The Federal Deposit Insurance Corp., or FDIC, has announced two “templates” for basic checking or debt-card and savings accounts that would be appropriate and affordable for low- and moderate-income people, a category that could be defined to include a large swath of the consumer population.
The templates, designated as Figure 1 and Figure 2 in a recent FDIC statement, are part of an effort to encourage financial institutions to offer more safe low-cost accounts to these consumers. The “guiding principles” for the accounts are low and transparent fees, FDIC-insurance, simplicity and easily understandable terms and conditions. The accounts are also supposed to represent “sustainable product offerings for financial institutions,” according to the statement.
The proposed checking or debit-card account would have a minimum opening balance of just $5 and a minimum monthly balance of just $1. Basic electronic banking would be free. Overdrafts would not be allowed. Direct deposit would be encouraged, but not required, and such services as money orders, check cashing, bill paying and wire transfers could be utilized at competitive prices. The proposed savings account has similarly minuscule minimum balance requirements.
The idea of affordable banking for low-income consumers has a certain appeal as a societal good that would bring more low-income people into the conventional banking system. But banking customers who don’t meet the definition of low- or moderate-income consumers may wonder how these accounts will meet their seemingly contradictory objectives. Will the banks sell enough ancillary services to cover at least the marginal costs of these accounts? Or will the costs be transferred to higher-income customers in the form of higher fees? The debate, so reminiscent of debates about other government-mandated programs that redistribute wealth in large and small ways, will be played out, so stay tuned.