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Expanding Financial Access Through Mobile Banking

Testimony before the Consumer Financial Protection Bureau

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Joe Valenti

Joe Valenti, Director of Asset Building at the Center for American Progress, submitted testimony to the Consumer Financial Protection Bureau’s New Orleans field hearing on “Mobile Financial Services” on Thursday, June 12, 2014. Below is his statement.

Good morning. I’d like to thank Director Richard Cordray and the Consumer Financial Protection Bureau, or CFPB, for inviting me to speak here today about mobile banking. My name is Joe Valenti, and I am the Director of Asset Building at the Center for American Progress in Washington, D.C. My work focuses primarily on policies that expand access to the financial system for low- and moderate-income Americans, and I believe mobile banking can be a successful approach to reach the underserved, if done right.

Approximately 28 percent of American households either lack bank accounts—a group known as the unbanked—or are underbanked, meaning that they have accounts but are not fully integrated into the financial system. In other words, they rely on nonbank financial services, managing their money by going to check cashers and purchasing money orders or paying bills in person. Here in Louisiana, the number is much higher: 42 percent of households are either unbanked or underbanked, including more than 200,000 households in the state that don’t have bank accounts at all.

At the same time, cell phone availability has increased dramatically over the past decade to the point in which more Louisianans have cell phones—91 percent—than bank accounts. This makes Louisiana one of seven states, as well as the District of Columbia, in which cell phones are more prevalent than bank accounts, according to a report that we released last year. Based on new data about cell phone ownership, this has increased to nine states and the District, including several states in the Gulf region.

As traditional banking has become less accessible and convenient due to branch closings and other nationwide trends, mobile banking is an opportunity for consumers to better manage their money without needing to rely on bank branches. Perhaps the most significant recent development is remote deposit capture, the ability to deposit a check just by taking a photo of it using a smartphone camera. This step alone can effectively give millions of consumers who currently rely on check cashers a raise, saving anywhere from 2 percent to 5 percent or more in check-cashing fees. Smartphones continue to become more popular and are already the majority of cell phones in use in the United States. As a result, we will likely see more innovations that enable consumers to manage money on their phones in the coming years.

However, this doesn’t mean that consumers without smartphones are necessarily left out. Even on a traditional cell phone, text alerts can provide balance information and reminders to help consumers avoid overdraft fees when balances are low—an important tool when the median overdraft fee nationally is now $35. And one pilot in Philadelphia has taken text alerts one step further. Consumers who are receiving credit counseling have a new option to hold themselves accountable for paying down debt: If they miss a payment, their family or friends will receive text alerts too.

There is no shortage of creativity in the development of mobile banking tools, although mobile banking does pose three major challenges that must be addressed as well.

First, the disclosure tools that we currently offer on paper have not carried over to the mobile environment. Credit cards are a prime example. The Credit Card Act of 2009 mandates that statements include the amount a customer would need to pay monthly to be debt free in 3 years—a provision that may save consumers as much as $71 million each year. But at least one-third of all Americans don’t receive paper statements for credit cards because they rely on mobile or online tools and miss this information. Customer disclosures must be adapted for mobile tools without being overwhelming; QR codes and web links are not sufficient.

Second, data security fears and hurdles must be addressed. There is no clear chain of responsibility when mobile financial products fail, with multiple firms and regulators all in play. About 40 percent of all consumers report that they are unsure whether mobile banking is safe or not. Consumers should not be liable for unauthorized charges, and they should be able to safeguard their financial data if their phone is lost or stolen.

And third, mobile banking products must be banking products first, based on underlying regulated and insured devices such as checking accounts and prepaid cards. No “killer app” should circumvent regulations if the objective is to expand access and build trust. Instead, mobile financial tools should build off regulatory platforms that are already in place to protect consumers from abusive practices.

Thank you. I look forward to your questions.

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