un-banked are immigrants, all of which need some form of
    identification to be able to use the services of a mainstream
    financial institution. For those from Mexico, that form of
    identification is often the Matricula Consular.
        CUNA is very concerned about some current efforts to
    discredit the use of the matricula. We have formally adopted a
    position to oppose any legislation prohibiting the use of the
    matricula or other similar government-issued ID, and support
    legislation allowing its use for financial institutions or for
    general purposes. In that regard, we congratulate
    Representative Ruben Hinojosa on the introduction of H.R. 773,
    the 21st Century Access to Banking Act.
        There is a growing public awareness that none of these
    products or services will help consumers unless they are aware
    of their options and how the financial system works. Credit
    unions recognize that it is necessary to offer financial
    literacy training to successfully integrate the un-banked into
    the financial mainstream.
        Security First actively sponsors community-and school-based
    educational programs and seminars. We also provide credit union
    staff as volunteers to read to elementary school children,
    participate in the Partners in Excellence program with the
    local school district, and provide scholarships to needy high
    school students. All these services are provided at no cost and
    are open to credit union members and the community it serves.
        At the national level, CUNA has formed a partnership with
    the National Endowment for Financial Education and the
    Cooperative Extension Service to teach the high school
    financial planning program to high school seniors across the
    country. In addition, CUNA's foundation implemented a
    nationwide financial literacy campaign called Plan For It, Save
    For It to address the need for increased savings among low-to-
    moderate income families.
        For the next few minutes, I will focus on some of the
    programs provided by Security First. As a whole, the Rio Grande
    Valley is considered an underserved area. Our credit union
    products are specifically designed to meet the financial needs
    of the people we serve. For example, to join the credit union,
    we have lowered our membership savings account requirement from
    $100 to $5. Direct deposit and payroll deduction may be
    established to reach the minimum savings account balance of
    $50. Once the savings account is open, they do not have a
    waiting period to use any additional products and services. We
    advertise in English and Spanish, including billboards and
    direct mail advertisements.
        Security First is currently piloting a checking account
    program called First Choice Checking, that is available at no
    cost with courtesy overdraft protection. Additional services
    include the first order of checks at no cost, debit ATM card
    access, no-cost check imaging, no-cost audio access, and no
    monthly maintenance fee. Credit union educational programs in
    Spanish are regularly presented to groups.
        In conclusion, on behalf of CUNA I am grateful for the
    opportunity to have commented on the plight of the un-banked
    and underserved, and how Security First Federal Credit Union
    and credit unions across the country are trying to reach out
    and bring them into the financial mainstream.
        There is no more pressing need, in my opinion, for it is
    only through economic opportunity that we can solve many of the
    problems facing our nation's poorest and most deprived
    individuals. Whether it is through the First Accounts program,
    affordable housing programs, enhanced IDAs, expanded
    opportunities to serve their communities, or financial
    literacy, credit unions stand ready to meet this very important
    challenge.
        Thank you and I would be pleased to answer any questions
    you may have.
        [The prepared statement of Al Beltran can be found on page
    72 in the appendix.]
        Mr. Gillmor. Thank you very much, Mr. Beltran.
        Is Mr. Hinojosa your congressman?
        Mr. Hinojosa. Yes, Chairman Gillmor.
        Mr. Gillmor. I was just going to tell him he has a very
    fine congressman, but I presume he already knows that.
        We will go to John Bryant, Chief Executive Officer of
    Operation HOPE.

             STATEMENT OF JOHN BRYANT, CEO, OPERATION HOPE

        Mr. Bryant. Good afternoon. I am honored to be here, Mr.
    Chairman and members of the subcommittee, and Congressman
    Hinojosa, and those members on the committee from California
    which is where I am based, including Congresswoman Maxine
    Waters.
        I would also like to take this opportunity to thank other
    of your colleagues in the House who have been extremely helpful
    in our work in California and across the nation. They include
    Congresswoman Diane Watson, where just yesterday we stood with
    Simone Lagomarsino, the CEO of $2.5 billion Hawthorne Savings
    Bank; the Bishop Charles E. Blake of the West Los Angeles
    Church of God in Christ and more than 100 community leaders to
    cut the ribbon to a full-service Hawthorne Savings Bank branch
    in the underserved yet deserving areas of South Los Angeles.
        This is significant because in 1996 we built what we called
    a HOPE Center at this location, and few financial leaders
    thought it would succeed. A HOPE Center is a cross between a
    traditional bank branch and a Kinko's for empowerment; one-stop
    shopping for changing your life. Well, 7 short years later and
    $100 million in homeownership and small business bank lending,
    and with zero reported home mortgage defaults. I will repeat.
    This is in the inner-city; $100 million in bank lending for
    homeownership and small business through Operation HOPE, all
    FDIC-insured banks, with zero reported home mortgage defaults
    over 9 years. Last year, Operation HOPE became the first
    nonprofit in U.S. history to build a bank branch and sell it to
    a bank.
        Congresswoman Diane Watson supports us in her district, as
    Congresswoman Lucille Roybal-Allard has supported us in her
    mostly Latino and Spanish-speaking district, with our HOPE
    Centers there. I am proud to say that there, too, in Maywood,
    California, the densest city in the State of California with
    more than 30,000 Spanish-speaking individuals, we now have a
    full service bank branch replacing the role of Operation HOPE
    in this deserving community. California National Bank, a $6
    billion bank, and their CEO Greg Mitchell made the decision to
    invest there, and is doing quite well, I might add. Before
    Operation HOPE made the commitment to serve the underserved yet
    deserving community of Maywood, the only mainstream financial
    service provider was an ATM and a 7-11.
        And then there is Congresswoman Juanita Millender-McDonald,
    where we have a HOPE Center in Watts. And Congressman Charles
    Rangel of Harlem, New York, we partner with the Congressman and
    former President Bill Clinton to educate every child in Harlem
    by the year 2005, that is 35 schools in Harlem, in economic
    literacy through Banking on Our Future, our economic literacy
    program, teaching kids the basics of a checking account and
    savings, credit and investment.
        Operation HOPE has taught over 107,000 youth in 400,000
    teaching sessions in more than 500 schools, community-based and
    faith-based organizations, with more than 1,000 trained and
    certified volunteer banker teachers, what we call Life 101,
    economic literacy skills, what Mr. Young was referring to
    earlier. Operation HOPE today is the only national urban
    delivery platform for economic literacy in the country, both
    inspiring and depressing.
        And then you have U.S. Senator Dianne Feinstein who has
    proposed to expand our HOPE Center model across the State of
    California. I am proud to say today we are building a HOPE
    Center in Oakland, California with Bank of the West and SBC
    Communications. After four years of operating, the bank has
    committed to build a bank branch in our place.
        Finally, we have been asked by Senator Rick Santorum of
    Pennsylvania to bring Banking on Our Future into the entire
    State of Pennsylvania. Working with the Senator and the Federal
    Reserve Bank of Pennsylvania, we will make this happen next
    year.
        We are working with this administration, the Bush
    Administration, to push and press a bold economic literacy
    agenda for our nation and a hoped-for Presidential priority. We
    are talking, they are listening, and we are on the verge of
    several major partnerships with this administration.
        So I am honored to be with you today to talk about the
    wealthless and what I call the ``silver rights'' movement. How
    concerned should America be if 80 percent of its economic
    activity is tied to the U.S. consumer? Very, because it is
    true. How concerned should the President and Congress be if
    some propose that we manage our own Social Security accounts
    when a good number of us cannot manage our own bank accounts?
    Very, because it is true.
        How concerned should economists and policymakers be if
    billions of dollars in yet unrealized taxable income and other
    tax receipts are effectively left on the table, so to speak, in
    urban inner-city and low-wealth communities because people
    don't know better and as a result find it hard to do better?
    Very, because it is true. How concerned should all of us be
    that more than 1 million American filed for bankruptcy
    protection in 2000 and 1.5 million in 2001, with the largest
    group of bankruptcy filers being youth between 18 and 24? Very,
    because it is true.
        But not all the news is alarming news. I come with good
    news. It is called the ``silver rights'' movement. The silver
    rights movement says two quick things. If the 20th century was
    marked by race and the color line, then the 21st century will
    be marked by issues of class and poverty. It also suggests that
    there is a difference between broke and being poor. Being broke
    is economic and being poor is a disabling frame of mind and a
    depressed condition of our spirit. We must vow never to be poor
    again.
        In both cases, as I told Federal Reserve Chairman Alan
    Greenspan on June 5 when we took him into an inner-city
    classroom here in D.C. at John Philip Sousa Middle School in
    Southeast Washington, DC. He and I talked at an economic
    literacy course called Banking on Our Future to 35 young bright
    lights. One kids said when asked what did ATM mean, he said
    ``all the money.''
        [Laughter.]
        And to bring the attention of economic literacy to our
    nation and to you for monetary policy and public policy.
    Greenspan agreed that education is the ultimate poverty
    eradication tool and I must commend Congresswoman Waters for
    first bringing Greenspan into South-Central LA and we are now
    passing the baton to take it to the next level.
        All the indicators suggest that the rich are getting
    richer, the poor are getting poorer, and it is harder to be
    middle class. Thirty years ago, middle class was one parent
    working. Today, it is two parents working and the television
    set is raising your child. According to CNN, half of all
    Americans are living paycheck to paycheck. That is not black
    folks, that is all folks. And an estimated 65 million Americans
    or 10 million households have no traditional banking
    relationship and there are 33 million poor Americans in this
    great country. That is more than 21 states combined.
        And then you have our children. As I just mentioned, the
    largest group of bankruptcy filers are youth between 18 and 24.
    That is not black kids. Those are middle class white college
    students, getting a master's degree in psychology and an
    undergraduate degree in bankruptcy paying for their pizza with
    a credit card and believe a check is a form of credit. We have
    to do this because our nation and our economy depends on us
    doing this. Let me now go to the good news. We are the only
    nation in the world where every race of people is within our
    borders. We also happen to be the largest economy in the world.
    The two largest economies in the nation are California and New
    York. The two most diverse places in the nation are California
    and New York. The fifth largest economy in the world is
    California. The 10th largest economy in the world is Los
    Angeles County, 180 ethnic groups. I tell CEOs, don't put
    blacks and Latinos on your boards because it looks good. Do it
    because it is good for your bottom line.
        Facts: The largest condiment seller in the nation for
    generations has been ketchup. It is now salsa. African
    Americans are an economic force to be reckoned with. We
    represent a $500 billion a year consumer spending force, the
    ninth largest in the free world. We represent 25 percent of
    every movie ticket sold in this country and that is why Magic
    Johnson's theater in South-Central LA is one of the top ten
    theaters in the entire SONY chain.
        In Harlem, there is $1 billion in cash economy not showing
    up on census data. In Harlem, there is over $1 billion in
    untapped buying power and the crime rate per capita, per 1,000
    residents is lower in Harlem than in Manhattan. In D.C, there
    is $250 million of untapped cash economy and the mayor here has
    launched an illiteracy initiative to empower the individuals
    here to get the jobs that are actually available. We are
    bringing a HOPE Center here to Anacostia in partnership with E-
    Trade Bank and the District and the federal government to prove
    you can do well by doing good.
        Finally, Banking on Our Future. As I mentioned, we taught
    107,000 kids economic literacy, the only national delivery
    platform. We partnered with the FDIC. It was noted earlier
    today how good this program is. I believe it is the best
    program in the federal government, and Chairman Powell deserves
    a lot of credit. We have also partnered with eight of the
    twelve Federal Reserve banks and the American Bankers
    Association and the American Community Bankers Association, and
    President Bush has highlighted our volunteers.
        I have already mentioned the local partnerships, and Wells
    Fargo and I have committed to bring economic literacy online at
    Bankingonourfuture.org. We get 250,000 hits per month on this
    Web site for folks desiring to get economic literacy. We are
    now partnering with, as I have mentioned, other branches of the
    administration, the Economic Development Administration,
    Veterans Affairs. I believe economic literacy has to be clear
    and transparent throughout our system, because as I said
    earlier, 80 percent of our economy is tied to the U.S.
    consumer.
        Results, and my final comment. Check-cashing customers into
    banking customers conversion. We partnered with Union Bank of
    California and Nix Check Cashing. I don't like check-cashers,
    but if you can't beat them, buy them. So we went into the
    inner-city and we partnered with Nix and Union Bank. I am proud
    to say today that of 30,000 checking accounts opened by Union
    Bank of California in 2001, 10 percent or 3,000 accounts were
    from our partnership, converting check-cashing customers into
    banking customers. By the way, Union Bank is on its way to one
    million ATM transactions in those locations this year. You
    cannot have an ATM transaction without a bank account.
        We have converted renters into homeowners. I referred to
    those statistics already. You might note that there is not one
    home burned in the riots of 1992 and there were 3,000
    structures damaged. You do not burn that which is your own. We
    believe in converting the un-banked into communities of choice.
    I have talked about the HOPE Centers already and I have
    mentioned that we have built three of them. We are building on
    in Oakland, California and we are building on in Washington,
    D.C.
        And so, my request to you today, our nation's legislators,
    is to do more and to have a call to action and a marked
    increase in support for economic literacy education and tools
    and services that empower the wealthless of our great nation.
    These individuals do not want a hand out, they want a hand up.
    I believe in the James Brown version of affirmative action,
    ``Open the door, I will get it myself.''
        Thank you.
        [The prepared statement of John Bryant can be found on page
    85 in the appendix.]
        Mr. Gillmor. Thank you very much, Mr. Bryant.
        And we will go to Mr. Gabriel Manjarrez, who is the Senior
    Vice President, Hispanic Marketing Executive at the Bank of
    America.

    STATEMENT OF GABRIEL MANJARREZ, SENIOR VICE PRESIDENT, HISPANIC
                  MARKETING EXECUTIVE, BANK OF AMERICA

        Mr. Manjarrez. Thank you, very much. Thank you, Congressman
    Gillmor, Congressman Hinojosa, Mr. Chairman, the rest of the
    distinguished members of the subcommittee.
        On behalf of Bank of America, I want to thank you for the
    invitation to testify on our initiatives to bring the un-banked
    and underserved into the mainstream financial system.
    Specifically, I want to talk about two of our programs seeking
    that objective in the Hispanic market.
        In my role in charge of marketing to Hispanic consumers, it
    is my job to develop sales and marketing strategies that will
    connect Hispanic customers with our financial products and
    services in a way that provides them with the most positive and
    integrated banking experience. In fact, our in-language
    advertising slogan is Superacion Constante, which conveys that
    we are always striving for improvement in the way we serve this
    market.
        I would like to take a little time today to describe what
    we have done to be responsive to the needs of this market. The
    first program I want to discuss is our initiative to accept the
    use of the Mexican consulate ID, the Matricula Consular. We
    developed this initiative because we wanted to make it easier
    for Mexican citizens living in the USA to have access to
    banking services from Bank of America. Like many of our
    Hispanic customers, we recognized the opportunity presented by
    the Mexican consulate ID, but needed to see if the card could
    serve as an effective form of identification. We launched a
    pilot in December 2001.
        The results were quite convincing, with significant net
    gains on new checking and savings accounts that have continued
    an upward trend to this day. The pilot program was successful
    and we decided to expand it nationwide as of June 2002. The
    size and significance of this step should not be
    underestimated. Bank of America is the nation's largest retail
    bank, with over 4,000 retail branches and more than 13,000
    ATMs. In fact, we are the only coast-to-coast retail bank in
    the nation; 75 percent of the nation's Hispanic population live
    in communities served by Bank of America.
        We knew that this is a market that has a high need for
    banking services and very high growth potential. Today, every
    single Bank of America banking center recognizes the Matricula
    Consular as a valid form of identification. We believe that
    banking services ought to be made available to everyone so that
    they can manage their money without carrying large sums of
    cash. As Congressman Hinojosa eloquently noted, the
    consequences of having to carry a stash of cash can be quite
    dire and take the form of muggings and other violent crimes.
        We strongly encourage the U.S. and Mexican governments to
    work together to ensure that the consulates have the best
    authentication measures and tracking systems in place. We also
    applaud the Mexican government for developing much stronger
    security measures to ensure the integrity of the card itself.
    Today, many consider it as secure as a U.S. passport because of
    its robust security features.
        The second program I want to talk about is our money
    remittance program. It is called SafeSend. Addressing
    Congresswoman Velazquez's excellent point about promoting
    alternatives, we launched an entirely unprecedented
    international money transfer service as an alternative to
    traditional wire transfer services that dominate the
    marketplace.
        SafeSend is a safe, trustworthy and convenient card that
    uses a telephone Internet and the ATM network, rather than
    expensive wire services. Our SafeSend customers can send money
    by phone or electronically to loved ones in Mexico 24 hours a
    day, 7 days a week, without having to leave their homes. On the
    receiving end in Mexico, the recipient uses a secure PIN and
    SafeSend ATM card to access the money within minutes in over
    20,000 Mexico-based ATMs.
        We created this product because customer feedback
    demonstrated the demand for less expensive options in the money
    transfer business. SafeSend is the first to serve that the Bank
    of America designed exclusively for Hispanics. It offers
    greater value and convenience than traditional wire transfer
    products and provides a secure service at a low cost to the
    sender. More than one-third of all our SafeSend customers open
    checking accounts when they subscribe to the service. We are
    finding our remittances business to be a great generator of
    deeper customer relationships and helping the un-banked and the
    underserved be banked and served.
        Last, we would be remiss if we failed to mention efforts to
    bring the underserved populations into banking through
    financial education initiatives. As Chairman Bachus and
    Secretary Abernathy pointed out, financial education is key to
    improve the situation of the un-banked. Bank of America is one
    of the nation's strongest supporters of financial education.
        We have longstanding commitments to the health of the
    communities where we do business, and as a provider of
    financial services we have a responsibility to help our
    customers and clients understand our products and services so
    they can plan for every stage of their lives. We have several
    examples of alliances we have done, including with the National
    Council of La Raza, with Freddie Mac and Consumer Credit
    Counseling Service, and with Consumer Action to provide
    educational services.
        In sum, the Mexican consulate ID, SafeSend, and our
    financial education initiatives are opening the door to
    financial services for more un-banked customers. As a result,
    more are opening new bank accounts, cashing checks, making
    international money transfers, subscribing to other banking
    services, and becoming more documented in the process. We are
    providing opportunity for thousands to gain access, many for
    the first time, to mainstream banking services, and applaud the
    subcommittee's interest in learning more about the subject.
        I would like to thank the subcommittee once again for the
    opportunity to share our perspective and look forward to
    answering any questions.
        Thank you.
        [The prepared statement of Gabriel Manjarrez can be found
    on page 116 in the appendix.]
        Mr. Gillmor. Thank you very much, Mr. Manjarrez.
        We go to Ms. Sheila Bair, who is the Dean's Professor of
    Financial Regulatory Policy at the University of Massachusetts.

        STATEMENT OF SHEILA BAIR, DEAN'S PROFESSOR OF FINANCIAL
             REGULATORY POLICY, UNIVERSITY OF MASSACHUSETTS

        Ms. Bair. Thank you, Mr. Chairman.
        I appreciate the opportunity to testify this morning on
    initiatives to broaden access to the financial mainstream among
    traditionally underserved populations.
        Last fall, the Inter-American Development Bank asked the
    University of Massachusetts to undertake a research project on
    ways to improve Latin American immigrants' access to the U.S.
    banking system. Today, I will highlight the report's key
    findings.
        Previously sponsored IDB survey data show that lack of
    documentation of legal status to be the most frequently cited
    reason Latino immigrants do not use banks. Consistent with that
    data, our own survey and interviews revealed widespread
    consensus that banks and credit unions must be able to accept
    foreign government-issued documentation to successfully reach
    the un-banked Latino immigrant community.
        There was also widespread support for the approach taken in
    the Treasury Department's recently finalized section 326
    regulations to allow banks and credit unions to accept foreign
    government-issued documentation if the institution determines
    that such documentation provides a reasonable basis to know a
    customer's true identity.
        Our research showed that mainstream financial
    institutions's acceptance, particularly the Matricula Consular,
    appeared to move a major impediment to bringing un-banked
    immigrants into banked status. For instance, Wells Fargo
    estimated that it opened 60,000 new accounts since it began
    accepting the matricula in November 2001. The FDIC Chicago
    office recently began surveying banks accepting the matricula,
    and of the eight banks they had surveyed so far, nearly 13,000
    new bank accounts had been opened, representing $50 million in
    deposits. The FDIC is in the process of collecting data from an
    additional 26 institutions.
        The provision of bilingual services was the second most
    important access issue identified by those we interviewed.
    Virtually all our surveyed institutions provided bilingual
    account-opening documents, product information, and bilingual
    assistance at their car centers and Web site, as well as
    placing a high priority on hiring and training bilingual staff.
    The provision of products and services for individuals with
    little or no credit history was also deemed important. All
    surveyed institutions offered secure credit products and some
    made small unsecured loans based on alternative criteria such
    as regular timely payment of rent to let new customers build a
    credit history.
        In addition, appropriate product offerings were considered
    very important. Most institutions offered low minimum balance
    savings accounts on an introductory basis and used caution in
    introducing checking accounts with overdraft features, credit
    cards, or other products that could entail high fees if
    inappropriately used. Financial education was also heavily
    utilized by all surveyed institutions. School-based programs
    were particularly effective at outreach since in a high
    percentage of Latino families the parents are un-banked. School
    banking programs introduced Latino children to bank accounts
    which they, in turn, would take home and share with their
    families.
        Surveyed institutions also made very stringent efforts to
    provide services in easily accessible locations and during
    nontraditional hours and to be visible, present forces in
    Latino neighborhoods. Many institutions had also entered
    partnerships with major employers of Latino immigrants,
    providing job-site banking services and ATMs, as well as
    financial education.
        Finally, all surveyed institutions offered remittance
    services, identifying that as the top product need of their
    Latino immigrant customer base. All also said that providing
    low-cost remittance services was a major marketing tool, a key
    to getting Latino immigrant customers in the door. A key
    benefit of banks and credit unions interested in marketing to
    the Latino community has been their entry into the remittance
    market. As other witnesses have testified this morning, their
    entry into this market has created needed competition which has
    already made significant progress in lowering the cost of
    remittances. To encourage this trend, however, it is imperative
    that banks and credit unions have the discretion to accept
    reliable foreign government-issued identification to open
    accounts.
        Unfortunately, their ability to do so under the section 326
    regulations has become embroiled in the larger debate over
    immigration control policy. Being able to have a banking
    account will not materially influence an individual's decision
    to immigrate or remain in this country illegally. As a
    consequence, denying banks or credit unions the ability to
    accept reliable foreign-issued documents to open accounts would
    do little if anything to accomplish immigration control
    objectives. It will, however, force undocumented workers to
    rely on higher cost, less-regulated financial service providers
    with the resultant loss in regulatory oversight and
    transparency.
        Regulated depository institutions have long experience in
    combating money laundering and illicit financing under the Bank
    Secrecy Act and are subject to stringent independent oversight
    by highly trained bank regulatory staff. It is unlikely that
    less-regulated financial service providers would devote the
    same level of expertise or resources against money laundering
    and terrorist financing. Thus inhibiting the ability of banks
    and credit unions to provide remittance services could run
    counter to our enforcement objectives.
        Senator Richard Lugar eloquently stated in a recent op-ed
    defending the Matricula Consular, quote, ``throughout American
    history, our nation has succeeded in integrating immigrants
    into the economic fabric of the country,'' end quote. For
    millions of immigrants, having access to a low-cost, federally
    insured depository account is a necessary part of achieving
    that integration. All of us, Republicans and Democrats,
    conservatives and liberals, can and should embrace the notion
    of removing government impediments to allowing people to work
    and contribute to this great nation.
        Banks and credit unions should be allowed to do what they
    are chartered to do, provide a safe place for people to deposit
    their money and provide a means by which those deposits can be
    translated into productive lending. The federal government
    should not try to micro-manage these institutions's customer
    relationships, nor should it try to undertake the impractical
    task of dictating among thousands of different types of
    identification which are acceptable and which are not.
        To be sure, there have been failings in our immigration
    policy, but intrusive interference with the ability of banks
    and credit unions to serve their communities is not the answer.
    There is near-universal support for improved border security,
    reformed visa procedures, coherent tracking systems and a
    rationalization of the patchwork of laws that make up the
    immigration code. This is where the focus of our immigration
    control efforts should be.
        Thank you, Mr. Chairman, for this opportunity.
        [The prepared statement of Sheila Bair can be found on page
    66 in the appendix.]
        Mr. Gillmor. Thank you very much, Ms. Bair.
        We will now go to Mr. Brian Satisky, who is the President
    of the Maryland Association of Financial Service Centers,
    testifying on behalf of Financial Service Centers of America.

    STATEMENT OF BRIAN SATISKY, PRESIDENT, MARYLAND ASSOCIATION OF
     FINANCIAL SERVICES CENTERS, INC., ON BEHALF OF THE FINANCIAL
                      SERVICES CENTERS OF AMERICA

        Mr. Satisky. Good afternoon, Mr. Chairman, subcommittee
    members.
        My name is Brian Satisky and I am here today to testify on
    behalf of Financial Service Centers of America, also known as
    FSCA, where I serve on the board of directors. I am the Vice
    President of A&B Check Cashing and I also serve as President of
    the Maryland Association of Financial Service Centers,
    Incorporated.
        FSCA represents more than 5,000 businesses which provide
    consumers with a variety of financial services, including check
    cashing, money orders, ATMs, electronic bill payment, money
    wire transfers, transit tokens and passes, and a host of other
    financial and related services. Today, we hope to dispel some
    myths and make it very clear that we are in the financial
    mainstream serving millions of Americans on a daily basis.
        All consumers deserve access to essential financial
    services whether they are offered by banks or our service
    centers. The policy goal should be to assure that choices are
    available and not just shoe-horn consumers into a financial
    model which may not fit their circumstances. Everyone needs
    financial services; not everyone needs to get them from a bank.
        For many consumers, the traditional banking model is not
    the best choice. The Federal Reserve Board reported in the year
    2001that half of those who do not currently have checking
    accounts used to have them. For these consumers, the choices
    not to have an account are appropriate. Comptroller of the
    Currency John Hawke said last year that appearances to the
    contrary notwithstanding, check cashing customers do business
    outside the banking system for practical and economically
    rational reasons.
        The un-banked are actually the self-banked. These
    individuals understand the costs and benefits of maintaining a
    banking relationship and have voted with their feet to utilize
    our financial services. Consumers know that banks will not cash
    checks in amounts later than the amount of funds on deposit.
    Check-cashers will do so and make funds readily available to
    these consumers so they do not have to wait for a check to
    clear.
        Unlike banks which primarily derive their income from the
    spread between interest paid on deposits and their loan
    portfolios, we rely on transaction fees. Our success depends on
    providing a high level of service. It is not realistic to
    expect banks to welcome customers who do not add much to their
    bottom line, but these are our customers and they are pleased
    with our services. Eight-one percent of survey respondents
    rated our service either excellent or very good.
        Many consumers prefer to obtain their financial services at
    check-cashers despite the efforts of government to direct them
    to banks. There will always be some consumers for whom a
    depository account does not make economic sense, but those who
    choose to obtain depository accounts should have the
    opportunity to do so. We believe that our infrastructure could
    serve as a conduit for them into the banking system. Check-
    cashers directly serve the people the policymakers are trying
    to reach.
        When the banks abandoned many of our nation's
    neighborhoods, our industry continued to serve these
    neighborhoods. Does it really make sense to ask these very
    banks now to offer them accounts? Or should government turn to
    the industry which has continued to serve the public without
    subsidies? Government has subsidized banks to serve our
    customers, but these programs can and do come with substantial
    costs to taxpayers.
        As the House Appropriations Committee has pointed out, for
    some consumers the cost to open each first account averages
    almost $250. Last year, the GAO questioned the efficiency of
    the ETA, stating, ``Given the limited appeal of the ETA, we
    question whether the program would generate savings sufficient
    to offset Treasury's costs of maintaining and promoting this
    program.''
        Although many banks have abandoned neighborhoods, FiSCA
    members have found some financial institutions with which
    partnerships can be formed to benefit all parties involved. My
    company, A&B Check Cashing, is involved in a project in
    Southwest Baltimore City in which we have partnered with a
    federal credit union to provide services to a community that
    has lacked banking for the past five years. We call it Our
    Money Place. This partnership arose after a community group,
    Operation Reachout Southwest, sought a bank to serve the
    community, but was rejected time and time again. Finally, they
    came to the Social Security Administration Baltimore Federal
    Credit Union which agreed to serve the neighborhood, but did
    not want to provide cash services. That is where we come in.
        Our company provides all the cash services that are
    necessary for a full-service financial institution to have. We
    will not only cash checks, but dispense free money orders to
    the customers to use as they see fit. If a customer has a
    savings account and wishes to make a deposit, A&B will cash
    their check and issue them a free money order in the amount of
    the deposit they want to make. They simply walk over to the
    credit union window and make the deposit.
        Additionally, Operation Reachout Southwest maintains a desk
    in our lobby that answers questions and provides financial
    literacy education and counseling. A neighborhood that had no
    banking at all now has a full-service financial institution to
    serve them.
        In New York, another FiSCA member, RiteCheck Cashing, is in
    a cooperative venture with Bethex Federal Credit Union. In that
    case, the idea is to permit the credit union to expand its
    reach without incurring the expenses of constructing and
    servicing new branches. In California, some Nix Check Cashing
    locations are co-located with Union Bank facilities, allowing
    consumers full access to depository services. The partnership
    teams up with Operation HOPE, a community group represented
    here today by its Chairman John Bryant.
        While FiSCA members are working with some institutions to
    expand services, other banks continue to abandon our customers
    by refusing to serve all check-cashing businesses. They are
    following guidance from the OCC suggesting that check-cashers
    and a few other businesses are at high risk for money
    laundering. This designation is false, misleading and damaging.
    Our record of compliance is exemplary. The Financial Crimes
    Enforcement Network, FinCen, has found our industry not to be
    at any higher risk than any other industry.
        This problem could be acute for our customers. There are
    now only two major banks serving the industry in New York City,
    and with the loss of competition, fees are likely to rise. Many
    banks have also stopped verifying funds availability for our
    customers' accounts. It makes it difficult for our customers
    who are attempting to cash payroll checks as check-cashers need
    to be able to determine that there is a likelihood that the
    funds are available. Even the recently passed USA PATRIOT Act
    encourages all financial institutions to verify funds to help
    fight against fraud and suspicious transactions. How can we
    comply if the banks refuse to assist us? FiSCA intends to
    pursue these issues of bank discontinuance and lack of
    verification of funds with this subcommittee.
        I thank you and I would be pleased to answer any questions
    that you may have.
        [The prepared statement of Brian Satisky can be found on
    page 121 in the appendix.]
        Mr. Gillmor. Thank you very much, Mr. Satisky.
        Let me begin and I would like to go to Mr. Manjarrez. You
    stated in your testimony that the Bank of America's policy is
    to accept Matricula Consular as a valid form of identification
    when it is presented with a secondary form of identification.
    In your experience, what other forms of identification do
    holders typically present when they are seeking to cash checks
    and open an account? And what standards does the bank apply in
    determining whether the secondary form of ID is sufficient?
        Mr. Manjarrez. Thank you very much for your question,
    Congressman Gillmor. As primary form of identification, we take
    the Matricula Consular along with a number of other
    identifications, including any U.S. Government-issued
    identifications. As a secondary form, we will take either a
    driver's permit or other photo identification that are assessed
    by our risk department to comply with our efforts to not permit
    fraud and to comply with all federal regulations.
        Mr. Gillmor. So it would have to be a government-issued
    photo ID of some type?
        Mr. Manjarrez. That is right.
        Mr. Gillmor. Okay. Let me go to Ms. Bair. Those who oppose
    the acceptance of the Matricula Consular by depository
    institutions have argued that the cards lack adequate security
    features which make them susceptible to fraudulent misuse. Does
    your research support or refute that claim? I might also ask
    you, what are the security features of the matricula? Also, I
    have been told and I just want to ascertain if it is true, that
    it would be relatively easy for someone who is not a Mexican
    citizen to obtain one, and is that accurate as well.
        Ms. Bair. I think the standard under section 326
    regulations is one of reasonableness and is based on available
    identification. We looked at the security features in the high
    security Matricula Consular and talked to a number of bank
    officials. B of A was one of the institutions surveyed and
    written up as an institution with best practices in our report.
    I would add, incidentally, that they are not alone. Most of the
    banks and credit unions we surveyed also require an additional
    form of ID. The Matricula Consular is accepted as the primary
    form, but their requirements are typical of the other
    institutions we looked at.
        Certainly I think a number of forensic specialists, which I
    am not, in this area would say that the security features are
    comparable to those that the U.S. government has tried to
    instill in our own documents, and superior to a number of the
    state driver's licenses in terms of the safeguards they have
    against counterfeiting. So I think in terms of that I think the
    Mexican government has made a good case that they have made a
    number of efforts to enhance the security of the card against
    counterfeiting. It is much more foolproof against
    counterfeiting than a number of state driver's licenses.
        Mr. Gillmor. From your knowledge, what standards does the
    Mexican government use before they would issue one?
        Ms. Bair. I can just read to you from our report. To obtain
    a Matricula Consular, the applicant must present an original
    birth certificate, another official ID with a photo, personal
    information, their name, address and all that, plus a document
    with their current address such as a utility bill. The
    matricula has nearly a dozen security features which are
    designed to deter falsification and counterfeiting. These
    include a holographic image with hidden marks such as the
    person's name appearing over the picture when viewed with a
    decoder, an official seal appearing over the photo that changes
    color in natural light, and issuance on green security paper
    with the Mexican seal printed in a special security pattern.
        Again, these are standards that they tried to learn from
    the types of security measures we put in our own documents and
    use them with the matricula.
        Mr. Gillmor. Switching ground a little bit, you said in
    your testimony the possibility of a large volume of remittances
    from the U.S. to Latin America could have a significant
    positive effect on local economies in Latin America. Has the
    Inter-American Development Bank or any other organization
    compiled statistical data which would show that effect? I guess
    based on your research, how would you expect any effect to show
    up in the data?
        Ms. Bair. I don't know. They have obviously the aggregate
    numbers of dollars that are sent. In terms of gauging local
    economic impact, no, I am not aware of any comprehensive
    studies. But it is a good idea they should do some, because it
    is quite a large amount of money going to a lot of these small
    impoverished communities. I can only assume anecdotally that it
    having a positive impact.
        Mr. Gillmor. I guess we assume that if you dump a lot of
    money somewhere it will have an impact.
        Ms. Bair. That is right.
        Mr. Gillmor. Going now to the gentleman from Texas.
        Mr. Hinojosa. Thank you, Chairman Gillmor.
        Mr. Beltran, I am very glad to see you here in Washington
    and that you accepted to come to this subcommittee hearing.
        Mr. Beltran. Thank you, Mr. Congressman.
        Mr. Hinojosa. What would you think if legislation were
    introduced to authorize $4 million for the First Accounts
    program, but $1 million of that was used to study the
    effectiveness of the 15 First Account pilot programs, basically
    using the money to contract out the funds to a private company
    to research the methodology each pilot program used?
        Mr. Beltran. I believe that by doing what you just said,
    using the money to research, I would hope that it would benefit
    the programs that we have and increase the understanding of the
    value of why we need those programs. I think we could find the
    study probably to reflect some of that in some of the programs
    that we offer.
        Mr. Hinojosa. Thank you.
        Ms. Bair, if you could pick one thing to do to reach out to
    the un-banked, other than through the First Accounts or IDAs,
    what would it be?
        Ms. Bair. That is a hard question. I assume your question
    goes to un-banked populations generally, not just to the Latino
    immigrant community which was the focus of our report. If we
    are talking about the recent Latino immigrants, clearly
    documentation is first and foremost. I think for the larger
    population, I do think I would agree with what Mr. Abernathy
    said on the first panel that access has really been a key
    issue, and I would agree with you that a lot of large banks got
    out of a lot of low-to moderate-income neighborhoods in the
    1990s. You saw a precipitate decline, a lot of bank closings,
    and a precipitous rise in alternative service providers going
    into these neighborhoods. They have offered an important
    service in terms of convenience and they have been there when
    other banks have not been.
        I welcome that there is a trend in the other direction,
    that big banks and small banks are moving back into these
    neighborhoods. They need to be there. They need to be
    physically present and accessible. They need to be open during
    nontraditional hours. I think particularly for the Latino
    immigrant community, they need to have a less institutional
    atmosphere. At a lot of banks, B of A again and Wells Fargo, as
    well as the smaller community banks, the decor is friendlier.
    There are play areas for the children when they come in. There
    is a lot of hands-on intensive attention when a person comes in
    to open an account, a lot of extensive counseling and
    explanation of the bank and the appropriate way to use a bank
    and the bank products.
        So I think that physical presence and access and being
    active partners in the communities that these banks large and
    small are trying to serve is really the most important thing.
        Mr. Hinojosa. Thank you.
        Mr. Gabriel Manjarrez from Bank of America, in your
    testimony you note that some critics of the Consular ID card
    have raised concerns about increased risk of fraud; that you
    have thoroughly considered these risks and have significant
    controls in place for screening potential customers and
    monitoring their accounts for fraudulent activity. I was
    pleased to hear that. You go on to state that your bank is also
    working closely with government agencies to comply with any and
    all the requirements, including those resulting from the USA
    PATRIOT Act. What is your opinion of Section 326?
        Mr. Manjarrez. Thank you, Congressman Hinojosa. I am no
    expert on Section 326. Our opinion is that we will comply with
    any and all federal regulations. We currently are simply trying
    to support our customer base and serve a large portion of
    underserved and un-banked customers. To do that effectively
    right now, the use of the Matricula Consular has been an
    incredibly effective way. We obviously support its use and we
    are continuing to work, and we thank the subcommittee for
    inviting us here to talk about its value.
        Mr. Hinojosa. Chairman Gillmor, to try to save some time,
    and I know that you are trying to finish this hearing by 1:00
    p.m., I want to ask unanimous consent that some of the letters
    that have come in to my office from different organizations
    that are interested in this issue be inserted in the record.
        For example I have a statement from the National Council of
    La Raza submitted to me by Brenda Y. Muniz, Policy Analyst for
    National Council of La Raza. She goes into detail about the
    identification card. In the conclusion, she says, ``In
    conclusion, the matricula is simply an identification card. It
    does not legalize the status of any immigrant. It cannot be
    used to obtain any immigration or citizenship benefits such as
    work authorization or the right to vote. And it cannot be used
    to obtain public benefits. Its continued use and acceptance,
    however, does have a positive impact on immigrant workers,
    their families and the communities where they reside, fostering
    greater transparency and integration into the U.S. society
    which benefits us all.''
        It is a very well written document and I wish to ask that
    it be made a part of today's proceedings.
        Mr. Gillmor. Without objection, the Chair hearing none, it
    will be made a part of the record.
        [The following information can be found on page 177 in the
    appendix.]
        Mr. Hinojosa. Also without reading them, there are two
    other documents that I would like to ask unanimous consent that
    they be accepted and made a part of today's record. One is the
    Citigroup's efforts on Banking the Un-Banked and Financial
    Literacy. It is a study that they made which is also very
    informative. The third one is one that is submitted by the
    Mexican-American Legal Defense and Educational Fund, better
    known as MALDEF. It is entitled ``Acceptance of Mexican
    Consular ID's Is Not Only Legal, It Improves Public Safety and
    Enhances the Economy.''
        Mr. Gillmor. Without objection it will be a part of the
    record.
        [The following information can be found on page 155 and 137
    in the appendix.]
        Mr. Hinojosa. Finally Mr. Chairman, I was very pleased to
    hear some of the presenters today talk about the fact that the
    Matricula Consular, or the Consular ID card as some call it,
    has invisible security features. I was able to obtain one for
    use at this public hearing from the Mexican embassy as a sample
    of the Matricula Consular or Consular ID card. In looking at it
    and comparing it with my driver's license, I find great
    similarity. It has lots of invisible security features
    contained in this document that I want to be made part of the
    record. I obtained it from the Embassy of Mexico here in
    Washington. It gives an explanation of those features. The
    document explaining that the term ``Matricula Consular card''
    is printed on the card itself. It has invisible security
    features where, using a fluorescent light lamp, capital letters
    SRE can be seen all over the front.
        All of this is to say that I want this document to be made
    a part of the record because I am convinced that what we are
    trying to do with this hearing is to simply say that we want
    banks to be able to use the matricula identification card for
    identification purposes and that we do not want to complicate
    it or let anyone say that we are trying to use it for
    immigration purposes or allow it to be used for terrorism. The
    Consular card an identification card, and hopefully Congress
    will treat it as such when my legislation comes to a vote.
        Mr. Gillmor. Without objection, the Chair hearing none, the
    copies will be made a part of the record.
        Mr. Hinojosa. Thank you, Mr. Chairman. With that, I yield
    back.
        Mr. Gillmor. The gentleman yields back.
        The gentlelady from California.
        Ms. Waters. Thank you very much.
        Mr. Satisky, I would like to raise a few questions with you
    about some of the testimony that I had an opportunity to read
    prior to coming in today. I was in and out of the room, so I
    don't know if it was the same testimony that I see with the
    written testimony that was provided to us before the hearing.
        First, let me just say to you that I am not opposed to any
    organization providing services to poor communities. What I am
    opposed to is exploitation. I am opposed to exorbitant rates.
    And I am opposed to poor people being a convenient group of
    people by which to make money off of. Every scheme in America
    finds its way to the poor community. I have spent my life
    trying to articulate what is happening in poor communities and
    fighting on behalf of poor people. We have been able over the
    years since I served in the legislature and prior to coming
    here, to stop a lot of schemes.
        So I am very, very versed in the ways that these things are
    done. I am not an elected official who turns a blind eye
    because I can get a campaign contribution or because I can cut
    a ribbon or be a part of a ceremony sending a signal to people
    that I am doing something when I am not doing something. So I
    am only concerned with whether or not poor people are being
    treated differently because they find themselves in a
    particular situation.
        I would like you to explain to me the relationship that you
    have with credit unions. It could be that what you have
    described in this testimony is an answer to some of my concerns
    about how to provide services to poor people. I note that you
    describe some relationships between credit unions and payday
    loan operations or financial services, whatever you call it.
    And that it has worked out in such a way that the people able
    to benefit and even get checks cashed for free or for very
    little amounts of money because the credit union helps to
    reduce the cost of paying for the cashing of those checks.
        Would you describe to me the A&B-federal credit union
    relationship? I think it is in combination with Operation
    Reachout in southwest Baltimore.
        Mr. Satisky. Yes, I would be happy to, Congresswoman. I am
    also happy to say today that we both oppose the very same
    things. So all those issues that you oppose, we do as well.
        I got a phone call a little over a year ago from the Bon
    Secours Foundation, which is a nonprofit hospital-based
    foundation in southwest Baltimore City.
        Ms. Waters. Which foundation was that?
        Mr. Satisky. The Bon Secours Foundation, asking if A&B
    Check Cashing would be interested in partnering with a federal
    credit union to bring full financial services back to a
    community which had not had them for quite a long time. We were
    interested in such a program and we met with the groups of
    people involved, including Operation Reachout, which is a very
    active community group in that neighborhood.
        What we found out at that meeting is that they had been
    searching for a bank or a credit union to supply that community
    with full financial services for quite a time and to no avail.
    They could get a little of this and a little of that, but not
    the whole package which was really what they needed. They
    needed somebody to handle cash services as well as non-cash
    services. They wanted to do the loans and the savings accounts
    and the checking accounts. They also needed the people to cash
    checks and get money orders and all those sorts of things that
    are traditional banking services.
        We were surprised to hear that they had failed in such an
    attempt. Then the Social Security Baltimore Federal Credit
    Union came and stepped forward and said that they would in fact
    be interested, but it was not viable for them to handle the
    cash services. It just simply was not profitable for them and
    they just didn't see a way that they could do it reasonably. So
    if they could find a partner that would handle the cash
    services, then they would be interested as well.
        Well, all parties got together at that point and we
    hammered out some deals. It really was very easy for us, to be
    perfectly honest with you. We were very anxious for the
    opportunity to be involved in an FDIC institution and provide
    the cash services where the credit union could not. We also
    were very anxious to be involved in the financial literacy
    aspect of the whole program as well, of being able to provide a
    service desk in our lobby, educating people on how to obtain
    checking accounts; to determine is they even need a checking
    account, because it may not be for everybody.
        Ms. Waters. I am going to interrupt you for a minute now.
    In addition to the check cashing services, do you provide
    payday loan services?
        Mr. Satisky. No, ma'am. Short-fund payday lending is not
    available in Maryland at this time.
        Ms. Waters. Okay, so this is check cashing for the most
    part.
        Mr. Satisky. Yes, ma'am.
        Ms. Waters. Did your relationship reduce the amount that
    the consumers pay for cashing their checks?
        Mr. Satisky. Yes. Maryland is a regulated state and it has
    good quality regulations in line there as far as rate caps are
    concerned. I would tell you that in Maryland, especially in the
    Baltimore area that I am most familiar with, check cashers
    provide services for much less than the cap. The regular cap is
    4 percent for payroll checks, 2 percent for government checks,
    and 10 percent for personal checks. Most check cashers provide
    check-cashing between 1 and 2 percent. So it is a very
    competitive thing.
        Ms. Waters. Let me ask now, the credit union is nonprofit?
        Mr. Satisky. That is correct.
        Ms. Waters. For the community group Operation Reachout
    Southwest that got involved, do they receive payment of any
    kind?
        Mr. Satisky. I don't think so, but I am not 100 percent
    sure about that. That is a part of the negotiations that I have
    not had anything to do with.
        Ms. Waters. Okay. Also, with the New York operation that
    you described at RiteCheck Cashing, and I think it is Bethex
    Federal Credit Union, it seems that there are no fees for check
    cashing and it is paid for by the credit union at a different
    rate, and the marketing materials for Bethex as available at
    the check-cashing locations and loan applications are available
    so that folks can join the credit union and they can make loans
    and those loans are at rates that other credit union users
    would be charged.
        Mr. Satisky. Or less.
        Ms. Waters. Or less. Now, so I guess what I want to be very
    clear about is this, I am not opposed to alternative banking
    operations. Again, I am opposed to people pretending to do good
    for the poor when the poor are being exploited in the name of
    civil rights or anything else. So I say to you that one of the
    operations that was described here today, the cooperative so-
    called nonprofit group, is making 5 percent from the check-
    cashing payday loan operations, which means that the price of
    the product has increased when you have to pay everybody up the
    line for producing this product. If you show me operations such
    as you are describing now, I have no problems with that, none
    whatsoever.
        So what the people have to understand is the difference.
    Most elected officials do not know this. They are not
    concentrated on financial services and they can be sold a bill
    of goods any day of the week because it looks good and they
    want to do something for their people. But of course my job
    serving on this committee is to be able to know the difference
    and to be able to call it like it is. So as a representative of
    the alternative banking that is described as something that is
    desperately needed, if you could begin to talk within your
    industry about what some of our concerns are, people who
    represent poor communities, and how we welcome the
    opportunities for real nonprofits such as the credit unions who
    have real services that they can provide and reduce costs,
    those kind of operations we have no problems with whatsoever.
    There is a difference in what you have described here and some
    of the others who purport to be doing something for the poor,
    when in fact they are just fattening their pockets on the backs
    of the poor and talking trash. Okay? Thank you.
        Mr. Satisky. Thank you.
        Ms. Waters. I yield back the balance of my time.
        Mr. Gillmor. The gentlelady yields back.
        That concludes the questioning. I want to thank all six of
    our panelists for coming and for your very helpful testimony.
        Mr. Hinojosa. Mr. Chairman?
        Mr. Gillmor. Yes, Mr. Hinojosa?
        Mr. Hinojosa. Mr. Chairman, I apologize that I had
    overlooked a document that was prepared by my staff. In keeping
    with this hearing, which is entitled ``Serving the
    Underserved,'' Initiatives to Broaden Access to the Financial
    Mainstream, some of the presenters talked about the importance
    of education. This document that I ask unanimous consent be
    made a part of the hearing today is entitled ``List of Several
    Financial Literacy Programs.''
        In the record there should be a listing of these programs
    because anybody doing research would be helped a great deal if
    they knew that America's Community Bankers launched MoneyRules,
    a financial literacy campaign in which community bankers share
    their financial knowledge with the community. Others like the
    Federal Deposit Insurance Corporation initiated a national
    financial education campaign by developing a program called
    MoneySmart. There are many others, including Fannie Mae and
    Freddie Mac with their programs. The Independent Community
    Bankers of America have another program on MoneySmart. Again, I
    believe that this would be a good way to close our hearing
    today because I think it has wonderful information on the
    education that is necessary to help our un-banked community.
        Mr. Gillmor. Without objection, the Chair hearing none, the
    document will be made a part of the record.
        Once again, my thanks to the panelists and we stand
    adjourned.
        [Whereupon, at 1:25 p.m., the subcommittee was adjourned.]

                                A P P E N D I X

                                 June 26, 2003
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