August 31, 2010
Authored by: Bryan Cave Leighton Paisner
On August 10, 2010, the FDIC published a pilot program to evaluate the feasibility of insured depository institutions offering low-cost transactional and savings accounts. The FDIC will accept applications from banks wanting to participate in the pilot program through September 15, 2010.
Banks participating in the pilot program must offer electronic deposit accounts having the core features identified in the “Model Safe Accounts Template.” The pilot program is expected to last one year, during which participating banks would report to the FDIC on the viability of the accounts, focusing on the volume, use, success and profitability of the accounts.
In its announcement for the pilot program, the FDIC emphasizes the numbers of unbanked and underbanked consumers in the United States and the FDIC’s commitment to ensuring that all U.S. households have access to safe and affordable banking services. Unless banks participating in the pilot report significant and serious losses, there seems to be a real possibility that all banks will be coerced in one way or another to offer these accounts after the program. This post discusses the proposed features of the accounts and the possible difficulties.
Electronic, Checkless Accounts
Under the pilot program, the accounts would be “largely” electronic, purportedly for the purpose of limiting acquisition and maintenance costs. The transactional accounts also would be checkless, allowing withdrawals only through electronic means.
Because the accounts would be checkless, institutions will have somewhat more ability to prevent losses from overdrafts than they otherwise would have. On the other hand, all banks know that it is impossible to block every electronic transaction that results in an overdraft. Moreover, under at least the pilot program, banks would be expected not to impose any overdraft or insufficient funds fees. With consumers having absolutely no economic incentive to avoid overdrafts, it can be expected that banks will incur losses.
Very Low Fees
Monthly maintenance fees for the transactional accounts under the pilot program would be limited to $3, and the bank would not be able to charge any monthly fees for the savings accounts. The minimum monthly balance requirement for the account would be only $1, and it seems safe to assume that the target consumer market for these accounts is unlikely to maintain any significant average daily balances.