2023-28263. Request for Information on Financial Inclusion

AGENCY:

Departmental Offices, Department of the Treasury.

ACTION:

Request for information (RFI).

SUMMARY:

The Department of the Treasury (Treasury) invites public input to inform its development of a national strategy for financial inclusion. This request for information (RFI) offers the opportunity for interested individuals and organizations to identify opportunities to advance financial inclusion through policy, government programs, financial products and services, technology, and other tools and infrastructure.

DATES:

Written comments and information are requested on or before February 20, 2024.

ADDRESSES:

Please submit comments electronically through the Federal eRulemaking Portal: https://www.regulations.gov.

In general, all comments will be available for inspection at www.regulations.gov. Comments, including attachments and other supporting materials, are part of the public record. Do not submit any information in your comments or supporting materials that you consider confidential or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT:

Natalia Li, Director, Office of Consumer Policy, 202–622–1388, [e-mail]; Nora Esposito, Senior Advisor, Office of Consumer Policy, 202–604–9307, [e-mail].

SUPPLEMENTARY INFORMATION:

I. Background

The Financial Services and General Government Appropriations Act, 2023 (FSGG), enacted December 29, 2022, directed Treasury to develop a national strategy to improve financial inclusion. Specifically, the FSGG tasked Treasury with developing a strategy to broaden access to financial services among underserved communities and improve the ability of such communities to use and benefit from financial tools and services. The FSGG stated that “the strategy should establish national objectives for financial inclusion, set benchmarks for measuring progress, and offer recommendations for how public policy, government programs, financial products and services, technology, and other tools and infrastructure can advance financial inclusion.” ^[1]

Treasury intends for the strategy to identify clear and actionable opportunities for the public, private, and nonprofit sectors to advance financial inclusion. Treasury is therefore seeking information and recommendations from all interested parties for the purpose of advancing financial inclusion through policy, government programs, financial products and services, technology, and other tools and market infrastructure. Treasury is committed to including a broad range of perspectives in efforts to promote financial inclusion and is particularly interested in the views and needs of underserved communities.

II. Overview

Households rely on consumer financial products and services, from transaction accounts to mortgages, to meet their financial needs and goals. However, historic and ongoing discrimination, exclusion, and disparate treatment have resulted in significant disparities in access to and use of financial products and services across different populations and communities, including low-income and low-wealth communities, Black, Indigenous, (and) People of Color or BIPOC communities, and women. Improving inclusion in the financial system is a critical part of fostering financial security, expanding opportunities to build wealth, and closing the racial wealth gap.

While definitions of “financial inclusion” vary, conventional interpretations of the term often center around accessibility, indicating that financial inclusion pertains to access to core financial products and services like bank accounts, credit, and digital payments.^[2] Beyond access, the term can also be used in ways that incorporate considerations of the affordability, utility, safety, sustainability, and suitability of financial products and services. Financial inclusion can involve things other than specific products or services, such as financial information or education that helps consumers learn how to access and use financial products, or to avoid frauds, scams, and other predatory financial practices. The interpretation of the term is also influenced by the unique socioeconomic, cultural, and regulatory context in which the term is used. Financial inclusion is often associated with other areas more broadly related to the status of consumer finances, including financial well-being and financial health, among others.

The ability to access and use financial products and services can confer significant benefits to consumers. At the household level, access to financial products and services enhances households' ability to make payments, save, and borrow, helping to facilitate full participation in the economy and the ability to both manage day-to-day needs and navigate financial shocks or emergencies. Certain financial products and services also play a central role in facilitating individual and household financial security and wealth; for example, financing for businesses or educational opportunities can help generate future financial benefit. Financial inclusion can meaningfully enhance consumers' ability to transact and save, as well as enable investments that bolster income and wealth, which can ultimately have positive impacts on the overall economy.

The United States has well-established financial infrastructure which provides many consumers with broad access to financial products and services. A commonly cited measure relating to the state of financial inclusion and access to financial services is the unbanked rate, the share of households without a checking or savings account at a bank or credit union. The most recent 2021 FDIC National Survey of Unbanked and Underbanked Households found that an estimated 4.5 percent, or 5.9 million, of all U.S. households were unbanked, the lowest since the survey began in 2009.^[3] Recent data from the Federal Reserve Board indicates that in 2022, 82 percent of all adults reported having a credit card, and the majority of adults who applied for credit were approved for the amount they requested.^[4]

However, there are significant disparities in how well the financial system functions for different populations and communities. Low-income and low-wealth communities, racial and ethnic minorities, Native and Tribal communities, people with disabilities, women, LGBTQI communities, immigrants, individuals with limited English proficiency, justice-involved individuals, and other underserved individuals and groups experience differences in access to the financial system and use of financial products and services, with consequences for their economic security and wealth-building capacity. These disparities relate to historic and intentional exclusion from the financial system, ongoing forms of discrimination and predatory practices, and other barriers.

In 2021, while only 2 percent of white households were unbanked, 11 percent of Black households, and 9 percent of Hispanic households lacked bank accounts. Persistent disparities in unbanked rates between white and minority households are found at all income levels.^[5] Additionally, in 2021, 14.1 percent of households were “underbanked,” meaning respondents had a bank account but also used often-costly alternative financial services within the past year to meet needs that they were unable to meet through offerings from traditional financial service providers, such as quickly cashing checks, sending money overseas, or accessing short-term credit.^[6] Underbanked households were more likely to belong to racial and ethnic minority groups, have lower incomes, or have a disability. For those unable to access these financial products and services, managing day-to-day finances can be difficult and expensive.

Disparities also exist in access to financial products and services used to facilitate long-term financial security and wealth. Beyond un- and under-banked rates, there are disparities among different groups in the use of financial products and services, including tax-advantaged retirement accounts, stock market investments, insurance, and small business loans. In 2020, while 54 percent of white households reported owning a retirement account, only 28 percent of Hispanic households and 36 percent of Black households reported having an account. In 2022, rates of stock and business ownership were 65 percent and 16 percent respectively for white households. These rates stood at 40 percent and 11 percent for Black households and 27 percent and 13 percent for Hispanic households. Lack of access to such financial products and services can hinder households' ability to manage financial shocks and build long-term financial security, which is reflected in persistent gaps in broader economic measures between different groups. According to data from the Federal Reserve Board, in 2022, median wealth among Black and Hispanic households was only 15 and 20 percent, respectively, of that of white households.^[7] Members of minority groups also have consistently lower financial well-being scores as measured by the Consumer Financial Protection Bureau's Financial Well-Being Scale.^[8] As these figures demonstrate, equalizing financial access and inclusion is a necessary component of fostering financial security for all Americans and closing the racial wealth gap.

There are many reasons that individual consumers may face barriers accessing or using traditional financial products and services, and the challenges different communities face are diverse. Further, while some consumers may have the ability to access traditional financial products and services, they may prefer to manage their financial needs through other means. In 2021, unbanked households' most-cited reasons for not having a bank account were account fees and minimum balance requirements, as well as concerns over privacy and lack of trust in banks.^[9] In addition to financial precarity, some of these concerns may relate to legacies of historic mistreatment of certain communities by the financial system, and to ongoing forms of discrimination.^[10]

New developments in the provision of financial products and services have implications for financial inclusion. Recent efforts to foster competition and innovation in the financial sector may benefit consumers as providers develop new or improved offerings.^[11] In addition, both traditional banks and non-bank entities have increasingly offered financial products and services through digital channels, opening access to financial products and services for some consumers.^[12] However, the “digital divide,” or gap between those with and without broadband access, presents a significant limitation to the potential inclusionary benefits of digital financial services, while also potentially creating new disparities in access.^[13]

Expanding the provision of certain financial products and services may also raise concerns about predatory or exploitative practices. Providing financial services to certain households on unfair, deceptive, or abusive terms, or in a way that exposes consumers to inappropriate levels of risk can result in financial harm to consumers and communities and may also undermine trust in financial service providers. As financial institutions continue to innovate their products or business models, ensuring that resulting consumer products and services are safe, beneficial, and do not perpetuate or create new forms of exclusion or discrimination is vital to efforts to promote financial inclusion.

III. Request for Information

Treasury welcomes input on any matter that commenters believe is relevant to Treasury's efforts to develop a national strategy for financial inclusion. Commenters are encouraged to address all of the following questions, and to provide any other comments relevant to work improving financial inclusion for underserved communities. Where possible, please provide specific examples.

A. Defining Financial Inclusion

1. How do you or your organization define financial inclusion?

(a) Some definitions of financial inclusion include considerations of access, safety, usefulness, appropriateness, and affordability of financial products and services, among others. What are the key elements of your definition and why do you include them?

(b) Some topics related to financial inclusion include financial health, financial well-being, financial capability, and financial resilience. Do any of these or other related topics relate to or influence your definition of financial inclusion, and if so, why?

(c) Given the multiple elements and terms associated with financial inclusion, is there an alternative term that you believe should be used instead of financial inclusion?

2. What do you consider to be in and out of scope for efforts to promote financial inclusion?

(a) Which financial products and services should consumers be able to access in order to be considered financially included? Please provide specific examples. Are there particular qualities that are important for these products and services to have?

(b) Which consumer financial activities are relevant when considering how to advance financial inclusion? For example, do you consider accessing tax benefits you may be eligible for, sending peer-to-peer payments, or transacting in cash relevant? Do you consider activities like saving for retirement, investing, purchasing a home, or starting or growing a business relevant to financial inclusion? Are there consumer financial activities that are not relevant?

(c) What is the relationship between financial inclusion and financial security? Between financial inclusion and building wealth?

B. Barriers to Financial Inclusion

1. Are there features of the existing financial system (for example, pricing strategies, fees, penalties, underwriting methods and standards, uses of consumer data, technological systems or constraints, institutional protocols related to fraud or risk management, or other features) that limit or create inequalities in the ability of consumers and communities to access, use, and benefit from financial products and services? Which features are the most limiting, and for whom? Please provide specific examples.

2. What is the role of other factors such as broadband access, mobile or digital proficiency, language access, individuals' broader economic circumstances, or availability of unbiased information about products and services in financial inclusion? Please provide specific examples, including which community or communities might face resulting impacts.

3. What barriers do underserved communities in particular experience in accessing, using, and benefiting from financial products and services?

(a) If relevant, what are the community-specific barriers faced by members of your community or the communities you serve or represent in relation to accessing or building credit, accessing or using savings and investment tools (including those that facilitate retirement security), managing financial risk, acquiring assets, or other financial activities? Please provide specific examples.

C. Measuring Financial Inclusion

1. What are key indicators that can be used to measure and track financial inclusion? If possible, please provide specific examples of existing data sources.

(a) What are appropriate quantitative and qualitative measures of financial inclusion? For example, this could include the share of households that own a credit card or transaction account, or consumers' beliefs about how well financial products and services fit their needs.

(b) What are appropriate individual and/or system-level measures of financial inclusion? For example, this could include the share of consumers' total payments made electronically, or consumers' average savings balances. More broadly, this could include metrics related to availability, affordability, utilization or benefit of financial products and services, such as the number of bank branches available in a certain area, average transaction costs, rates of utilization for a given product or service, or consumer outcomes related to product or service use.

(c) Are there any intermediate benchmarks or indicators that should be tracked to measure overall progress toward financial inclusion?

2. If relevant, how do you measure or track the state of financial inclusion (or exclusion) in your community or in the communities you serve or represent? Please provide specific examples.

D. Actions To Promote Financial Inclusion

1. Please describe examples of existing programs, initiatives, products, or services successful in promoting financial inclusion. Why were these effective and what are promising practices or other lessons learned?

2. What should be done to improve financial inclusion for underserved communities?

(a) How can initiatives to promote financial inclusion be tailored to address the unique needs and preferences of underserved communities, and how can the financial system build trust among consumers who have been excluded? Please provide specific examples.

(b) If relevant, what do you or your organization do to promote financial inclusion for underserved communities? Please provide specific examples.

(c) If relevant, what would you or your organization need (for example, information, resources, policies, regulatory actions, etc.) to be able to better meet the financial needs of underserved communities? Please provide specific examples.

3. What can be done to enable responsible, equitable innovation in financial products and services that enhances financial inclusion while ensuring robust consumer protections, including privacy and data security? For example, could novel data sources, data analytic techniques or algorithms be leveraged to promote access to financial products while ensuring privacy protections and safeguarding consumer data?

(a) What are examples of innovative financial products, services, and strategies that have enhanced individuals' ability to access, use, and benefit from these offerings?

(b) What can be done (in financial institution practice, policy, regulation, or otherwise) to ensure that efforts to promote financial inclusion, or products marketed as inclusionary do not result in or perpetuate discriminatory or predatory practices?

4. What should be prioritized (in policy, regulation, practice or otherwise) in the effort to promote financial inclusion?

(a) In your view, what are the most significant opportunities to advance financial inclusion both broadly and for underserved communities in particular? Please provide specific examples.

5. What roles should the public, private, and nonprofit sectors play in promoting financial inclusion?

6. In your view, what should a national strategy for financial inclusion contain or aim to accomplish?

E. Other Topics Related to Financial Inclusion

1. Are there additional aspects of or topics related to financial inclusion that Treasury should be aware of in developing a national strategy for financial inclusion?

Natalia V. Li,

Director, Office of Consumer Policy.

Footnotes

1.  U.S. Congress, Joint Explanatory Statement for Financial Services and General Government Appropriations Bill, 2023, 117th Congress, https://www.congress.gov/​117/​cprt/​HPRT50347/​CPRT-117HPRT50347.pdf.

2.   See The World Bank, Financial Inclusion, https://www.worldbank.org/​en/​topic/​financialinclusion/​overview, and United Nations Secretary-General's Special Advocate for Inclusive Finance for Development, Financial Inclusion, https://www.unsgsa.org/​financial-inclusion.

3.  Federal Deposit Insurance Corporation, 2021 FDIC National Survey of Unbanked and Underbanked Households (Jul. 2023), https://www.fdic.gov/​analysis/​household-survey/​2021report.pdf.

4.  Federal Reserve Board, Report on the Economic Well-Being of U.S. Households in 2022 (SHED) (May 2023), https://www.federalreserve.gov/​publications/​2023-economic-well-being-of-us-households-in-2022-banking-credit.htm.

5.   See Federal Deposit Insurance Corporation, op cit. 3.

6.  Alternative financial products and services include nonbank transaction or credit products or services, which are often associated with comparatively higher costs than those of traditional financial products and services. See Federal Deposit Insurance Corporation, op cit. 3.

7.  Federal Reserve Board, 2022 Survey of Consumer Finances (SCF) (Oct. 2023), https://www.federalreserve.gov/​econres/​scfindex.htm.

8.  For more details about the CFPB's definition and measurement of financial well-being, see CFPB, Making Ends Meet in 2022 (Dec. 2022), cfpb_making-ends-meet-in-2022_report_2022–12.pdf ( consumerfinance.gov), and https://www.consumerfinance.gov/​data-research/​research-reports/​financial-well-being-scale/​.

9.   See Federal Deposit Insurance Corporation, op cit. 3.

10.  U.S. Department of the Treasury, Freedman's Bank Demise, https://home.treasury.gov/​about/​history/​freedmans-bank-building/​freedmans-bank-demise, Amalie Zinn, Michael Neal, Vanessa G. Perry, Building Trust in the Financial System is Key to Closing the Racial Wealth Gap, Urban Institute (Jun. 2023), https://www.urban.org/​urban-wire/​building-trust-financial-system-key-closing-racial-wealth-gap, Rocio Sanchez-Moyano and Bina Patel Shrimali, The Racialized Roots of Financial Exclusion, Federal Reserve Bank of San Francisco (Aug. 2021), https://www.frbsf.org/​community-development/​publications/​community-development-investment-review/​2021/​august/​the-racialized-roots-of-financial-exclusion/​.

11.  E.O. 14036, 86 FR 36987 (Jul. 9, 2021).

12.  U.S. Department of the Treasury, Report to the White House Competition Council, Assessing the Impact of New Entrant Non-bank Firms on Competition in Consumer Finance Markets (Nov. 2022), https://home.treasury.gov/​system/​files/​136/​Assessing-the-Impact-of-New-Entrant-Nonbank-Firms.pdf.

13.  U.S. Government Accountability Office, Broadband: National Strategy Needed to Guide Federal Efforts to Reduce Digital Divide (May 2022), https://www.gao.gov/​products/​gao-22-104611.