Speeches and Congressional testimony

US Office of the Comptroller of the Currency: Quarterly Journal, Sep 2002

Clearly, financial literacy activities can play a big part in any financial institution's overall CRA strategy. And we know that some of our largest institutions already play such a role,

But banks should not get involved in the financial literacy crusade merely as a matter of public spirit or regulatory obligation. They should do it because it makes good business sense-because a financially literate public is the natural market for bank products and services.

It's now well known that there's a large pool of unbanked Americans-people who may use the banking system for a casual transaction or two, or maybe not at all. By definition, they don't have a savings or checking account, and they rely on nonbank financial providers when they need to cash a check or buy a money order. According to some estimates, this group may constitute up to ten percent of all American households.

Then there are the underbanked, as I call them-millions of people who may have a bank account, but who rely to a greater or lesser extent on high-cost, short-term credit provided by nonbank lenders, often in the form of payday loans.

There are significant differences between these two groups. But they also have a lot in common. Both generally pay more than they should have to for financial services in a fully competitive market. Both would benefit from more comprehensive banking relationships. And for both, financial literacy programs may hold the key to getting there.

Let me emphasize again that for banks, this should be a matter of enlightened self-interest. This a lucrative market that we're talking about. Overall, those who serve the unbanked and the underbanked do exceedingly well at it. In 2000, Americans cashed 180 million checks at 11,000 check-cashing outlets, generating fees of $1.5 billion. And the payday loan industry has been booming. Today up to 10,000 outlets nationwide make payday loans-and earn fees that may total as much as $2.2 billion.

While many will say that fees for these services are unreasonably high, bankers in this country can't afford to ignore the number of consumers using these services. They clearly demonstrate a market opportunity.

Is it realistic to think that bankers can gain a bigger share of this promising market? Clearly, it won't be easy. The nonbank providers that currently control the market possess a number of advantages-not the least of which is public acceptance.

Check cashers and payday lenders have attracted customers for a reason-or for a host of reasons. They keep longer hours than banks. They tend to be more conveniently located. They speak their customers I languages. They don't ask for a lot of intrusive paperwork. They frequently offer more of the retail products and services these customers need than banks do-including money orders, wire transfers, and bill payments, as well as short-term, low-denomination loans.

They're set up to work fast-a fact of paramount importance to many payday borrowers, who are usually impatient for their money and won't wait days or weeks for a loan to be approved. In short, they're more user-friendly. And nonbank providers can often claim-correctly-that their services cost no more-and sometimes less-than the same services provided by banks-that is, when those services are even available at banks.