To save and invest, individuals need access to the banking system and credit. 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. Public banking options can help expand access to these communities.
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. In total, banks earned half as much income from fees as they did from interest in 2015. By contrast, fees were only a tiny share of revenue in 1984. These fees include service fees on checking and savings accounts, overdraft fees, and charges for using automated teller machines (ATMs).
Banks must receive a consumer’s affirmative consent before they may charge 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, across the country, numerous local and regional organizations 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. Nearly nine times as many payments are made by debit and credit cards than by check. Two-thirds of the dollar value of payment transactions comes from electronic transfers. Check payments are second-largest at 27 percent, partly because checks are still used for larger payments, such as rent. Credit card payments are third, followed by debit cards. 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. Older adults are increasingly comfortable using electronic banking. According to data from the Federal Deposit Insurance Corporation (FDIC), in 2019, 65 percent of households headed by someone age 50–64. In addition, 45 percent of households headed by someone age 65 or older used a computer or tablet to gain access to their bank account in the prior year. Sixty percent of people age 50–64, and 30 percent of people age 65 and older, use an app or browser on their smartphone for online banking. 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 of 2009 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 services 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.
Scams and fraud: The widespread use of gift cards and electronic payments has created new opportunities for scams and fraud to occur. Victims may be directed to send money urgently to strangers through these anonymous payment mechanisms as a form of ransom or extortion. Few regulations govern the fraudulent use of these cards. Payments may change hands quickly. In addition, they may not be traceable or reversible, making it difficult for law enforcement to prosecute and for victims to have access to redress.
Cashless businesses: As fewer customers use cash, some stores have moved away from accepting cash payments. Some stores have said that handling cash is burdensome or unsafe. Others have argued that cashless stores discriminate against certain populations, such as people with low incomes, who are more likely to be unbanked or underbanked. In response, some cities have required all businesses to accept cash.
Cashless businesses can still serve cash-preferred customers through a cash conversion kiosk, also known as a reverse ATM. This allows customers to deposit cash and convert it to an electronic payment instrument, such as a prepaid card. It can be helpful to cash-preferred customers, but only if it does not charge them a fee. New York City recently enacted a requirement that all businesses accept cash. However, it allows an exception where these kiosks that meet certain criteria are available.
BANKING, CREDIT, AND DEBT: Policy
BANKING, CREDIT, AND DEBT: Policy
Basic banking services
All depository institutions should be required to provide an adequate level of banking services to individuals, including customers with low incomes. This includes basic checking or savings accounts.
Checking and savings accounts should be required to have the following features:
- a small minimum balance requirement;
- free transactions;
- reasonable charges; and
- a monthly easy-to-understand account statement.
To prevent fraud, institutions should not be required to 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.
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 cost 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 (EFTA) 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 and be in the public interest. Key factors 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. Consumers should retain access to banking services.
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 and debt sellers). 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 to see 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.
Scams and fraud
Policymakers should conduct robust oversight and enforcement related to scams and fraud. They should also consider new protections on gift cards and electronic payments to prevent fraud. This includes refund or clawback provisions. Likewise, the private sector should establish policies and procedures to prevent scams and fraud, particularly against older adults.
Policymakers and the private sector should put in place:
- limits on the amount placed on a single gift card,
- limits on how many gift cards may be purchased in a given period of time,
- waiting or cancellation periods, and
- requirements that gift cards be stored securely and separate from other merchandise to minimize the chance of account compromise.
Government benefit payments
Consumer protections should be added to government benefits payments, including those made through direct deposit and prepaid card.
The EFTA should be strengthened to ensure:
- financial institutions promptly notify consumers when direct-deposit payments are received;
- mechanisms for prompt, effective resolution of problems are provided; and
- consumers are more accurately informed about how and where to complain if they have problems with direct deposits.
Merchants should offer their customers a choice in payment methods to ensure that their products and services are widely available. Merchants that do not accept cash as a form of payment should be required to offer alternatives that enable cash-preferred customers to pay at no additional cost, especially for essential goods and services.