Individuals need access to the banking system and credit to be able to save and invest. It is essential for financial independence.
In recent years, the banking industry has changed dramatically. Banks have consolidated and are using technology to a much greater extent. Some banks provide services entirely online and have no physical branches. Many communities have seen bank branches close, especially in rural areas. Lack of access to basic-banking services in person may especially hinder older adults, people with disabilities, and people with low incomes who may not have reliable access to technology. It may also make banking less safe if it is more difficult to detect fraud or financial exploitation. These trends may increase financial exclusion and isolation as more consumers are left out of the mainstream banking system. Instead, they may turn to costly alternative financial services.
Banks can counter these trends by offering low-cost basic-banking services. These are sometimes called lifeline accounts. Typically, they have a low initial deposit requirement, no minimum balance requirement, and low fees. Some jurisdictions require banks to offer them. For example, New York mandates that all banking institutions in the state do so. Public banking options can help expand access to people with low incomes. This involves public institutions, such as post offices, providing low-cost banking services directly to the public.
Fees: Banks increasingly rely on revenues from fees rather than from interest earnings. Between 1984 and 2015, their fee revenue more than doubled after adjusting for inflation. According to the CFPB, consumers paid $15.5 billion in overdraft and not-sufficient fund fees alone in 2019. Other fees include service fees on checking and savings accounts and charges for using automated teller machines (ATMs).
Banks must receive a consumer’s affirmative consent before charging overdraft fees for transactions at ATMs and points of purchase. Banks are still able to charge overdraft or insufficient funds fees for returned checks and electronic payments. Transactions that lead to overdrafts are often small, yet they result in an average fee exceeding $33 per occurrence. Some banks also charge fees to use an in-person teller. This can create problems for some older adults, particularly those living in less affluent neighborhoods. Such customers may need services from bank staff because of personal safety, disability status, literacy or language barriers, or a lack of familiarity with or trust in electronic banking.
This increased reliance on fees has raised costs to the point that banking services are beyond the reach of some people with low and moderate incomes, including older adults. In response numerous local and regional organizations across the country have worked with financial institutions to ensure that safe and low-cost account options are available to all residents through the BankOn initiative. As of 2021, 90 BankOn coalitions have formed across the United States. Participating financial institutions offer a checking account or prepaid card that meets certain consumer protection standards.
Electronic banking: Most banking transactions that Americans make are conducted electronically. More payments are made electronically than by check. The overwhelming majority of paychecks, as well as nearly all Social Security benefits, are electronically deposited into a bank or credit union account or onto a prepaid debit card.
According to a survey from the Federal Deposit Insurance Corporation (FDIC), older adults are increasingly using electronic banking. Between 2019 and 2021, households headed by individuals age 45 and older increasingly used online or mobile banking, and decreasingly used bank tellers, as their primary method of accessing their bank accounts. The rate of mobile banking among people age 65 and over nearly doubled over this period. The COVID-19 pandemic may have accelerated the adoption of online and mobile banking options among older adults.
Federal law requires banks to document electronic payment activity, limit consumer liability for unauthorized transactions, and create procedures for error resolution. Institutions are not required to provide periodic paper statements if account transaction information is available by telephone, electronically, or, upon the consumer’s request, in writing.
The Credit Card Accountability Responsibility and Disclosure Act, also known as the Credit CARD Act, created consumer protections for gift cards. (Prepaid cards, also known as general-purpose reloadable cards, are different from gift cards.) Gift cards cannot expire less than five years from the date that funds were first deposited on the card. They must print disclosures related to fees and expiration dates on the gift card. Dormancy, inactivity, and service fees can only be charged when the gift card has not been used for at least one year, and no more than one such fee can be charged per month. Gift card sales have soared in recent years and are expected to reach $221 billion by 2024. Unfortunately, the soaring sales have been matched with an increase in gift card fraud (see also Scams and Fraud in this chapter).
Account features that prevent financial exploitation: Financial exploitation presents a significant threat to older adults. It can destroy their finances and wreak havoc on their emotional and physical well-being. It increases the likelihood of depression and anxiety and even hastens death. The average victim of exploitation loses $120,000, which is almost the average level of savings for a household age 50 and older. The vast majority of consumers—four out of five—prefer having accounts with institutions that proactively fight financial exploitation. One way to do so is for financial institutions to put in place account features that prevent exploitation before money leaves the account. For example, financial institutions can analyze data to identify at-risk consumers, provide read-only account features that allow caregivers to track movements without giving access to funds, and prevent the sale of inappropriate products to people with dementia.
All depository institutions should be required to provide basic-banking services affordable to customers with low incomes. This includes low-cost basic checking or savings accounts. Any fees should be low and reasonable. Overdraft and nonsufficient funds fees should not be allowed.
Accounts should be structured to ensure affordable access for underbanked individuals. They should incorporate account features called for in the BankOn National Account Standards, such as not charging fees for inactivity or low balances. All customers should receive a monthly easy-to-understand account statement.
To prevent fraud, institutions should not cash a check unless it is made out to the person who presents it. In addition, that person should have to be registered for check-cashing privileges with the institution.
Programs that promote access to safe, low-cost bank accounts should be established and expanded. This includes the BankOn program.
Banking features to meet the needs of an aging population
Financial institutions should offer account features and services that empower financial caregivers while protecting older adults who are under their care. These include:
- preventing the sale of inappropriate products to people with dementia,
- offering read-only account features that allow trusted contacts to track account movements without giving access to funds, and
- analyzing data to identify consumers who are at risk of financial exploitation.
Consumer protections in banking services
Financial institutions should be required to offer consumer protections related to fees and disclosures. This includes requiring fees to be fair, reasonable, and clearly disclosed. In addition:
- Transactions should be processed in the order in which they are received.
- Deposits should not be delayed. Holds placed on deposits should be minimized unless there is a high likelihood of fraud. Policymakers, regulators, and the financial industry should continue to develop faster payment mechanisms that reduce delays without increasing costs or compromising safety.
- Customers should be warned when an electronic transaction will result in a fee. They should be allowed to cancel the transaction in order to avoid the fee.
- Consumers should be given an opportunity to fix problems before facing additional charges or similar adverse actions. For example, if a bank account is overdrawn, consumers should be able to make a deposit or transfer in order to cure the overdraft before being charged a fee.
Congress should amend the Electronic Funds Transfer Act to apply its consumer protections to all electronically processed checks.
Overdraft fees should be defined as finance charges under the Truth in Lending Act.
Depository institutions should not be permitted to charge duplicative fees for the use of automated teller machines (ATMs).
Fees charged to customers without an account at a bank should be reasonable and kept to a minimum.
Inactive accounts at financial institutions should not be charged excessive fees. Banks should do the following before reverting such accounts to the state:
- allow sufficient time to pass,
- provide public notice, and
- make a reasonable effort to find the account’s owners or heirs.
Customers should not be charged fees for the use of personalized tellers at ATMs owned or leased by the depository institution.
Consumers should be able to compare factors such as fees and options easily.
Policymakers should require full disclosure in plain language for all financial products, including checking, savings, and money market accounts.
All significant terms and conditions should be featured in clear and complete language on advertisements, announcements, signs, and solicitations for interest.
Banking mergers should maintain a robust system of community banks in the public interest. A key factor in approving banking mergers should include the institutions’ compliance with state basic-banking laws. Regulators should ensure that communities retain adequate levels and quality of services and a clear public benefit. Consumers should retain access to banking services, low fees, and lending opportunities.
In areas where basic financial products are not accessible or affordable, policymakers should explore developing and implementing public banking options to ensure access for all. These may include offering basic transaction products at secure locations such as post offices.
Consumer accounts should be protected from unreasonable or illegal debt collection (see also Debt Collection Practices in this chapter). Financial institutions should not garnish accounts that contain funds exempt from garnishment. Before processing requests to garnish or place a lien on an account, depository institutions should check whether accounts contain exempt funds. Financial institutions should not be allowed to assess overdraft or other fees when accounts primarily consisting of exempt funds are frozen.
Policymakers should ensure that technological advances in bank products and services include consumer safeguards to remain responsible. These include:
- security breach prevention measures,
- privacy protections,
- complete disclosures, and
- provisions addressing the loss or theft of card products.