Protecting Consumers: Plan A and Plan B

by Patricia Hewitt 0

Protecting the most vulnerable consumers in our society shouldbe a top concern of our regulators and the mortgage meltdown hasdone a great job underscoring why this is true.So, first you haveto find exactly who that constituency is and then figure out how tobest take care of them.The FDIC is attempting to do this, first bystudying the unserved/under-served segments of the banking industryand then, by developing a pilot program to study the effect ofproviding rationalized services through regulated financialinstitutions to this market.

In November, the FDIC announced the banks that were chosen toparticipate in this year long pilot called FDIC Model Safe AccountsPilot.The pilot begins on January 1, 2011 and will run for oneyear.During this year, the FDIC will collect data on the viabilityof the accounts some time after the end of each quarter focusing onthe volume, use, success, and profitability of the accounts (FDIC,2010).The banks participating in this program do so voluntarilyand, according to the FDIC, receive the benefit of potential marketexpansion, community goodwill, and helping the FDIC (and maybe somefavorable CRA consideration too).

Banks as diverse as Citibank, ING Direct, and Webster Five CentsSavings Bank are participating in the program, some of which aregoing to offer only savings accounts (Citibank) and others, bothtransactional and savings accounts (Webster).They are being askedto market these programs in their communities.Since participationis voluntary, the FDIC has not established any standardizedreporting, but instead will rely on each institutions processingsystem.More information on this pilot can be found at

The FDIC did a great service to the industry by producing theirgroundbreaking study on the underserved banking market (FDIC,2009).Just the simple fact that they are now going to look moreclosely at the profitability of any type of bank account is greatnews again all on its own.How accurate this information willultimately be can be debated once some data starts to come in, butinterestingly, there is no alternative solution being incorporatedinto the study.Consumers in this segment have voted with theirwallets and general purpose reloadable prepaid card programs havegrown in both scale and sophistication because of their wideacceptance by this specific market.Shouldn’t these serviceproviders be represented in a pilot designed to determine theappropriate business model to provide banking services to thissegment?

Therefore, one would think that a more effective study wouldjuxtapose traditional and non-traditional financial servicesschemes against one another in order to define how best to serve -and regulate – this market. Banks no longer have a lock ondelivering financial services and the sooner our regulatorsacknowledge this, the sooner more consumers will have betterprotection, and the industry will be that much safer.

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