Nearly forty percent of Americans do not have $400 in cash for emergencies, 7.1 million households do not have any relationship with the banking system, and another 24.2 million households are under-banked. In total, only 30 percent of Americans are spending, saving and borrowing in a manner that indicates a financially healthy life. However, community banks are in an optimal position to help consumers improve their financial lives. Sixteen percent of community bank branches are located in LMI counties and ten percent of all community bank HMDA loans were made to low-income individuals.
Individuals with little or no relationship with a bank may struggle to manage their funds effectively and to save, prepare, or borrow for emergencies. Technology can play a role in raising awareness among such individuals of available products and services and providing access to them.
Many community banks offer various affordable loan and deposit products and services to their customers. ICBA welcomes opportunities to expand ways to serve new, existing, and potential customers, but guidelines must be simple, easily understood by bankers and examiners, and flexible enough to allow individual community banks to adapt them to their own market and operations. Overly proscriptive requirements could add to burdens and costs and have the unintended consequence of discouraging these types of products.
Managing money wisely and making effective financial decisions is critical to excelling in life and enjoying a secure financial future. Millions of Americans do not have a relationship with a depository institution because they do not understand the system. Community banks engage in a wide range of financial education efforts, many in conjunction with local schools and civic groups, and promote financial literacy programs for all consumers, especially those programs that help the underserved, disadvantaged, and emerging markets.
The CFPB’s research has indicated that potentially millions of consumers previously locked out of mainstream credit could become eligible for credit through the use of alternative data and modeling. Alternative data and modeling techniques are changing the way that some financial service providers conduct business. However, new regulations that require community banks to incorporate alternative data into their credit decision processes could prevent community banks from making loans to those who need access to credit the most, increase costs, and stifle innovation.