[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
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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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
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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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