Present:

Dr. J Otis Smith                                             Symposium Moderator
Cynthia Amador
The Honorable Spencer Bachus
Sheila C. Bair
James Ballentine
Michael S. Barr, Esq.
Chiquita D. Board
Kelvin Boston
John Bryant
Evelyn Edwards
The Rev. Dr. Floyd H. Flake
The Honorable Ruben Hinojosa
Judith A. Kennedy
Dr. Angela C. Lyons
Clara Martinez
The Honorable Michael G. Oxley
Dory Rand, Esq.
The Honorable David Scott
Ellen Seidman
Ernest Skinner
Joseph A. Smith, Jr.
Yman Vien

Also Present:
Donald E. Powell                                               Chairman, FDIC
Judy Chapa
Donna J. Gambrell
Arthur Murton
Michael J. Zamorski

Agenda Item

Welcome

DR. SMITH: Well, good morning, everyone. My name is J Otis Smith, and I'm here to welcome you to "Tapping the Unbanked Market: Helping People Enter the Financial Mainstream." Now you're here because you're already involved in that process, and you're already committed to it. So let us move quickly into what is going to be a power packed and hopefully information packed day for you, and a great opportunity for exchange.

Now to begin the process. I want to welcome to the stage, Mr. Michael Zamorski, who's the Director of the Division of Supervision and Consumer Protection for FDIC. Michael.

DR. ZAMORSKI: Thanks a lot, Dr. Smith. Good morning and welcome to the FDIC's Symposium on "Tapping the Unbanked Market: Helping People Enter the Financial Mainstream." Financial education for every American is a corporate commitment at the FDIC. We developed Money Smart as a basic curriculum to improve financial literacy, and the Community Affairs Team that developed the program was recently presented with a Service to America medal to honor their achievement.

We continue to develop alliances with financial institutions, bank trade associations, national non profit organizations, community and consumer based groups, and federal, state, and local agencies to achieve our five year goal of reaching 1 million consumers with the Money Smart Program.

Financial education is a major issue relating to the reasons why people are unbanked. Accordingly, this symposium will begin with a Congressional Panel, and we anticipate that they will discuss financial education and the unbanked. The primary focus of the symposium is to discuss success stories with products and programs to bank the unbanked, and explore those situations where new products and programs might be helpful.

There are a variety of estimates on the number of unbanked in the country, but 10 million unbanked households is pretty much agreed to by all parties. Banks on their own or with community groups, have already begun a variety of programs and products to reach the unbanked. Representatives from some of those banks and community groups, as well as academicians who have studied the unbanked, will discuss success stories and opportunities for new initiatives during the three panel discussions.

Each panel is focused on a specific reason why people are unbanked, and will include time for audience questions. And we have four main panels, as Dr. Smith alluded to; "Financial Literacy and Reaching the Unbanked: Perspectives from Congress"; "Laying out the Welcome Mat: How to Attract and Retain the Unbanked"; "Beyond Toasters: Account Incentives That Really Work and Why"; "Thinking Outside the Bank: How Groups in Your Community Can Help You Reach the Unbanked".

We hope and believe that we have created an exciting program, and I think that the forum, as has been mentioned, is very conducive to having interaction and dialogue, and that's our goal today to have a constructive dialogue on how we might reach out and expand opportunities to the unbanked.

So without further delay, or by way of introduction, the first speaker is Donald E. Powell, the Chairman of the FDIC. We're very pleased he could be here. At the staff level at the FDIC, we certainly appreciate his support in sponsoring forums such as this that reach out and have a public dialogue on various very important public policy issues.

Chairman Powell came to the FDIC as its 18th Chairman on August 29th, 2001. He has 30 years experience in the financial services industry, and a long history of community service. Let me please introduce Chairman Powell.

Keynote Speaker

CHAIRMAN POWELL: Thank you, Mike. What a wonderful crowd. Thank you for being here. You honor us with your attendance. I'm delighted to be here.

I first want to acknowledge the hard work of the folks here at the FDIC in creating this forum and getting us here today. I'm often reminded that these things do not happen without the work of many people. I know there were several folks working here last night and again early this morning. Thanks to each of you, for putting forth the effort and enabling us to make sure that this forum is successful.

Today's topic and issues are very important to America. They're important to the banking industry. And they're important to the FDIC.

A few weeks ago, I was in the great state of Texas, driving from Dallas to Houston. Those of you who know Texas know that there are a lot of small communities between Dallas and Houston. I was not dressed like I am today. I was wearing jeans - Levis, boots and shirt. My wife was with me, and we stopped for a break, either in Corsicana or Ennis, to get some gasoline and a soda. As we pulled into town, my wife looked at me and said, "Now you're not going to go to a bank, are you?" She asked this because my habit has always been, when I'm in areas like that, to visit a bank. I enjoy visiting banks. I like to go in the lobby and see how they're set-up, how much business they're doing, and other things. I've been doing this for years. I don't go just because I'm affiliated with the FDIC, though sometimes that's what I tell my wife. To be honest, I like being in a bank and I always learn something about the bank, the people running it, and the community when I go into a bank.

But that day was different because when I went in to pay for my gas at the convenience store, I happened to notice that over to the right was a check cashing facility. We were there about 5:30, maybe 6:00, in the evening. My wife saw me standing back and observing what was happening. There must have been 10 or 11 folks in line that day. She looked at me and said, "You're not going to do it, are you?" I said, "Oh yes, I am."

So I got in line and had an opportunity to visit with the folks in the line. I visited with a few of them. I said to the first gentleman, "You know, there is a bank about a block from here where you can cash your check." I didn't know this, but I was assuming - and going on faith - that the bank would cash his check, if not for free, then less than what this check-cashing facility was charging. He said, "I know that. I know that."

I said to the second fellow, "Sir, do you know what you're paying here today, what your real cost is?" He said, "Yeah, it's six dollars." I said, "Do you know what the annual percentage rate is?" He said, "No, I don't. And I don't care."

I said to the third gentleman, "Why don't you just go down to the bank?" He looked at me and said, "That's the bank that foreclosed on my uncle's automobile. He doesn't have an automobile today." I visited with him about some other issues, and several things he said stayed with me. As I got in the car, I thought about what we're doing at the FDIC as it relates to financial literacy. And I thought about how it's extremely important, critically important, that we educate all Americans and help get them into the financial mainstream.

Having said that, I discovered - at least that day - that the unbanked folks know more than we think they know about what they're being charged. And since it's not a cost issue, it's more what I refer to as "soft issues" that are perhaps keeping the unbanked from the mainstream. What I'm really talking about, is that these folks are not welcome. They're not welcome in the lobby of a lot of our institutions. You can say, "Wait a minute. That's not true." But I don't think those folks in Texas were lying to me. They didn't have any reason to lie to me.

The whole notion of trust is critically important, so bankers must find a way to make sure that all are welcome in the lobbies. And it may be important that banks get out into the community, go to the plant and other facilities. Visit them and offer educational programs like we're attempting to do through our Money Smart program. We're forming partnerships throughout America with all types of entities, all types of organizations. It's critically important that we go out to where these folks are, and make sure that they understand that banking is easy and bankers are real people - people just like them.

I promise you that if I had been wearing a suit and tie, like I am today, those folks waiting in line to cash their check would not have been as candid or forthright with me as they were. First of all, they would probably have clammed up, thinking that I was trying to find something out about them.

Now some folks have different backgrounds than you and I do, and they're attempting to get into the mainstream of society. I say to bankers - and I talk to the bankers a lot about this - that, clearly, bankers in their community are a lighthouse of everything that's good. Banks are about more than making a buck. I'm a former banker, and sure I wanted to make money - we had to make money to survive. But we stood for more in the community. Banks are the lighthouse of the community - and our roles convey responsibility. Making sure that the unbanked get into the mainstream in America is a worthy goal. If we help these folks become average Americans, middle class Americans - let me tell you what middle class Americans do. They pay taxes. They teach Sunday School classes. They attend PTA meetings. They assist the homeless. They make contributions to charity.

All products that bankers offer are not necessarily profitable at the beginning. Serving the unbanked may not be profitable at the very beginning. I assure you that bankers understand there are a lot of ways to make money when you get these folks into the mainstream - being part of America. It's critically important.

So I hope today the panels focus on economic literacy, making sure that all are educated. But I hope that we also focus a lot on what I refer to as the soft issues, because I think they are really what keep a lot of Americans out of the mainstream of America.

I'm delighted to be here today. I'm anxious to hear from our panelists. We have some distinguished panel members. We have some folks who are dear friends of the FDIC. Ellen Seidman, who was the Director of the Office of Thrift Supervision, is a tireless worker on some of these initiatives. I told her just this morning that while I see a lot in the press about what people do, I think the world is quick to recognize a counterfeit, a phony. Ellen is no phony. Once when she and I were meeting about something, she asked me about my weekend and I said, "Well, I watched football and went shopping with my wife." Then I asked Ellen what she had done over the weekend. She said, "I spent Saturday over at the library helping some folks prepare their income tax returns." She didn't know how much she was telling me about herself. Like I said, Ellen is not a phony. Ellen walks the talk.

We're also joined today by two distinguished members of the FDIC Advisory Committee. I saw Sheila Bair. Where are you, Sheila? Sheila was formerly with the government, now she's with academia. Among her many accomplishments, one of the most important things about Sheila is that she's a mom. She's a mom, who happens to be a professor. In addition to these incredibly demanding responsibilities, she also assists the FDIC by serving on our Advisory Committee on Banking Policy. And let me tell you something, she is not timid. I'm glad she's here.

And this afternoon, we're going to be joined by the Reverend Flake -- a distinguished American. I'm so proud that he is serving on the FDIC Advisory Committee, because he has lots of moxie. I love to sit and talk with him. I remember going to New York and just sitting with him and talking about his mission, his vision for what his church is doing in New York City.

And then we're honored to have among the panelists three distinguished Congressmen. One hails from the great state of Texas, Representative Hinojosa comes from the great state of Texas. We're delighted you're here with us today.

And we're also delighted that Chairman Bachus is here today with us. I got to know him a couple of years ago when we were working on deposit insurance reform. I found him to be not only a conscientious representative, but someone who extended the hand of friendship to me as a new person in Washington. He made me feel very comfortable. You know, going into a Congressman's office is sort of like going into a bank lobby. It could be very intimidating for a guy like me, new to Washington. He and his staff were very generous and made me feel extremely welcome. Thank you, Congressman, for being here.

Congressman Scott is also on the panel today, and if you haven't heard his story, if you haven't been able to visit with him about his life, it's a remarkable story. I found him to be a gentle spirit. He has a velvet hand. He's very, very bright and very, very sharp. He hails from Georgia, and he represents the people of Georgia, but he also went to Florida A&M. There you go. I got it in, Florida A&M.

So we're delighted that you three gentlemen could take away from your very busy schedules to be with us today. We look forward to hearing what you have on your minds.

Now, the first panel will be moderated by Judy Kennedy. And we're delighted you're here, Judy. She, too, is a tireless worker. She is President and CEO of the National Association of Affordable Housing Lenders, and undoubtedly has one of the toughest jobs this morning being the moderator of this distinguished panel.

Congressional Panel

MS. KENNEDY: I'm tickled to be here to facilitate a session with these three distinguished Members of Congress. What I like to say about the issue of mainstreaming the unbanked is that it's one of the few issues in Washington, I think, where everything seems counter intuitive.

In other words, every time I'm asked to do something, brief someone on the issue of mainstreaming the unbanked, what hits me between the eyes is that the issue defies the stereotypes. For example, it brings out the creativity in bankers, seriously. The National Association of Affordable Housing Lenders are America's leaders in bringing private capital to low and moderate income communities. About half of them are bankers. And, of course, ShoreBank has been in the forefront for decades of trying to mainstream the unbanked.

It's come more recently to some other institutions. But, for example, imagine Bank of America taking that wonderful Money Smart product and saying, you know, we could sweeten this up a little. It's a great product, but they hand it out with candy. And a spoonful of sugar from Bank of America makes people take the product easier.

I'm particularly impressed by the video that I've seen and you probably have too trying in a sort of a Sesame Street for Adults way, to make people feel at ease at the beginning of a financial literacy session, where nobody really wants to talk about their own money, and how badly they've managed it. I know I don't. And the video sort of gives everybody something to laugh about and talk about.

I'm particularly impressed at new partnerships. For example, Bank One, working with employers to send that check cashing truck away on Fridays, finding a new truck from a bank that's not that intimidating lobby. My favorite, Washington Mutual with materials that speak to Native Americans in their own lingo. And now you see financial literacy products in Farsi, Russian, Bosnian, so creativeness in bankers is something that I think this issue brings out.

I also think that this issue is curiously bipartisan. I could say that the gentlemen up here give partisanship a bad name, because they have approached this issue in such a consistent work together way. I don't want to ruin your reputation, Chairman Bachus, but Barney Frank says great things about your bills. And so, if you read the biographies of these gentlemen, these are lawyers and CEOs of businesses who are preoccupied with helping consumers. And you see it in the work of Chairman Bachus's subcommittee. You see it today when the subcommittee will be working with the housing subcommittee on solutions to predatory lending. So enjoy with me today the fact that this issue defies stereotypes, it crosses partisan bounds.

Senator Sarbanes had a hearing on this issue about a year ago. And the other senator who was there listening to Michael Barr and ShoreBank, and other people who knew this issue well, was Senator Crapo of Idaho, whose influx of Vietnamese immigrants has created a huge unbanked problem that that state never saw.

So I want to hear what these gentlemen have to offer, and then we'll be glad to take questions about what the future holds. With that, I guess, Chairman Bachus, would you like to lead off.

REP. BACHUS: I appreciate those kind words, Ms. Kennedy. I'm tempted to lapse into talking about football and go back to what Chairman Powell did, but although that debate is real tempting, I'm going to focus on today's subject.

First of all, let me say that having Congressman Hinojosa and Congressman Scott on this panel I think is very fitting. We have worked together, we've had hearings together. They are two of the members who have really both requested a hearing we had earlier on serving the under served, and many of you all in the room I know were at that hearing. And I think it was a very good hearing.

Congressman Hinojosa has legislation which you can discuss. Congressman Scott and Congresswoman Biggert have introduced legislation which will establish a Financial Literacy Commission. I think that's important legislation.

The three of us have all co sponsored legislation that Congressman Dreier introduced providing funding to develop a program at the Treasury Department, a national ad campaign on Financial Literacy.

When you look at the unbanked, and I appreciate what other speakers before me said, it's not a simple issue. Many of the unbanked, half of them at one time had a bank account. I think that's one thing we shouldn't forget. And for one reason or another, they choose not to maintain a bank account. They go to check cashers, they go to payday lenders, and more often than not, they go not once, but they continue to go. So this, at least, indicates they're making a choice. And I don't think we ought to look down on people and say well, they just don't know any better. In fact, I think Jerry Hawke, in his testimony in Baltimore and I think we need to lay all the cards out on the table he actually said that for many people it made economic sense to go to check cashers.

Now I can tell you that as a practicing attorney, and I have been Assistant Attorney General in the State of Alabama, I've been on the prosecution side and the defense side, some of the people that needed the most help were people that had a bank account, and had basically gotten in trouble criminally because they had written bad checks, and had gone to jail simply because they were not able to maintain a balance in that bank account. They got in trouble in that bank account, so at times opening a bank account can actually if you don't have financial literacy to go with it, if there's not some mechanisms in place it can lead to some serious problems. And it's an issue that I think all your bank regulators are concerned about. I think Freddie and Fannie are concerned about it.

That's two names you're maybe not supposed to mention in the last two or three months, but at least I can tell you that in our state, they have participated in a lot of programs which reached out to people that needed banking services. The consumer groups, I think have been the forefront of advocating that we need to include people.

Let me just close by saying something, and this is very fundamental. But I think that as Americans, we need to be committed to the dream of America. And if you look at our Constitution, you might think, if you just looked at it, that when the Constitution started, that everybody participated. But you'd be very wrong if you thought that. It was only a small segment. And then we had Amendments to the Constitution, which said that no matter what race, what gender, what national origin, they participated.

But the biggest change since I've been in Congress is the number of women in Congress. You know, I don't know if it was 1917 or 1920, that an amendment gave women the right to vote in the United States. That's less than 100 years ago. And our history, thank goodness, has been saying that everyone is included. Everyone has an opportunity, and everyone has a level playing field. And we've only realized that I think, with the inclusion of women's right to vote, have we actually had a constitutional basis for that.

And even when I got to Congress 10 years ago, the first three new women in Congress were all there because of one thing. I don't know if you all recall what that was their husbands died in office, and they were put in. And it took about 80 years, or 70 years, or 60 years for people at first, women had the right to vote, but they didn't serve. And it took 50 and 60 years before people began to say it doesn't matter what your sex is, that's not the basis. And we still have people that economically are not participating. They have the right to participate.

And I want to commend Chairman Powell. I think that he has recognized that there are different solutions for different people. And one thing we do in America, is we don't use our own opinions to tell people that they can't do something. If something is labeled, we found out during Prohibition that a lot of people felt like you shouldn't drink. Well, we found out that didn't work that you can't make the rules for everybody else. What we can do is we can have legal businesses. We can see that they're regulated, and see that there are controls in place.

I can tell you that in Alabama, there have always been payday lenders in Alabama. They didn't have a store front, and at times they were the sheriff of the county. At times, the probate judge operated the business. There were times when they were standing at the gate on payday, and I could tell you that their methods of collecting debts were a whole lot more severe than your check cashers or your payday lenders today. So I, for one, believe as long as a business is legitimate, as long as it's legal, and as long as people are choosing to use that business, that that's the American system. It's also the American system for us to address abuses.

We're going to have a hearing in a few minutes. It's going to start in about, I guess, an hour on predatory lending and sub prime lending. Now there's a difference. There are a lot of people that can't get a loan to buy a house or to finance a house at a prime rate. That's just a fact, so there is sub prime lending. A lot of people have financed things using sub prime lending. But at the same time, there are a lot of predatory practices. The practices shouldn't go on, we shouldn't tolerate them.

But a lot of people, when I talk to them, they equate all sub prime lending is bad. And that's simply not true. It's an opportunity for some people, but we have to regulate and make sure that the abuses and the predatory lending stop. And I appreciate the invitation here today. Thank you.

REP. HINOJOSA: Good morning. Chairman Powell and Director Zamorski, I want to thank you for inviting me here today to give you my views on how we can tap into the unbanked market, or as I call it "bank the unbanked."

Chairman Powell, I want you to know how much I enjoyed our personal meeting in my office earlier this year to discuss the FDIC's Money Smart financial literacy program. I applaud the FDIC for creating and disseminating in multiple languages such an effective adult financial literacy program. It has been widely disseminated throughout my district and appears to be having a very positive effect.

The Money Smart program is but one of several financial literacy programs available to the general public, and that is the problem. So many financial literacy programs have been created by both the public and private sector that Congress needs to form a Commission to review all of these programs and make formal recommendations as to which program to recommend for all life stages that the states and localities should adopt.

To address this situation, Congresswoman Judy Biggert (R-IL), my colleague here David Scott (D-AL) and I introduced the "CENTS" Act that will create a National Commission on Financial Education and Literacy. The Commission will recommend how to integrate finance education and financial literacy into primary, secondary and postsecondary curricula. It will identify and recommend best practices for the teaching of economics and personal finance. It will also recommend how to better coordinate Federal, State, local and private sector efforts to develop financial literacy.

All three of us are more than willing to consider altering the Commission's charter and to create subdivisions within the Commission to increase the scope of the bill to include economic and financial literacy education to teach individuals how to avoid credit card scams, predatory lenders, and how to move into the mainstream financial services system. We would also consider expanding the scope of the bill to include economic and financial literacy education for all life stages, including K-12, college, young adult, adult and senior citizen.

Once I started researching the various financial literacy programs that have been created and are offered across the United States, I became acutely aware of the amount of time, money and effort the private and public sectors have put into creating their individual financial literacy programs. I commend them for all their efforts. Consequently, I want to ensure that everyone is given the opportunity to provide their opinion and present their programs on this important topic.

The CENTS Act would give these groups the access and input they need into the financial literacy program the Commission will recommend to Congress. For these reasons, I hope that the financial literacy commission that is ultimately adopted by Congress acknowledges the time and effort that the public and private sector have put into creating financial literacy programs in both English and in Spanish, and, in some cases, multiple languages.

Too often access to traditional financial literacy programs is limited by scarce government resources. Consequently, taking advantage of partnerships using community groups and private industry can be a tremendous advantage. For example, in my district in South Texas, and nationwide, at tax time H&R Block provides their clients with free, actionable advice on savings, tax planning, and referrals to government benefit programs like children's health insurance.

In the non-profit sector, local community groups across the country provide targeted education for people about to buy their first home.

Our overall financial literacy strategy should combine coordinated government efforts, like those I am advocating on the Financial Services Committee, with the best of these targeted non-government programs to provide a continuum of education that starts in the schools, but continues into adult life as people's financial needs change.

I come from a family of Mexican immigrants. I am a first generation college graduate, first of seven brothers to graduate, and eighth of eleven children. My father and mother came to the United States when they were children at the turn of the 20th Century, right after the beginning of the Mexican Revolution in 1910.

They came as children. My mother was five, and my father was nine years old. And they settled on the border of Texas, and that's where they grew up one in McAllen, and the other one in Penitas. And my dad grew up learning how to farm, and how to become a young entrepreneur.

They met when my dad was 28, and they married, had eleven children. And they taught us good work ethics. They taught us how to be respectful, they taught us the importance of education, and that if we worked hard, that we could enjoy a better quality of life.

I came to Congress. I was elected in 1996, and I had been the President of a food processing company that processes Whopper Hamburgers for the Burger King Corporation. And it supplies other large companies like Walmart, and HEB, and others. And I came to Congress because I couldn't quite understand in that part of the region that I grew up, why we were so neglected, and why, as a Hispanic, oftentimes I felt that I was not accepted, even though I worked as hard as some of my counterparts, Anglo businessmen with whom I dealt with.

I came to Congress and found that the problem was not just in South Texas, it's all over the United States. So to look into this room of so many people of so many different colors, I'm pleased to be able to talk to you the way I'm talking to you, because banking is something that is very important to the Hispanic community.

I have an area that I represent that is one of the fastest growing regions in the country. It's the third fastest growing region, and it's 88 percent Hispanic. In the classrooms, Region I Education Service Center represents and serves 350,000 children, of which 97 percent are Hispanic. Twenty years ago, I think that number was like 75 percent.

So there's no doubt that the Hispanic community is a very fast growing, dynamic group of people. And why is it that so many are unbanked? Why is it that they don't trust the federal government?

All of this to say that the same thing was happening throughout the area that I represent. And so helping the unbanked is something that is very easy for me, because I know who many of the working persons are who do not bank. They carry a wad of money to go make their payments, and they pay in cash. And they carry a wad of money to be sure that they don't miss paying their rent. Or if they're lucky enough to own a home, that they don't miss the monthly payment.

Just two days ago, I was listening to some of the folks who help us in making microloans through SBA programs or SBA sponsored programs, and it's interesting that in my area, two thirds of the new businesses created in an area that for 35 years was a double digit unemployment rate. I'm not talking about 10 and 11 percent, I'm talking of 21 percent. And why was it so neglected? That's why I ran for Congress, that's why I came here to find out why the federal government had neglected an area like ours, where there's so much potential.

We are the door to Mexico, where my parents were born. We are the front door. We have more trade going with Mexico, that soon we will overpass Canada. We've already passed Japan. We have thousands of 18 wheelers crossing across Laredo, and McAllen, Far, Brownsville, so there is a lot of money exchanging hands. And why is it that we still have so many of my people unbanked?

Well, you could list probably 10 or 15 reasons, and it's people like Bank of America that in Fortune Magazine just a few months ago, I remember reading an article where they have the Hispanic Initiative, because they have gotten smart. And they know that if they could reach and tap into just 25 percent of the unbanked, they could probably be tapping $10 billion a month that is unbanked. And that just like Chairman Powell was saying, that they go and they exchange their check, or they send their remittances back to their families, and don't care that they have to pay the $6 to exchange the check. Or maybe in some cases pay $25 and $50 to send a Western Union remittance to their family, because they don't ask questions. And there is no intimidation, there is no possible way that they're going to be reported because they are here working to try to help the families back home.

These are the most courageous people. I'll bet you that half of you would not leave your home, and leave your support system to go to another country to work, and send back as much of that money as you could to your relatives. These folks that are coming across from different countries, be it Central America, or Mexico, or South America, are, indeed, probably the most hardworking and courageous people to be able to do that.

Look at the U.S. Census of 2000, and try to guess how many were not counted because they didn't want to fill out the application, and they simply did not trust the federal government.

Earlier this year, I introduced legislation to help Mexican nationals access the U.S. Banking System. H.R. 773, the "21st Century Access to Banking Act" would allow Mexican nationals with specialized identification, otherwise known as matricula consulars, issued by Mexican Consulates to gain access to U.S. financial institutions for the purposes of opening accounts.

Opening a bank account is often impossible for Mexican nationals who lack the generally required 2 forms of identification. As a consequence, Mexican nationals are often forced to use expensive check-cashing services to cash payroll checks and wire services to send money to relatives in Mexico. In addition, these same "unbanked" Mexican nationals have had to carry large sums of cash, which has increasingly made them targets of crime.

The matricula consular is a water-sealed photo identification card issued by the Government of Mexico to Mexican nationals who complete an application form in person at any of the 47 consulate offices of the Government of Mexico within the United States. These cards are over 130 years old and have been accepted in the United States for quite some time.

And so, by introducing my legislation and by promoting financial literacy, I want to help all working families, especially the low income working persons. I know how to reach them. I know how to earn their trust, and I know how to help them become bank customers. And so would you, if you just spend a little bit of time listening to those of us who represent women and minorities in areas that are like the regions that I represent.

Again, thank you for inviting me to appear here today.

REP SCOTT: Thank you very much. It is, indeed, a pleasure for me to be here in this very prestigious room, National Press Club. I wish my grandmother from back on the farm in Anyor, South Carolina could see me now. But it is, indeed, an honor to be here, and on this most worthy of issues.

You know the great Prophet Isaiah said once that, "A people without vision will surely perish." And I hope that with this symposium, that we in this room unite with a vision. And that is a vision of America that is a financially literate America. We need that. We don't have that now. And on the bleached bones of many, many great civilizations, are written those prophetic words, "Too late." We could be too late.

This country is changing rapidly. This country is changing very rapidly from being an overwhelmingly majority white country, to becoming gradually a very balanced white black Asian Hispanic country. I daresay that your two most rapidly growing groups are Hispanic and African Americans. So when I make that statement about on the bleached bones of many civilizations, there is those prophetic words of "Too Late", it could be.

We were very fortunate as a country to have a great many very bright people come together at a particular time between 1776 and 1783, and we called them our Founding Fathers. Two of those Founding Fathers, Thomas Jefferson and Alexander Hamilton, had some of the most monumental intellectual debates, and many people referred to them as intellectual shouting matches.

I think because of that energy, we are where we are today free democracy, and a free enterprise system. One of the great arguments that happened between Hamilton and Jefferson was, this urgency with Hamilton to have a centralized financial system for this country not 13 or 14 different individual states, different individual currencies, different other things.

And in exasperation one time, Hamilton said, "We will never survive as an illiterate backward country when it comes to the function and the commerce of our money." And we're still grasping that. And I think that I would like for that to sort of set the tone for what I have to say today, because I find myself in a very unique position.

As a member of Congress, as a member of the Financial Service Committee, who also has an MBA from the Wharton School of Finance, I have learned and I believe that there are three essential steps that Americans can take to gain access to the financial mainstream.

First, fundamental financial literacy. Without that, without knowing about money, handling money, how can we even move to the next step. Financial literacy is the first important step. It is important in order to increase basic saving rates, and improve access to good credit.

The second step is access to homeownership. That is the centerpiece, which is often itself based on good credit. And third, investing money to build wealth, and also for retirement security.

About half of a typical family's wealth is in home equity, yet many communities are clearly missing out on one of the basic assets of wealth building. And my distinguished colleague, Congressman Hinojosa, very well articulated the point in terms of the Hispanic community, and the African American community.

From 1998 to 2002, African American homeownership rates rose only from 45.6 percent to 47.3 percent, compared with the average for whites, which increased from 72.6 percent to 74.5 percent. And the Hispanics were lower than that. And as a matter of fact, in this last year alone, the homeownership rate of African Americans has actually decreased. So I believe that we must push even harder to help increase minority homeownership rates through programs that provide downpayment assistance, and affordable housing incentives.

And we must also bring home our buyer education directly to communities to help stop predatory lending practices. There's no greater need for us to understand the urgency of financial literacy, and financial education programs than this monster called "predatory lending". This is a targeted effort that's going after our very weakness of not providing financial literacy programs.

There are industries out there, there are groups of people out there who are taking advantage of our inability to understand this vision that I talked about a little earlier for financial literacy, and they're going right to it.

When I served in the Georgia legislature some years back as a State Senator, I served on the Banks and Banking Committee there. We had a very, very significant case of predatory lending from a group called "Fleet Finance." I hope there's nobody from Fleet Finance, and maybe there is but I assume they've been bought up with the merger. But some of you may remember that in Georgia. And Fleet Finance came down into Georgia. We had no financial literacy program, no financial education program. As a matter of fact, we were wide open, and they came in and took advantage of usury laws. And our usury law had a interest rate of 5 percent on the unpaid balance per month, which comes to 60 percent. And they started putting on second home mortgages for 60 percent per year, targeting people, people having second agents, going into African American communities where there were senior, older folks living on fixed incomes. They know them. They knew exactly where to go. And they would go by, and particularly picking rainy weather, and size out whose roof was leaking. Anyway, they would go in and they would cut a deal to fix their leaky roof. And before they knew it, they had their home.

You all know the story there. So I learned early, we put a massive amount of legislation out. We put out legislation that would outlaw balloon payments, high loans values, loan flipping, loan steering, a whole lot of things, but we began to understand two important things. We had to do a balance, because if you move too much, if you move too aggressive, you're going to dry up credit for folks that need that credit very severely.

And secondly, the people that you're trying to help, didn't know in the first place. They wouldn't know balloon payments or loan flipping from the man in the moon. So I began to grasp the need for how can we really go at this? What is the foremost thing? And my mind flipped back to that shouting match between Alexander Hamilton and Thomas Jefferson. We will never make it as long as our people are financially illiterate. So I began developing some ideas on how to approach this as one approach. You have loan flipping, balloon payments, all of these things that we have come to know and identify as predatory lending practice should be abolished. We should make sure. But if we follow the existing laws we have on the books right now, there would be no really predatory lending if everybody, you know.

It's sort of like murder is illegal, but folks are still killing people. Stealing from banks is illegal, but they still steal. So how do you really go at it as a beginning area? And I believe you go at it by using the old adage, that you prepare for the storm before the hurricane is raging. And an ounce of prevention is certainly worth a pound of cure. Education.

And so with that experience and that background, in coming up to Congress and working with folks like Chairman Bachus, and Chairman Oxley, and Chairman Ney and Ranking Member Frank and Kanjorski, and my good friend here, Congressman Hinojosa, I've come to realize that we can put forward a bill that can really make a difference here. And we've come up with a bill, and I'd like to share the parts of this bill with you.

We call this bill "The Prevention of Predatory Lending Through Education Act". It's H.R. 1865. And it would work to prevent predatory lending by building greater awareness of such practices through better coordination and delivery of consumer education counseling.

There are four basic components of this bill. And let me say at the outset, that I don't see this bill as a cure all. There's so much we need to do. This bill, I think, has four components of four specific things that we need to do, and we need to do right away.

One, provide grants to the states. They're the ones on the front lines, to the local levels, and to non profit agencies. They're the ones that are there on the grassroots, on the battlefields, dealing day to day with predatory lending, your AARPS, your community action groups, your NAACPs, all of these folks are out there, senior citizens groups, many of our local banks, and companies, and firms that deal with that. But these would be grants for programs that educate consumers, especially low income borrowers and senior citizens about lending laws, counseling programs for homeowners, and prospective homeowners regarding unscrupulous lending practices, and referral services for homeowners and prospective homeowners. That's the first thing getting some grants, getting some resources down to the grassroots folks so that they can work with developing these education programs, and setting up this counseling.

And then the second thing, which I think is the kernel of this bill create a nationwide toll free number to receive consumer complaints regarding predatory lending, to provide information about unscrupulous lending practices, refer victims to help, to consumer protection agencies or organizations, and create a database of information for consumers. This 1 800 number, I think, as I said, is the cornerstone of this bill, because it is the Help Line. And to get grants down, these grants would also help to market this number.

You have ministers that can say it from the pulpit, that these senior citizens and others who are targeted folks for predatory lending, can say hey, before you sign on the dotted line, just call this number. We put money in this program for billboards, for targeted radio advertisements. When in doubt, call this number. Before you sign on the dotted line, call this number. You're dealing with a targeted group without the literacy. They're not going to come to you and me. They're going to go to those undereducated people who don't understand the language, people that may not have had the education, the lower income, on fixed incomes. That's why they call it predatory lending. It is targeted to these folks. And if we get this 1 800 number and target it to the targeted communities, and put something in the hands of these grassroots communities, then we've got a Help Line out there. And that's why I feel so strongly about the toll free number.

The other two points that it would do, it would coordinate government agencies and non profit organizations that provide education and counseling to consumers who have been victims of predatory lending practices. And fourthly, it would establish a Predatory Lending Advisory Council under the Department of Housing and Urban Development, comprised of community based groups, homeowners, government officials and private industry. And the council will advise the HUD Secretary, and conduct studies on the root causes of default and foreclosure of home loans.

So we set up an ongoing infrastructure in targeted states where this is going on. There's some states that don't have this problem, as other states. We know the states that have this problem are states where you have a lot of minorities, where you have older people on fixed incomes, and I think we can give them this help.

Where are we now? I'm working with Chairman Bob Ney to pass the legislation. I understand I'm a freshman and I'm a Democrat on this Committee, and I know that this bill isn't going to pass because David Scott wants this bill to pass. I'm a freshman. I realize that. I understand that.

So I went to Chairman Ney, and I said, "Chairman Ney, you're working on housing bill." He said, "You're working on this". He said, "David, I like what you're doing." And I said, "Well, look, can we ride along together on this in a good old bipartisan way?" And Ney said, "Yes", and so this bill that I've just outlined for you has been incorporated as a part of Chairman Ney's bill. And in about an hour from now, or less than that, it will be discussed before the Financial Services Committee, and I know you all know a lot of the people on that Committee. We've got something here, I think, that we can at least grab our hands around and move forward on.

Also, I have come to recognize the importance of integrating economics and personal finance in the K 12 curriculum. And Congresswoman Biggert has a good bill. We are going to set up a Commission with her bill and I'm a co sponsor on it, and certainly Chairman Bachus is on, all of us are working to get literacy programs age specific to K 12 to start our children early. Thank you.

It can have an impact on millions of future investors. Remember the vision, remember what Alexander Hamilton said we will not survive if we're not financially literate. Our way of life, our whole free enterprise system, the whole nine yards, is based upon having a financially literate generation to come. By having a good understanding of finances, Americans can help prevent identity theft, protect themselves from being victims of predatory lending.

The House has passed legislation that will allow also any American to receive a free copy of their credit report. I think the free credit report, that's one of the great things we did in the Fair Credit Reporting Act that we passed. This tool will help consumers give their credit a checkup before they apply for the loan.

Understanding finances also helps consumers know how to start saving money for retirement and for education, and that's why I, of course, have joined with Congressman Drier, another of my Republican friends, to introduce H.R. 3294, the Financial Literacy Enhancement Act. This measure directs the Secretary of the Treasury to implement a national public service multimedia campaign to highlight the importance of financial literacy for all Americans.

We need to provide fundamental knowledge for tomorrow's investors that will allow them to make sound investment decisions in a variety of market and economic conditions. And the best way to prevent future economic scandals and predatory lending is to create a smarter group of investors and a more literate country.

On July 10th, I introduced a Financial Literacy Program, as I said, with Congresswoman Judy Biggert, which was successfully amended into H.R. 2179 in Subcommittee. And the Biggert Scott Amendment encourages the creation of a $5 million grant program to be directed through grants to non profit organizations involved with K 12 economics education, using the Security Exchange Commission's $80 million Global Research Analyst Settlement. H.R. 2179 passed out of the Subcommittee by a vote of 28 to 24 with the Biggert Scott language attached. The legislation must now be considered by the Full Financial Services Committee.

And then finally, any effort to reach the unbanked market must balance the need to expand access to credit with the need to protect consumers. And the FDIC has done exactly this in its recent guidance to examiners on payday lending. The agency was able to strike a difficult but appropriate balance in expanding access to small denomination short term credit, while protecting consumers from unscrupulous lending practice.

In summary and in conclusion, we in Congress must continue to help expand financial awareness in consumers from K 12 students, to adults who want to buy a house. And we must raise awareness about predatory lending practices, and explain the importance of credit scores and provide investor protection. And we must work with the financial industry to open the doors to financial security and independence.

In short, this is our vision, and we must reach out and grab this vision, and bring true those haunting words, and answer the warning of Alexander Hamilton. And that is, we must not fail in this vision to have a very literate, financially literate America. Thank you very much.

MS. KENNEDY: Well, you can see why these great minds think alike, and why there is much more bipartisanship on these issues than I think most people read about outside the beltway.

These leaders have a lot of information to share with us, and I'm afraid they've got to get to a hearing on Solutions to Predatory Lending, so just join me again in thanking this distinguished group, and support them.

DR. SMITH: As the Members of Congress leave, we once again thank them not only for what they said today, but we thank them for all they do behind the scenes to make it work.

You'll notice this panel dealt with the thought, the feeling, some of the comments of folks who are in Congress what they felt. The next panel is going to go to a different approach to this issue. The next panel is going to say how in the world do we develop, and what have we developed that are successful roots to resolving these issues not just what's been thought about, but what are we actually doing in banks and with community organizations? What are the issues that have been accomplished?

Let me bring to the podium a person who was the Assistant Secretary of the Treasury at Treasury, who has worked astutely and creatively for consumer protection, and also for making sure we have terrorism insurance for our security. She now is the Dean's Professor for Financial Regulatory Policy at the University of Massachusetts at Amherst. Let me bring to you Sheila Bair as the moderator.

Panel I
Laying Out the Welcome Mat: How to Attract (and Retain) the Unbanked

PROF BAIR: Let me begin by thanking the FDIC for asking me to moderate this very distinguished panel on the lead off topic here, which is "How to Attract and Retain the Unbanked". We really had a great turnout for this symposium this morning, and I think that underscores the widespread consensus that's emerging in this country on the need to expand access to mainstream depository institutions among those traditionally under served populations.

We, obviously, have broad political consensus, as well as widespread interest in the industry, among consumer groups, and the regulatory community. And I think that it's particularly important to note that a lot of this is being driven by industry's self interest, frankly. They now perceive that there is tremendous business potential in serving these communities who traditionally have not been served.

This is a welcome change from the 1990s, of course, when we saw a lot of withdrawals from low income communities, from immigrant communities, and ethnic communities by depository institutions, and the proliferation of alternative service providers who, though were providing a service, were providing it generally at a much higher cost.

And I would like to echo what was said earlier by Chairman Bachus and others, that I don't think our purpose here today is to bash alternative service providers, but rather to talk about the importance of promoting choice and competition, and to make sure that those who want to make that choice do have access to depository institutions.

A banking account really is the first step in economic integration. It's the way that you can find a place to begin saving money in a safe federally insured location, build a credit history, eventually qualify for a loan to buy a car, or to buy a home. It really is the key to being able to fully participate in the economic benefits that our society will offer.

And again, I think by encouraging depository institutions, through whatever means possible, to promote and expand their efforts in under served communities, we will be able to garner market forces to lower the cost of financial services that are still far too high in these communities.

In the context of competition, I do want to mention one particular product that was mentioned to me yesterday, and it relates to payday lending which, obviously, is on the minds of a lot of people these days. It's a Citibank product, and I'm sure there are other banks and credit unions who probably offer similar products. And I apologize for not also mentioning them, but I think it's a good product and it needs to be mentioned. I went on line this morning to look it up. It's called "Checking Plus". And as I understand it, it's a revolving line of credit you can get with a basic checking account at Citibank. You can establish a line of credit, I believe it was anywhere from $500 to $25,000. If you overdraw your account, they'll automatically cover the overdraft up to that line of credit, and there will be an automatic payment out of your next month's paycheck to repay the line of credit.

The annualized percentage rate on this product is 16 percent, plus a $5 annual fee. Now compare that to three, four hundred, 500 percent charges that you read about that payday lenders are charging, I think that's a fairly stark contrast. So I think this is a good example of the ways that depository institutions are encouraging and promoting their efforts to get into these communities, get in there and compete. Drive the cost down. You are able to offer better products at lower cost, and this is how market forces can serve a very useful purpose in serving the under served.

So with that, I would like to introduce our first panel. You're going to get the regulator's perspective first, a gentleman named Joe Smith, who's well known to all of you. He is the North Carolina Commissioner of Banks. He's been in that job since June, 2002 obviously, a very pivotal position in North Carolina. Before that, he was an old Washington hand, a partner at Thatcher, Proffitt, and Wood. He's written extensively on banking and financial services issues, including in areas such as how electronic banking can lower the cost of providing financial services to the poor. Joe, we'd like to start with you. Thank you.

COMMISIONER SMITH: Thank you very much. My timer is here so I know I've got to be quick. I'm under orders from the other J Smith, the guy with the whip, to really get going.

I'd like to thank the FDIC for sponsoring this seminar and for its leadership through Money Smart, and in other ways in economic empowerment generally. It's a privilege to be here. The reason I'm starting is because I know the least of this panel, and so I feel about the other members of the panel the way Mark Twain felt about Rudyard Kipling they know everything, and I know the rest. So what I will do is take a few minutes and talk with you about a program we're getting started in North Carolina to deal with the problems of the bank and the unbanked, and I hope that will facilitate some discussion and comment. And I actually hope to learn a lot, so don't be shy. I had a lot of friends from North Carolina here who I knew I'd hear from, except they've all gone to the hearing, I think. So please, feedback is welcome.

When I got the job, it's like getting a four year sentence. I had to have something. What was I going to do for four years, so my colleagues and I got together and decided to have some goals. That's kind of old school, but I'm old school. Two goals that we set out of four relate to the banking industry. One was, development of banking services for the poor and working poor who are either unbanked or marginally banked. The other goal, for those of you who are interested I mean, what was the other goal you may be inquiring. Well, it was to modernize our banking law and our enforcement of the state banking law. And I think these two goals go together because they are both forward looking and related to the future of banking in North Carolina.

Let me talk for a minute more about why we set this goal. Well, here are several reasons. One, I'm interested in it, I want to do it. But the other one is, I believe that banks, certainly under our state law and by the way, there is state law for those of you Washington people, we do have these things called states out there with sovereign enterprises, you know. Like North Carolina, some of them existed before the United States, and there was a guy named Thomas Jefferson. But never mind, we won't go there.

Under the state law in North Carolina, and I suspect a number of other states, banks are impressed by public interest. As I say to the students, and I talk to them often, banks are corporations, but they're different from other companies. Why? Because they are impressed with the public interest, to serve the public convenience and needs of the community. And I'll tell you, I've got four, five, ten groups, depends on the year, from various towns in North Carolina wanting to set up a bank, and they all claim it's for their grandchildren and for their community. So that leads to the question, well, what community are you talking about? And I think what we have found is in a number of other places, unfortunately, is that communities have tended sometimes, for good reasons and bad, to exclude a fair number of our citizens, which I will discuss later.

Banks also are corporations. We have these CAMELS, the infamous CAMELS rating, or famous, or wonderful, whatever you think about CAMELS. E is for earnings. We do expect them to make money. We do expect them to generate capital, and we want them to. And it's important, particularly in my state, which has been traditionally capital poor, that the proper use of capital is extremely important. So there is a tension, in my mind, between the public service goal well, a tension between that and the goal of profit. And that, I think, is where the rubber meets the road, in my mind, in terms of dealing with the issues of the unbanked.

So for the purpose of setting goals, at least for the first and perhaps only term of deity I may have, we decided that we would resolve it by a goal of service development, not a mandate. And I don't actually think the law allows me to mandate it but, of course, you all know that the Federal Community Reinvestment Act has a service component, but I was a Bank General Counsel in my long and checkered, or distinguished I guess I should say, career. And we all know, and it's properly so, that because of the way the law reads and for other reasons, that credit extension is the key to success under the CRA. And I do have a personal view that there's nothing wrong with that at all, but that we should emphasize these days saving a little more and borrowing a little less. And, by the way, I think the two go together. The development of a liquid net worth by those who are working their way up can be a basis upon which they can, in fact, borrow successfully.

I'm concerned, by the way, about our foreclosure rates that we have in North Carolina. I think the foreclosure rates are up around the country, and I think this is important in that regard.

{To achieve this goal, we had to answer several questions.] Who do I work with? How do we define the market we want to deal with? How do we mobilize resources, and then what do we do? What are the objectives and what are the challenges?

The working group is the usual suspects. I mean, again, I was pleased to see the way these panels worked out, because in my world, that's the way it works. You cannot deal with the problems of the low and moderate income communities without a bank or banks being involved. We cannot work without the non profit help. There is no way on God's earth, in my opinion, that a traditional financial institution can meet the needs of the unbanked without a partnership. And when you work, the public sector needs to be involved, as well. And I am pleased to say the FDIC, in particular, has been deeply involved in this activity.

Okay. So who is the market? Now the goal said "poor and working poor". I'm not a sociologist or whoever decides who that is. I mean, I'm not the Bureau of National Research. My view was that the easiest things to do in the first four years was to talk about the working poor. We'll talk about why it's a significant market, as I will show you in a moment. But also, frankly, it was the easiest sale to all the constituencies involved.

When you tell people we are going to help people who work to do better, that's a sale everywhere. That's a sale in the Kiwanis Clubs, it's a sale in the Rotary clubs. The coldest hearted banker I know thinks it's a good idea, so the issues of the poor, who I define, frankly, as people on public assistance, is an important issue. It's an important issue for the government, but it is a much more complicated issue. And we're going to go one step at a time at least where we are, so we thought the working poor would be first. And I define that, although again, this is probably not professionally competent in turn, but I'm not professionally competent as an economist. There are people who think I'm not professionally competent as a lawyer, but that's another story.

We define this as low wage workers who are eligible for the Earned Income Tax Credit. Which, again, as you will see in North Carolina, that's a significant number. We chose the market because it's significant in terms of its size and potential, its potential for financial literacy training. Again, the purpose of the exercise, and I will point out in a moment we borrowed shamelessly from the ShoreBank Projects in Chicago, was to link EITC participation with the opening of bank accounts. I understand that's not new news. We don't claim we invented it. We really didn't. We did invent barbecue. We did not invent this.

But we do think that there is potential here for financial literacy training because people who work, earn money. I mean, they have the capacity to actually have an account that can actually be successful. And then, as I said before, pardon me Ms. Seidman has to forgive me for saying South Shore. That just dates me. I'm not ignorant, I'm just old. It's now ShoreBank's Extra Credit Savings Program we looked at very carefully as we were thinking about what to do.

Well, how many working poor are there? And I don't know about you. I mean, you're all from big areas, big states, national in scope, international. I don't know. Where I come from, 600,000 people I mean, there are 600,000 filers claimed EITC in North Carolina in 2000. There are 8 million people in North Carolina. You do the math. I mean, that's a chunk of the population. If you double that, if you assume that most EITC is claimed by people who have children, that's over 10 percent. That's more like 14 percent of our population, so it struck me that was a fairly significant issue for public policy.

The average benefit was 1,600 bucks, 1,700 bucks, just about, which for a working poor family I think is a significant chunk of money. It's a real economic benefit. It brought $1 billion of cash money into our economy in North Carolina for people in need. And when you consider, using 10 percent as a sort of goalpost what that might be based on, that's just the credit. Right? So you figure that's $10 billion of earnings, 11 billion bucks kids, that's a big percentage of our state domestic product. I mean, it is about 5, 7, 8 percent of gross state product for that year. So again, it struck me this was a significant segment of who we are.

Regrettably, or happily, I don't know which to say. I think it's regrettable, North Carolina is the fifth largest state in terms of EITC, and we have a significant number of low wage workers.

The second point is that, frankly, everybody speculates on this, but between 15 and 25 percent of available EITC goes unclaimed around the country, so on that basis it's actually the Brookings Institution; I didn't make this up that has estimated between $90 and $177 million of additional benefit to low wage workers in North Carolina could be available, if we could get to them.

What we learned, we've done a little studying on this, and we're blessed with a number of academics who have studied the problem in North Carolina. We have found that a large number of people in our state, low wage workers or people of low income, actually have bank accounts. This is what has been mentioned earlier today. How satisfactory that relationship is, is an entirely different question. Sixty percent of a group surveyed by the UNC Center for Banking and Community Capitalism said that they had an account, only 8 percent had savings. No surprises there. The issue is how to raise the savings number. First of all, to find who is unbanked, bring them in. Secondly, to find who's under banked and help them out.

All this, by the way, I don't know about you, but the more I look at this, we can make estimates. It's fairly imprecise. I mean, there may be people who know exactly I mean, we're getting some pretty good info on it. But in my mind, at least, part of the four year project is trying to figure out who's out there, so I'll admit ignorance about that.

Mobilization of resources, I won't dwell on that much. I took the bank's money and gave 25 grand of it away. We're going to use that as seed money to set up VITA centers. Again, none of this we invented. We didn't invent EITC. We didn't invent VITA Centers. What we're trying to do is bring them all together, and make them work together, and see what we can do with the tools that are available. So it's the usual joint venture, you know. One side has money, the other side has experience they just trade hands same thing here. I had a little money, and we had some laptop computers, so I gave that over, and then the know how comes from the non profit side. No surprises there either, I think.

I think what I'm going to be able to show, the good news about this is, the net investment of that, if you count the computers as worth something, and they've been used by bank examiners so they have a few miles on them. Let's say it's $50,000 total. I'm going to get $200,000, $300,000, $500,000 benefit back into North Carolina. I mean, you can't get that in the stock market. You can't get that legally anywhere, that kind of return for an investment. Right? And so I'm hopeful that that's going to carry us through to years two, three, and four.

The program is to establish and implement VITA sites, and we're starting with five. We're going to focus on, we're going to try to extend it statewide over four years. And we're going to try, essentially, to hook it up to the opening of bank accounts. We're going to survey the clients. We're going to try to find out what they want. We still don't know the needs. I mean, I think some people have much better ideas than we do about what it is, so it's going to take us a year or two to figure out what's going to work in our market. And then we're going to have a sort of open source sharing of these things. We're going to shamelessly steal. Anybody who wants to give me anything, we will shamelessly steal from any of you, because we want to see what works, and we're going to share it around. Every indication I have is that the banks in North Carolina want to work with us. Why? Because I want them to. But more importantly, I think many do see a business opportunity here, and they honest to goodness don't know how to get there, really. So it's not a hard sale. This has been a surprise to me. I thought this would be the hardest of the four goals. I don't know if it's going to be the easiest, but it's the easiest to sell, actually.

The last issue, to me, is challenges. I think we need to speak truly to each other about the things that are holding us back. I mean, if these people are out there, why the heck aren't they banked now, or what keeps us from being able to be effective, or as effective as we would like.

One is, there are cultural barriers, which I don't need to tell this crowd about, I don't expect. You know more about it than I do. I'm waiting to hear more about them. That involves both immigrant populations and, regrettably, and I mean it regrettably I was a Bank General Counsel for eight years, and honest to goodness, we tried to be inclusive, and honest to goodness, we apparently failed. I mean, even I say even, with the African American community, which is a large contingent in our state, the evidence my friend, Mike Stegman, over at UNC has got is saddening to me about the absence, the lack of participation in the banking system by African Americans in this country. I have no explanation for it, and I don't think there's any excuse for it.

I do think the soft issues are a piece of it. I also think that there are hard issues, and let's talk about a couple of those. Documentation we need to talk about. Security issues, there are issues we can talk about maybe in discussion but, I mean, the issues about there are things that banks have that prevent people from opening bank accounts because they have a history, and we've got to deal with those.

And the final thing I will just say is managing expectations. It's a long march, not a short one. I don't think this is going to be easy. I think we need to have reasonable goals and keep working at them as the long march. But I appreciate the opportunity to be here, and thank you very much.

PROF. BAIR:Thank you, Joe. Our next panelist is Yman Vien, who is the Chairman and CEO, as well as Chairman of the Board of the American Metro Bank in Chicago. She was one of the "boat people", a refugee from Viet Nam. She arrived in Chicago in 1978 with very limited English speaking ability, perhaps giving her a special affinity and awareness of the customer base that she now serves as head of her bank. She's a true American success story, a true example of the American dream, a real leader in the area of reaching out to unbanked, traditionally under served populations.

She's going to be sharing with us this morning her own experiences in servicing a multi ethnic, culturally diverse customer base with a large immigrant population.

MS. VIEN: Thank you, Sheila. Good morning. I'm fighting with a cold, so you're going to have to kind of bear with my stuffy nose and voice.

I'd like to share with you my banking experience, but before that, let me share with you my family experience. As Sheila mentioned earlier, we came here in 1978, "boat people". And at that time, we were on the public system, on welfare for a few months. And then soon after that, my family, all my members got entry level jobs. My parents couldn't speak English at that time, so they got an entry level job as factory workers, and got laid off at different times.

But finally, my father bought a garment business through owner financing, because at that time we still didn't have enough savings to really open a business. So with the garment business, you're talking about cash flow, and that they didn't anticipate, so they ran into cash flow problems.

We did have a bank account at one of the community banks, so we decided why don't we invite the bank president to come to look at the factory, and we have all this machinery and hard workers maybe we can get a loan to fund the cash flow. So then the president came and said that you are very nice people, but you don't have enough collateral, you don't have enough history for us to make the loan. So that was really shocking to my family and we said why do we need to have established credit?

In Asia, you don't need to have a loan to make loans, to establish your credit. We pay everything by cash. And that was the problem when we were first really dealing with banks.

Today, American Metro Bank, where I work, is located in the heart of Uptown, north side of Chicago. That's known as one of the most ethnic, cultural, and language diverse neighborhoods. Uptown we're also known as a port of entry for refugees and immigrants coming to Chicago. In fact, my family came to Uptown in the beginning too.

The banks there are serving many immigrants who don't speak English, and the kind of customer that would not have the traditional I.D. and documentation to open bank accounts, and don't understand the banking systems. We also have a big population of senior citizens because they receive SSI payments, direct payments to their bank account. And a lot of them at the beginning are afraid to open bank accounts, because they said that if I have certain assets in the bank, my benefit will be cut, so they need a lot of encouragement and education to get them to come to the bank to open a bank account.

We also have immigrants that come in and they don't have credit, so how can they buy a car, or buy a house, so we have a special program there to help them. If you would open a small, maybe $500 or $1,000 savings account or CD, we can secure or hold this amount and give you a very low credit line so you can start your credit history.

The services that we provide in our bank are very time consuming and very labor intensive, as you see, and most of our staff are bilingual. They speak the language. We have Bosnian speaking, a few Asian dialects are spoken. Myself, I speak four Chinese dialects and Vietnamese, and I'm learning Spanish, so most of my staff can speak multi languages, I guess because of my pressure. Because even with Chinese, if you come from Hong Kong or from Taiwan, you cannot communicate. Even when we place ads, we have to place the ads in different languages also.

Most of our customers were referred by word of mouth. Sometimes I look at myself this way. I only work maybe two and a half hours a day. The reason I say that, the bank opens from 9 to 4:30 and I'm there at 8, so I work from 8 to 9. And then the bank closes at 4:30, so I work from 4:30 to 6. From 9 to 4:30, I spend a lot of time checking in with my customers and I go out to meet my customers. So sometimes one of my customers asks me why are you rushing to go back? I say I feel I'm not working because I'm not in my office, so I have to go back to my office. And then I work most Saturdays.

Most of the customers that walk into the lobby, I'm probably able to call them by their names so they feel very welcome and very important. My Chinatown branch just opened in April of last year, and this is a funny story that I opened on the first day of April. So a lot of people said why are you choosing that day? I said because that's a good day you will remember that the bank opened on the first of April, so everybody will remember my bank.

Soon after the Chinatown branch opened, we were authorized by the IRS to be one of the certifying accepting agents to process individual tax identification numbers. A lot of you know the ITIN for immigrants who do not have Social Security numbers is necessary to open an interest bearing account and to file income taxes. And thanks to Michael Frias[FDIC Chicago Community Affairs Officer]here, that told me about this piece, I jumped right away and applied for this process.

With this initiative, we are able to outreach to a lot of immigrants who don't have the traditional I.D. to open an account, and kind of tell them don't put your money under the mattress and be vulnerable to robbery and abuse. The staff are willing to take time. See, this is very labor intensive because the staff has to explain to them what is involved and how we can help them to get through this process. And we are serving in the Chinatown branch a lot of the new Chinese immigrants from southern China. We call them "Fokjo" Chinese. They don't speak English, and they don't have a lot of marketable skills. And they live together in maybe a compound or an apartment, like maybe 10, 15 of them. And you will see that they come in with the same address when they open a bank account.

But this population, this group of customers, they only open non interest bearing DDA accounts. As soon as they save enough money, they will wire that to their home in China. And for the history of my bank, the last three, four years we probably had maybe five to ten wires a week. Now we're talking about 15 to 20 wires a day that this group of people is wiring back. And they are happy with the service because my staff spent the time to translate when they give them a piece of paper all written in Chinese to go Leowlin, to go to Canton. And they translate word for word for them, so they are happy and feel safe because the money gets to their home on time, within a couple of days. And that's why we capture the market in Chinatown.

In Chinatown of Chicago, within maybe one mile, two miles we have eight banks. And in less than six months we're actually over our projections in terms of getting savings deposits.

This group of Chinese come and they feel comfortable to talk to my staff. They can't even write checks. They literally bring in the checkbook and ask how to write out the check. And every time they fill out a withdrawal slip you have to tell them how, and help them to fill out the deposit slip. That's the kind of time that you need. You have to be prepared to spend this kind of time with this group of immigrants.

We also have a branch in Harvey, Illinois. It's a very distressed area, and we actually have it [in] one of our customer's supermarkets. And that supermarket has two major populations; African Americans and Hispanic. We have to have very special products for this branch. We can't even have a minimum balance requirement. We have to waive that. We say okay, how about $10 to open an account. They say we don't have $10. We say okay, no problem. You open the account and the next paycheck that you receive, you come in and you deposit $10. And then we also give out the grocery incentive because we are right inside the grocery, so we work with the owner. We say can you give me half price for this, and then we will match it and give it to the customers. That's the kind of the incentive that we use to encourage people to open accounts.

We're a member of the Federal Home Loan Bank, and it depends on the loan request. We will probably look at the area, if that can be linked to something called the Community Investment Program, so we can afford to fund loans at a lower rate, at a fixed period of time. In the tradition, normally our policy would not do that, but we're able to provide that kind of loan program through Federal Home Loan Bank CIP Program.

My board of directors and myself, we are very involved with the Chamber of Commerce and Not For Profit Organizations. We're constantly going out to different events and placing ads in newsletters, and we go around and shake hands. I find that one of the most effective ways to outreach is if you know someone who is very influential in their community, and they literally introduce you to their members, they will be wow, this is a chairman, this is the president of the bank coming to talk to me.

One example I was sharing with Sheila last night was that one of the Hispanic customers came in and wanted to have a loan because of the salary, they referred him to me. But by the time he talked to me he said, you know, somebody already made me sign an exclusive agreement. I have to pay him 3% for a finder's fee. And on top of that, he doesn't even know what kind of rate he's going to get and how much money he can get. So I picked up the phone and I called the broker, and the broker got so mad, so upset at me, and he was screaming at me why am I interfering in his business, and he will not let go of this person.

So this person linked up two other properties and he was purchasing a half a million dollar property, but the broker got him a loan of $900,000 because he has two other properties available. So he charged him almost $30,000 just for the finder's fee. So he told me I don't even know that I can sit in your office and talk to you about my loan. I said, "Yes, you can." But by the time he found out, it was too late. He had to stick with this 3% with this person, and borrow $900,000. I said you don't need $900,000. You only need about five to six hundred if you need remodeling. But he can't, he already signed all kinds of papers with this broker for this finder's fee.

One other story also, a person that went to Mexico and whatever trouble he got into, he was there for six months, couldn't come back and make payments, so he was referred to us because his house is foreclosed. So we picked up the phone and we called the bank and said that we're willing to refinance, and you don't have to proceed with foreclosing on this customer.

I told the customer look, I don't have delinquencies. My delinquency in this bank is very low, and you cannot break my record. And I said, if you promise me to pay me on time and you put six months of payments in a savings account escrow, any time you are late or don't pay, I will withdraw from your savings. I will give you enough money to pay off the other bank and take care of your problem, and have six month savings put aside. If you agree to do so, and you agree to pay me on time, I give you a loan - and save your house. Is that a deal? And he said, "Yes." And he's been doing very well, so I'm trying to show you some of my stories here.

Another person had a really bad credit history because of a credit card that he's paying and tied up, and the same thing. We're willing to work with them, talk to them and understand their needs, and consolidate their debt and lower their rate.

You heard my background at the beginning. I often feel that people give you the opportunity to be successful. And if you're willing to help, and to listen, and to talk to people, they're willing to cooperate. And if they're successful, you are successful. Overall, I think outreach to the unbanked is not an easy task. You still have to be very patient to outreach, to talk to the community groups and to be involved, to be out there.

My bank is trying very hard because we only have three offices, so right now we're trying to expand to different parts of Chicago; Pilsen, Little Village, Humboldt or Logan. Even with the LPO to begin with, through outreach to put our name out there, to talk to try to outreach to this group of unbanked. It's not easy, but we are trying, and my board of directors are very supportive of my effort. Thank you.

PROF. BAIR: Thank you, Yman. Our final speaker is Chiquita Board, who is the County Extension Agent for the DeKalb County Cooperative Extension Service in Decatur, Georgia. Chiquita has been a real pioneer down on the front lines in providing financial literacy services to both youth and unbanked adults. She's worked on several projects over the year, and is currently the first accounts program manager. And I'm proud to say, her program was one of the recipients of the First Accounts Awards when I was at Treasury and oversaw that program. So, Chiquita, it's nice to meet you face to face, and I look forward to hearing more about your program and your financial literacy strategies. Thank you.

MS. BOARD: Well, good morning. I've got to make sure I can use the gadgets here, so I believe I'm going to be in a good position. I'd certainly like to thank Chairman Powell for paving the way and bringing us here today. Not only is today special to me for this symposium, it's actually my birthday, and I told Nelson. Nelson Hernandez knows that I'm waiting on my slice of cake today, so today I turn 21.

Certainly, when we look at and when I was asked to be a panelist for today's symposium, laying out the welcome mat, as Sheila has so eloquently stated, you know, we work on the front lines. The organization that I'm tied to is the University of Georgia Cooperative Extension Service, so coming here today is a delight to kind of walk through how it began, and actually where we plan to wind up somewhere down this road.

Initially, the University of Georgia established the Welfare to Work target audience as our first audience to take financial literacy to. We have actually been in the field for over 5 years really trying to touch and tap into low income markets. And this was a quick audience to serve, and to see if we could actually make changes and impact those who were solely on welfare at that particular time.

Certainly, from writing successful impact statements with the University of Georgia, we were able to assess where were the financial literacy shortfalls in our community. And from doing that, we moved to a partnership with the DeKalb One Stop Center. That was critical because in 2001, certainly the economy was doing terribly, and we certainly had an opportunity for more lay offs, and for DeKalb County in particular, we led the state's unemployment rate higher than the state rate. The state unemployment rate was like 4 percent. DeKalb County at that time was 5.4 percent, so what we did in that partnership with the DeKalb One Stop Center was actually identify the unemployed, the displaced workers, and the under served who were using that facility to find jobs.

In 2001, this is where I really became joined to the hip, so to speak, with the FDIC. We were actually selected from a very informal call to Jim [Pilkington - FDIC Atlanta Community Affairs Officer]. And Jim is sitting right here, so I'm very comfortable at speaking today since I see my cohort. But I called Jim in 2001 and asked about this Money Smart. You know, this Money Smart was hidden, it wasn't supposed to be told to the general public yet, so I called and wanted to know about it. And from that call to Jim, we actually became the demonstration site for DeKalb County to test Money Smart.

And what better way to test it, because at that time, Peter Burke, the director of One Stop, required that anybody using the services of the DeKalb One Stop Center, they could be automatically referred to the financial literacy education program. We served a variety of people, many who were used to making incomes from $70,000 to $80,000 and up, to those who were just receiving low income benefits from unemployment. Financial literacy was the crux of how DeKalb One Stop was placed on the map.

So from there, we actually looked at our impact, looking at our goals, reaching our goals. And there was an opportunity to apply for a First Accounts Grant. And what I looked at, the United States Treasury Department had the RFP for organizations, non profit particularly, as well as financial institutions, to pave the way to help the unbanked communities, we were certainly ecstatic because at that time, we only had eight people sitting at the table. Today I like to brag, we have 25 partners in my collaboration, so I am certainly honored by those who are working at the table. And I'll talk about Georgia Saves, IDA and homeownership a little later.

Certainly, just to give you a prospectus of where we're headed with our summary for First Accounts, our mission is to actually open for the State of Georgia 336 accounts. Treasury awarded 8.35 million to 15 awardees. Georgia received $271,000. On a national level, First Accounts will open, we hope to open 35,000 accounts, Georgia specific to only 336. Certainly, financial literacy is the key component to how successful, you know, we want to be in our summary or in our First Accounts project.

Here I have to recruit for employers, and that was really special to us, because as we sit here today, we certainly have a diverse group. But when you're in the field and meeting people where they are, the one component you can't forget is the employers. Because too often, we have folks that sit on jobs that are unproductive because they are dealing with financial literacy problems. They're dealing with financial problems, and bill collectors are calling. And they don't know what else to do, so it's one of these things we wanted to identify and recruit for employers, because the marketplace has changed in this 21st Century. It's ever evolving, it's ever changing.

There are so many sophisticated products now that those who are unbanked and choose to remain unbanked, they have a number of options. And with these options we certainly want to bring them back into the financial mainstream with insured financial depositories.

Scheduling supervised bank tours, I think as Yman mentioned so well, having that people friendly atmosphere for those who may be uncomfortable, whether they've had a bad experience in the past, or whether it's their first opportunity walking into that doorway. G, guys walking into the National Press Room today, I am. I'm even, you know, so it's one of these things that I even feel, you know, certainly the element of where I am today. But it's one of those things we have to take it back, because when I'm in the field, I definitely don't have to dress to impress, because I want that person to feel comfortable with communicating with me at any level. Certainly, we are looking at retaining a consultant to evaluate our progress.

First Account strategies, this is the piece that deals with how do we retain our customers. And in looking at that, one of the things which is so important you don't want to open the account today and then close it in 30 days. We want to look at the long term impact, or the long term effect of how to keep that person bankable.

The banks have decided and elected to, when they realized that there is let's say a "problem child", when that occurs, they actually follow up with that customer one on one. They make a phone call to determine early on if we can prevent this from happening in the future.

Certainly, with that particular one on one contact, they might also contact my agency to find out if we need to do another educational session, because sometimes you don't get it from that first shot. And it might take an opportunity where we are willing to also resit and revisit, to bring that person back into the scheme of the things.

Certainly, we also tap into not only adult and youth, the Latino market is certainly an influential market in the State of Georgia, so we also have to tap and touch those also, which we're having some challenges. So El Banco de Nuestra Communidad has stated that they want us to provide on site education workshops, because on Fridays, as you know, it's payday across the nation. And one of the one things that we know we can find, as Chairman Powell said today, they're either going to be in a line at a fringe service, or they're going to be in a line at a banking institution, so we really wanted to touch and be able to bring those who are in the Hispanic communities to the financial institutions, and El Banco has that target audience.

Certainly, we have a Youth IDA Program that is being funded by United Way. And the one thing with retaining youth, we also want to look at how can we begin to bridge and help the young people of our great nation. And in doing IDA Programs with the First Account, we have looked at holding a requirement for youths to satisfy 100 hours of community service. You know, it's a 2 to 1 match, but we just don't want to give you know, to lay out the welcome mat. We also want to have some requirements that keep them fully engaged throughout the process.

Again, this is pretty self explanatory, and it just tells you we have a three tier process. I must brag, most importantly, on my financial institutions who make it happen. Certainly, we have five financial institutions. We have one community chartered bank, and we have a credit union.

The one thing that I do like is, Decatur First, for example, is in the community. It's in DeKalb County and right in the heart of DeKalb County. When you look at banks like Wachovia, Wachovia is certainly a big bank, but we have specific locations that we can actually[refer people to], once the participants complete our workshop and they are given the FDIC Money Smart certificate, they could then take that certificate to one of the identified financial partners.

Now we don't want them going to just any branch. They actually have to go to specific branches, and they have points of contact at each of those branches. So when they walk in, they're familiar with that point of contact so that they don't feel uncomfortable, or it's less intimidating from that very first start.

Certainly, Washington Mutual, again, they have changed the element of banking because they're in a more casual environment. So again, we have three designated locations for Washington Mutual. Certainly, our regulators where would we be without them? And the one thing I must do, I can't say enough about the marriage with FDIC. I mean, we're going to be joined together forever.

Certainly, to give you a little ideal on best practices again, Georgia Saves was and is a new program that the State of Georgia has adopted. Effective October 27th, Governor Purdue signed a proclamation to make October 27th really a Georgia Saves day. This is a statewide launch to move, and to help those who are unfamiliar and don't have a habit of savings, to bring them also into the banking world, and to help them incorporate savings goals.

The one thing I like about the Georgia Saves Program is, we have financial partners who are providing volunteers that are going to serve as wealth coaches. So when a saver actually elects to save, let's say $100, and they said they need six months to do it, they're going to have a wealth coach or a financial advisor who is volunteering his or her time to walk that person through those incremental steps, so we're really excited. The goal for us for our first year is 3,000, and we're confident that we can do it, because we have nine major counties that are participating.

Georgia Perimeter College is certainly a wonderful opportunity, where we actually visit the campus, and we actually deliver Money Smart to not only college bound, but you have a college bound setting, and you have adults that register and pay to attend financial education workshops. Certainly, it's a modest fee, but it's one of those that we have found that if we want to separate and truly keep audience separated, at some point we might have to change the environment. And in changing the environment, it has proven to be very worthwhile, in addition to our students documenting on their surveys and requesting additional workshops. It's not enough. They want more, so this is really good, and it's really making us look very good across the board.

Certainly, on VITA and IDAs, Commissioner Smith, DeKalb County has always been home to VITA. But with First Accounts, and I didn't mention of that 330 goal, we have already opened 230 accounts in six months. I'm going to exceed that 330 goal, and it's not I, it's we. So we are very confident in what we're going to do by the end of December 31, 2004. But the key component to helping us reach that goal would certainly be through other initiatives, so with the VITA, and having bankers come to the locations where we're going to prepare taxes and have them open accounts right there on site, much as what I know Ellen might talk about with ShoreBank, some of the things we're going to replicate and duplicate to make our program very effective.

To give you an idea, I am one that loves showing photos, so just to give you an idea for Tom Stokes, who is not here with us today, but Jim is this is our First Accounts kickoff, and certainly we had two graduates who basically gave their testimonials at this event. This was an event, certainly, that was held on August the 16th, and Judy Chapa, who was with Treasury at the time, certainly came and enlightened us with our CEO, Vernon Jones, our Director and the President of the bank. So some of the times pictures can say what I can't say, but they are worth a thousand words when you can have them and incorporate them.

Again, I kind of talked about bank tools. That's important. That was on the previous bullet slide, which we really want to take and hold the customers by their hand. For whatever reason they choose, or they were not banked prior to knowing about our program, we will be very helpful and guide them along the process. So this is what we do, we get out into the field and we help them make that initial contact with representatives from the banks.

Certainly, we have program challenges. You know that's the one thing, the world would not be perfect if we didn't have challenges. Certainly they are here, and the one that I am going to kind of touch on is beyond 2004. You know, it was so enlightening to hear Congressman David Scott mention that there might be a bill that might also help and sustain programs as to what the grass root level organizations offer, so I'm very excited about wondering if that bill will pass. But beyond 2004, which pieces of what I mentioned will sustain themselves? And the two that would, would be the Youth IDA component because that's long term. The second program that would sustain itself will be VITA.

VITA will be an ever evolving program that will be available to those, you know, the low income working poor. But when you talk about education and the thrust of how many employees and educator professionals you need to deliver education, it's one of those things that unfortunately requires program dollars, so that's one of the things that we're going to look at.

I do want to close with a very quick quote, and I read: "Failure is, in a sense, the highway to success." And if we just ponder on that thought and think, if many of us had stopped when we failed at that first opportunity, where would we be? Let's lay out the welcome mat. Thank you.

Q&A for Panel I

DR. SMITH:You've had the opportunity to listen to the speakers. Now it's time for you to challenge them just a little bit. They know that there's some bright questions in the audience, and this is the opportunity for you to raise them. So we have several people who are putting up their cards, and I'll take a couple so you won't know exactly which one came from the first person. And then some of you should be getting ready to ask questions yourselves.

How can your bank address the CIP Program, Section 326, I.D. requirement FAC check or for the Chinese wire? How do you do that? What makes that possible? Give us a little bit about, if we don't have the proper I.D. I assume this is the question how do you make sure that happens?

MS. VIEN: First of all, the CIP Program is only from the bank that we use to fund loans, so I'd like to clarify the question a little bit, because the Chinese immigrants can open an account with the Visa or the passport that they brought. And we are able to open a non interest bearing account until the time that we start the application for them to apply for the ITIN. Otherwise, we won't be able to open any interest bearing account.

Once they open the account and we only wire money for bank customers, so once the account is open, regardless how it was opened the first time, we will be able to wire money for them.

DR. SMITH: All right. Stay up there for just a minute if you will, because there's another question. How do you reconcile the labor intensity with profitable goals? You've got all this labor intensity of being out there greeting your folks everyday. You're only spending two hours in your office returning e mails, where the rest of us are in our office all the time. How do you turn a profit on this stuff? The question doesn't say it, but I know what they mean. They're being polite because they're here in the Press Club, but don't tell us that we've got to wait 20 years to get that profit turn. So you can join in on this also, Joseph, who said in the future we'll have profit. How do you get some profit today so I can convince my board that we ought to be doing this labor intensive stuff?

MS. VIEN: I guess this is a question to me again. My Chinatown branch, believe it or not, we only have five people in that branch. I have a CFO who joined me at the beginning of this year, January. The first thing he told me is this Yman, I am shocked that everybody here wears two or three hats, that they have to work two or three times harder than the other bank. But yet, they seem like they're not doing anything.

I guess, the staff see that as dedication, that they are able to help the customers. You know, it's something they are willing to do, and that is the key that you do have to have staff who are willing to help. You know, you have to be very patient. When I look at my staff provide the kind of service when I went to Chinatown myself, and you really have to sit down and do this and this. But then you need the cooperation from the customers. You've got customers waiting because when they see this banker is willing to spend this kind of time with my friend, or with the other customer, and she will be able to spend that kind of time with me, and I'm willing to wait.

DR. SMITH: I'm still waiting to hear the profitability point again. Yes, Joseph. Profit.

COMMISSIONER SMITH: I've written two articles about this that only my mother has read, and she didn't like them. I think there are two aspects here. One is, that it can be viewed, particularly with regard to minorities and new immigrants the Harvard Joint Center for Housing has predicted not just predicted but based on their studies, that the net growth in household formation, virtually all of it in the United States for the next 10 years will be new immigrants and minorities, period. So I think the investment in this activity can be viewed in part as a market building activity, where you will be left without if you don't engage in it.

The second thing I would point out is, my hope in these matters is and this is probably a hobby horse, not more than a hope is that by use of alternative delivery, what I was trying to get to before I ran out of time the use of electronic. A way to get the profitability, there are two to me. You raise fees, you charge the fees which everybody gets all bent out of shape about, to the point where it's economically profitable. And I'm talking now mainly for larger institutions as they grow, or you use lower cost delivery, which could be electronic. And my understanding with regard to the First Accounts Program, at least Mike Stegman's book on it, says that there was a lot of I hate to say political, but that's really what I mean.

There were some problems with advocates for the poor who felt that the use of alternative delivery was making their clients second class citizens, or they were unable to use it for some reason or other. It was unacceptable. And so I think the larger institutions, getting to profitability, to be candid, means charging money, or using low cost delivery methods, or both. But I think that requires, again, all the constituents, all the stakeholders in this issue to agree that that's what can be done, because no bank on earth, not a large bank, is going to want to walk into something where they're deemed by the charging of fees or the use of alternative methods to be predatory, or in some way demeaning a population. They just can't do it.

DR. SMITH: We have another Joseph here who is ready to ask a question.

MR. COLEMAN: Thank you. My name is Joseph Coleman, and I'm

DR. SMITH: You notice I'm holding the mic.

MR. COLEMAN: My name is Joseph Coleman and I'm a check casher. I was curious, and by the way, I want to compliment Ms. Vien on the way that she works with the customers. I almost thought you were a check casher with the way that you spent time with people helping them and so on. We see ourselves as doing that, and we see our profitability by charging by the transaction. But I'll get to my question; which is, did any of you reach out to some alternative or other financial kinds of providers, such as check cashers, in order to reach out to the unbanked where they're already coming? Did you look at any partnership ideas?

MS. BOARD: When we applied for the First Accounts grant, we did not look at alternative service venues. We strictly stayed in the insured financial institutions realm.

COMMISSIONER SMITH: I do have one large bank that is owned by a Canadian bank, which I guess shall remain nameless. But in Canada, there apparently are partnerships of this kind that are somewhat effective. I know that there are banks in the United States that have done ventures, and I think that is met with interesting reaction.

Well, the business is not profitable enough unless you charge to justify getting flamed, so again, advocates for people who are low and moderate income need to be involved in this process, I think, to make it feasible to many large institutions. I don't know how successful it's been. Union Bank in California did one I'm aware of, and I don't know how successful that's been.

DR. SMITH: All right. We have two more questions ready to go.

MS. NEUSTETER: Hi. My name is Susan Neusteter. I'm employed at a Work Force Development Agency in New York City, and we serve exclusively ex offenders. And we have surveyed our population, and less than 10 percent have ever had bank accounts. They're only using check cashing institutions. And I'm curious if you can speak at all about how to serve this segment of the population. As a second, these are individuals that have been in prison for check cashing crimes.

COMMISSIONER SMITH: I'll be happy to send you, by the way, our study that shows that low income people are about 10 times more likely to have bank accounts in North Carolina than they are in New York City. I didn't want to mention that in my prior discussion. It would have been deemed to be stiff necked Tarheelism or something.

Well, I think you need people like these and I was serious about not knowing anything, because the way to reach this market is to reach it through people who do understand them, and can work with them, and will take the time to work with them. And, regrettably, that crowd is in short supply. You do really good. I want to import you both, but I think particularly in the urban environment, it's tough, I would think.

MS. BOARD: And specific to Georgia, and DeKalb County specifically, actually we work with Work Force Development. And certainly, we've actually added drug court to our particular list of partnerships. The only thing that the banks really shun is a person that actually, when you're applying for a new account with the financial partners that I have if it was due to fraud, unfortunately, there won't be an account. The financial institutions won't serve that. But to deliver education, we will target any particular group that makes a request to our agency for us to come and deliver. But certainly, we have to follow what our regulatory agencies put in paper.

DR. SMITH: I have two from the cards, and we have two people who have already been identified as wanting to ask questions from the audience. Let me give you the two from the cards, and you can divide them up. One says, would American Metro Bank be interested in assisting customers to build a credit history with rent payments as homeowners do with mortgage payments? And they've got their phone number here for later in case your answer is yes.

And then another one says, how do we deal with issues of minorities who have disabilities also? What do we do about reaching out to folks who have disabilities, who may not be able to get into the bank, or who previously, because of their minority status, may feel separate from the bank?

I think we've answered part of that already, but would you like to try either of those? Don't forget the one about the building, for any of you would you let the fact that I've paid my rent every month on time for three years be the asset I need for getting into, for example, reasonable homeownership. Would you let that work for me?

PROF. BAIR: The University did a report last spring on improving Latino immigrant access to the U.S. banking system, and we did a lot of field visits. And one in particular, since it's in North Carolina and we have Joe here, the Self Help Credit Union, they're an affiliated Latino community credit union I do believe that you can use rent payments, utility payments, if you can show a steady record of making those payments, that will help you qualify for a loan, and they'll help you build a credit history from there, so I know that that is done. And I think they've had good success with it, and I'm sure there are other banks and credit unions that do, as well.

COMMISSIONER SMITH: There's a study that shows the ones they originate have a lower default rate than all loans, including prime loans. So there's a developing history that supports that very idea.

DR.SMITH: Don't forget about the disability question.

COMMISSIONER SMITH: Am I talking too much? Probably. Okay. I think a way to deal with it is through technology of various kinds. The problem I have in some ways with sending people into a bricks and mortar banking system, is it's like sending them to a buggy whip factory. I'm sorry, but I really do think the future of a lot of financial services is through alternative delivery, online, phone, and other things. And I think a way that this could be addressed, I mean, clearly there has to be an initial contact. And there has to be the other groundwork that needs to be done. But it seems to me, the use of even telephone you know, remember them, telephones and if people don't have personal computers or other alternative delivery, can bring people into the system.

This is heresy, I guess, but my mother can't live without a trip to the bank everyday. And I've been at one bank branch in about the last five years. I mean, I was a Bank General Counsel. I just never go, but it seems to me that that would be a way practically to address that problem.

DR. SMITH: We have our final two questions from the audience, then we need to give you a little bit of stretch.

MR. ULYSSE: My name is Jean Riguel Ulysse. I'm the Executive Director for the Community Development Assistance Corporation in Braintree, Massachusetts, and a former banker myself. I think mine is more comment instead of a question.

Talking to the bankers here, though, I hope when you go back today, especially those of you with power to make final decisions, there is no question about that. We force those people to go to check cashing. And I applaud the FDIC to bring this subject for discussion now.

We have to find a way through education, financial literacy that's what we do at CDAC. We teach adults financial education with emphasis on retail banking. Mainly as an immigrant myself, Haitian American, I've seen the abuses where, for example, one savings account with some local bank in Massachusetts charged $1, but those people were forced to go to check cash because, for whatever reason so I think when you go back today, not only talk about it, because yes, there is more than 10 million unbanked or under banked people throughout the country.

And the question I have for Mr. Smith, when you talk about the unbanked, in your opinion, who are those people? Who are those unbanked people we're talking about here, we're trying to reach?

COMMISSIONER SMITH: As far as I know, and I'm still learning, they are people and again, there's been a book written on it that's quite good but as a rule, you can characterize them. They are younger than average, then tend to be minorities or immigrants, on average. They tend to be surprise lower income, on average. I don't mean that to be sarcastic. I mean really, they have less money. I think what we're finding, and I agree with the Comptroller, by the way, that people use alternative delivery sometimes as a choice because there are people who spend most of what they earn, spend it quickly because they have to.

By the way, this isn't exclusively a low or moderate income problem. If you look at the consumer balances of the rest of the United States, it's a widespread problem. And so they are subject to check bounce fees, a lot of other fees the banks charge everybody. And so they go to alternative delivery I think sometimes, because to be frank, it's an economic decision. I mean, I regret to say that, but that's the fact of the matter.

Okay. I'll finish. Those to me, the reasons, are fundamentally they are groups of lower income, often minority, often young people to the extent we know it, but we still don't know. I mean, I don't know anyway.

PROF. BAIR: I would just add on the question on check cashers, and it kind of gets back to the earlier question asked by the gentleman who did have a check cashing operation. I think banks are learning that not everybody wants a checking account. Sometimes a savings account with debit card access is the right way to go. Providing check cashing services or money orders or things like that services, frankly, that check cashers have provided products that may be better suited to people and banks have not always offered those services in a low cost way, so I think banks are learning.

I think check cashers in terms of their geographic location, their hours of operation, their accessibility. Sometimes they're friendlier exterior, they hire from the neighborhood so you go in and you know the person who works there. I think those are all things that banks are now learning, that check cashers have done.

I think there are also some successful examples of banks and credit unions partnering with check cashers. We have a couple of them that were again written up in the IDB report, which is referenced in your materials, and you can find on the IDB website. So I think it's not black and white, and there are advantages to check cashers involved, or things that they've done that, frankly, banks could learn if they want to be more competitive in these markets.

MS. WYATT: I'm Gretchen Wyatt with the Maryland Bankers Association, and I'd like to direct this first to Commissioner Smith, and also to Ms. Board. We just yesterday launched a Financial Literacy Coalition in Maryland. And one of the goals, of course, for us is to increase awareness of financial literacy in the state. But the Maryland Bankers Association was successful in blocking a predatory lending bill in Baltimore.

Part of what I'd like to find out from the Commissioner, is with this new program that you're doing, you're looking at new products and services. Have you brought in the state legislature to guard against any mandate of introduction of those new products and services across the board? We live in a very consumer friendly state, and if we were to do any research on that, either through the coalition or through the association, probably the next year, legislation would be introduced saying that all state banks, or even national charter banks would need to introduce that type of product.

COMMISSIONER SMITH: The short answer to your question is no. We're updating our banking laws, anyway, and we may deal with this somewhat in banking. I tend to think this is more an issue about practice, rather than legislative mandate. The history of legislative mandates, to me, is not a happy one, and it's not something I want to do.

I mean, we have a fairly progressive banking group that will do, if they could be shown at least revenue neutral, profit neutral, they're willing to do it. So no, I intend to discuss the issue with members of the legislature as they may wish, but they've got plenty to say grace over with our budget and some other things, so we don't need to be worrying about that very much.

Congratulations on instituting your program. And, Chiquita, maybe you want to talk about financial literacy.

DR. SMITH: Before you answer on financial literacy, let me just say, there have been six questions on cards that we're not going to have a chance to fully respond to, but I just want to include it.

The heart of all six of these questions it's very interesting they're all on the same topic; is, make some comment about Homeland Security, the tightening of our need for documentation. And yet, this panel seems to be saying reach out to people who may very well be undocumented. How do we span the gap between what Homeland Security is demanding, and what the panel is suggesting? So since there's six questions on that, I want to try to, at least, get some response. And I know I'm eating partly into your break, but we'll make sure you get a full seven, eight minutes. Don't worry about it.

PROF. BAIR: I have a comment. When I was at Treasury, I was very involved with the early stages of the drafting of the Section 326 regs, and was very pleased with the final outcome at Treasury. And I think the purpose of the Patriot Act was to make sure that financial institutions were doing due diligence in terms of knowing who their customers actually were. It was not to make them immigration agents. We've never viewed the banking sector as part and parcel, and it's really not their role to enforce immigration laws. We look to the employment sector for that aspect of immigration policy. And it would be a fairly profound change in immigration policy to now require banks to start taking on this role, particularly when the Patriot Act did not speak to that at all. It spoke to making sure that you've done what you can to know the true identity of your customer.

Recognizing that, and a thousand different forms of documentation that are out there, passports, what have you, that have been long accepted by financial institutions to establish customer identity, the Treasury decided that it really should be left to the financial institution to determine what is reliable or not. Recognizing that a lot of banks this person may be your friend, your neighbor, it's a risk based process that you have to go through. And I think that was the right balance. I think it's one that the financial institutions are comfortable working with.

It's not an endorsement one way or the other of any form of identification, including Social Security cards. Again, it's up to the financial institutions to decide, but I think it was the right decision on the part of Treasury. And I think it is very compatible with these other policy goals that we are pursuing actively.

DR. SMITH: Let me just say, I'd like you to thank the panel. Not only did they present, but they responded to your questions, and they're not going to the rest room. They'll be here for the eight minutes to answer any other questions you have. Give them a round of applause.

Panel II
Beyond Toasters: Account Incentives That Really Work and Why

We have quite an exciting panel for you, and I want you to really focus. And once again, same cards or just raise your hand, there'll be an opportunity to ask questions.

The person who will be the moderator for this panel has shown over the years that she is capable of doing many things and multi tasking at the same time. I knew her because she was Chairperson of the Board of the Neighborhood Reinvestment Corporation during its growth phase. And at the same time she was doing that, she was the Director of the Office of Thrift Supervision at Treasury and a Director of the FDIC. She's currently the Senior Managing Director of ShoreBank Advisory Services.

In case you haven't read, it's the first and the largest community development bank in the United States of America. Aren't we lucky, and I'm being serious, to have Ellen Seidman. Ellen, welcome.

MS. SEIDMAN: Thank you J Otis, and thank you all for being here. And I want to thank the FDIC for organizing this event, and particularly Chairman Powell for the encouragement he's given his staff to reach out to the banks and to help them bring in the unbanked.

It is actually an incredible change over the last five years. Five years ago, this would not have happened. My last year at OTS, we actually had a conference like this, but we had to hide it under a bushel basket. I mean, we had to call it something totally different. And it is amazing that not only is this conference happening, but the degree of honesty about things like cultural barriers and how bankers don't welcome people in their lobbies, is a huge, huge change. And recognizing the problem is obviously the beginning of solving it.

The title of this panel is "Beyond Toasters: Account Incentives that Really Work and Why." And we're going to go beyond toasters, but I do want to remind everybody that toaster equivalents actually can be pretty effective.

How many of you use Frequent Flyer Miles, you know? And then perhaps more relevantly, employer matches are estimated to increase 401(k) participation by a full 35 percent, and that increase is larger with lower income folks. Those who have studied the poor cite incentives, as well as assets, as being two of four critical institutional factors that result in greater savings.

Now we're going to take off on this panel from where the last panel left off; which is, okay you've got them in the bank. How are you going to keep them there? And I'll be up front about an underlying assumption on my part in this discussion; that the formerly banked will only be desirable long term customers to the banking system if the relationship is an asset building one.

Now my concept of asset building in this respect goes well beyond the traditional obvious reasons banks might like customers with assets, namely deposits. While plenty of community banks still value deposits as a stable, inexpensive source of funds, the combination of alternative funding sources and the usually low initial balances on the new accounts of most of the unbanked make this not the primary reason why most bankers are interested.

And unlike some alternative service providers, banks don't generally view fees, not to mention equity stripping which is, after all, by definition a liquidating relationship, as the reason for being interested in new customers. Rather, to get banks interested and keep them involved new customers must become profitable in the same way old ones are. By selling them a range of products and services including, in particular, loans for an increasing variety of purposes, businesses, autos, homes, and in increasingly greater amounts. And that means that those loans must be used to build equity of all sorts, whether by enabling someone to buy a house, get a better job because they've now got a car, or start a business.

I also believe that much of the current group of unbanked potential customers have another big potential for banks that treat them well, the ability to obtain many more new customers by word of mouth, without expensive advertising, and to retain them.

As part of the National Community Investment Fund's Retail Financial Services Initiative, a group of 12 community oriented banks and credit unions are developing, implementing, and evaluating for profitability, among other things, products and strategies by which to bring the unbanked and under banked into the financial services mainstream, and to get and keep them on an asset building path. So, for example, some of the group have partnerships with check cashers. Some are going to experiment with Stored Value cards as a starter alternative to checking accounts. Several are offering free tax preparation services with the Earned Income Tax Credit and deposit opening to attract first time savers. And some are creating emergency loan programs to enable customers to avoid using payday lenders.

But, and this is crucial, all see these products only as a beginning or temporary part of their relationship with their customers. The ultimate goal for both customer and financial institution is to build assets, to become owners of cars, houses, and businesses, and significantly enhance the quality of life for customer, and often community.

One of the Retail Financial Service's Initiatives first written products, a piece on risk management and account opening is in your conference book, and I hope you read it because it's an interesting commentary on the use of ChexSystems.

Now with this as background, we're going to talk about a wide range of incentives. And we will talk about toaster equivalents. Dory has promised that we're going to talk about toaster equivalents; things like money bonuses for opening an account. But we're also going to include a more subtle group of incentives that are meant to generate long term changes in the behavior of banks and potential and actual customers.

Michael Barr, currently Assistant Professor of Law at the University of Michigan Law School, but for five critical years, the architect of much of the Clinton Administration's Research and Policy Development with respect to the unbanked, will lead us off. He'll be followed by Evelyn Edwards, Assistant Vice President of Community Reinvestment for BancorpSouth Bank's Mississippi region. Evelyn will tell us about her very practical experience in bringing the unbanked into her bank and keeping them there.

And finally, we'll hear from Dory Rand, who is Supervising Attorney of the Community Investment Unit of the National Center on Poverty Law in Chicago, serves as the coordinator of the statewide Financial Links for Low Income People, FLLIP Coalition. FLLIP sponsors one of the most effective and most fully studied financial literacy programs in the country, in part because of the wide range of incentives it provides those it serves.

I strongly urge you to read the full biographies for each of these panelists in your conference folder, they're very impressive. But now please join me in welcoming Michael Barr, who's going to talk about some very virtual toasters, public policy shifts that can encourage the system to better serve those currently outside it. Michael.

PROF. BARR: Thank you, Ellen, and thank all of you for being here today. I just want to reiterate something Ellen said; which is, when we started at Treasury working on these issues six years ago, seven years ago now, it would have been hard to fill one of these little tables in the front with people interested in talking about it. So it's extraordinarily exciting to see all of you, and to be able to learn from all of you about not only what your thoughts are about the process, but what you're actually doing to make a difference. And so, for me, it's quite exciting to be here.

By now, many of these numbers I'm going to cite are familiar to you, and so I'm going to go quickly through some basic background on the unbanked. About 10 million households were unbanked in 1998. The number has gone down slightly by 2001, and a significant portion of those individuals are working poor and immigrant working poor.

Many individuals who have lacked access to the banking system have lacked it, in their view, because they don't have a lot of money. Most of the reasons cited in most surveys of the unbanked cite low income and associated high costs of accessing banking services.

This doesn't mean that low income people are not getting financial services. They obviously are from alternative financial services providers, as well as from lots of banks. The flip side of 22 percent of low income people being unbanked is that 78 percent of low income people are banked, and banks are serving them. We ought to, I think, be focusing on that part of the statistic, as well.

But in the alternative financial services sector, there's been an explosive growth in check cashing operations in the last decade. And many unbanked people use check cashers, although not all, to cash checks. The services that are provided by check cashers can be quite broad, including ways to receive income and pay bills, two of the three important functions in financial services transactions. You need to receive your income, you need to save it or store it somehow, and you need to pay bills.

The average fees are 2 to 3 percent of a check, but there's a wide range in kinds of fees charged, in part based on the regulatory environment and the level of competition. Most checks cashed by check cashers are payroll checks or government checks, and the reason I point that out is they are checks that are potentially available to the banking sector for direct deposit.

Loss rates are under .25 percent of the face value of the check, which is lower than the general inter bank loss rate. Joe Coleman will tell you that check cashers work very hard at keeping those loss rates quite low.

Another major sector in alternative financial service provision are payday lenders. Obviously, payday lending has been the topic of a great deal of controversy in the last five or six years. Explosive growth in payday lending has resulted in a serious level of volume and revenue, $2 billion in revenue in 2002. And there are two basic things people worry about one is the high annual percentage rate of the loan. The average found by the Consumer Federation of America was 474 percent, and part of that is because payday lenders are making short term, very small loans, and they have high fixed costs of lending part of that is due to other problems in the market that I'll talk a little bit about.

The second major problem is the debt trap problem, the problem of repeated rollovers in a year. And in many ways, this is the more significant of the two problems. A very large percentage of individuals, it varies somewhat state by state, but a lot of people rollover effectively so much that almost half or sometimes more of the year is spent paying these fees for payday loans.

People who use payday lending operations tend to have credit problems or lack credit histories. And one problem in the regulation in this area has been the interaction of federal preemption and the problem of renting charters. And all of the regulatory agencies have issued guidance on this, the OCC, the OTS, the Federal Reserve, and the FDIC.

With respect to OCC, OTS, and the Federal Reserve, the guidance they've issued and the enforcement actions they've taken I think have resulted in payday lending connections between payday lenders and those depository institutions all having been severed. With respect to the FDIC, that has not yet been the case. And my hunch is, and it's only a hunch, is that once the FDIC spends a little time with the institutions that they are now needing to supervise in some way, they're going to find the same level of problems that the other regulators do, so I would not be surprised to see the FDIC deciding itself to move in the direction that the other regulators I think properly have in the past.

The other kind of alternative service provision I want to mention is with respect to tax preparation services. Tax preparation services are really important in low income communities. They provide an essential service, but aspects of what they do have raised problems, and in particular, refund anticipation loans, I think are a potential source of abuse, or a drain on the community. And the Consumer Federation of America, again, has done some good studies here, as has Alan Berube of the Brookings Institution. And if you just look at the reduction in federal benefit effectively from tax preparation services, it's over 1.75 billion annually in reduction in the value of the Earned Income Tax Credit. This is a major federal program, a major source of federal government policy in encouraging work and in rewarding work. And so I think that's an area that is in serious need of reform.

So let me quickly say something about barriers to account ownership, which we've talked about. And then I want to talk about a few ideas for solutions. What are some of the basic problems? Checking accounts, in my mind, and I think the evidence is pretty good on this, are not well suited to low income people, and so we ought to be moving away from a focus on checking accounts, and I'll talk more about this, towards debit based access electronic accounts.

A number of people have mentioned problems with accounts in the past. I think that is a serious barrier. And again, we need to be looking at designing accounts that make it easier for people who have made mistakes in the past, not to make them in the future, but to still have access to the system.

And a third major barrier I want to talk about is on the distribution system front. This has gotten much better on the electronic side, but it still is not what it should be fewer ATMS per capita in low income neighborhoods, for example, than in middle income neighborhoods I think is a problem as we move to a more electronic system of finance.

Usually when I'm in an academic environment, I have to explain why we should care, but I'm going to skip that slide. So for those of you who do care really, I have to spend most of my time in an academic speech on that slide because people don't understand why we should care. So what could we do? I want to focus on three sets of ideas ideas for federal policy, ideas for state policy, and ideas that the private sector can do if the policy makers even don't help them.

So what are the kinds of things? Well, as you can imagine, I'm kind of partial to Treasury's efforts that Sheila was also very involved in on the electronic transfer account and First Accounts, and I think we ought to be expanding the kind of funding available through those programs for innovation in this area. I think it's going to take an up front commitment of dollars to help the financial sector move in the right direction. And so I'd be for a significant expansion of First Accounts. I have suggested doing that through a tax credit for financial institutions as a way of reaching scale more quickly.

A second thing that the federal government can do is to provide various kinds of incentives to encourage employers to move to direct deposit. I agree with Ms. Board and with Mr. Smith that employers are really, really important participants in bringing people into the banking mainstream, and not enough attention has been focused in the past on employers as I think one of the most critical avenues for banking the unbanked.

Tax reform, both in EITC and IRS efforts with respect to tax refunds. A simple thing that the IRS now has the technical capacity to do but has not, is to permit individuals to split their tax refunds into two separate bank accounts. And if the IRS were to permit that, I think that it would help facilitate breaking down some of the reason for some people taking out refund anticipation loans. That's kind of complicated, but I'll explain it in questions if you'd like.

I've talked a little bit on federal oversight of depositories. I think that is critical in this area, and more could be done. And Mike Stegman, many of you know, has pointed out some of the flaws in the CRA services test which has for too long focused on counting the number of bricks and mortars branches, and not enough on actually serving low income people.

State steps states can move their electronic benefits transfer programs for Welfare to Work from cards to bank accounts. I think that's enormously important. It's possible for states to do so. And many, many states' EBT contracts are up for renewal in the next couple of years, so it's a critical time to get them to switch to using this.

Now because I'm out of time, I'm going to skip ahead to private sector steps. Three or four basic categories. One I've mentioned employers, employers, employers, and also employers are really important. Direct deposit is a really important avenue to get people into the banking system. Employers can help their employees set up bank accounts, give them financial education. Work based financial education has been critical for moderate and middle income people in the retirement area, and it can be for lower income workers, as well. Payroll cards can be used as a transition into banking accounts, and payroll savings plans can help low income people save in ways that they've not had in the past.

Banks, thrifts, and credit unions the main suggestion is to experiment more with low cost electronic banking accounts, debit based accounts that can't be overdrawn; not checking accounts, debit based accounts. You can receive your money in direct deposit. You can make payments perhaps with automatic money orders or bill payment provided by the financial institution.

Accounts with savings buckets Banco Popular de Puerto Rico has experimented in this area and found wonderful success in providing savings buckets within transaction accounts. This is something that Sheila Bair has worked a lot on, Card based Remittance Accounts, I think are an important new avenue for bringing people into the banking system.

Others can do a lot too. I think, for example, tax preparation services, which have been part of the problem, in my mind, can help be part of the solution. They're right there with EITC recipients in their offices, and they could work with the major financial institutions. Pick three or four of them and offer EITC recipients a real bank account, and deposit it into the bank account. I think that could go a long way.

I also should mention that debit card networks and the ACH system, Automatic Clearinghouse System, are also important to banking the poor with electronic products. And we ought to be working with the Federal Reserve and with the EFT networks on reducing the cost of those networks for the poor.

Lastly, I think there's the opportunity for leapfrogging. In the same way that in the Third World, some countries who have lacked infrastructure for example, for land line for telephones have really galvanized their telephone networks with cell phones. So for low income people, why can't we focus on leapfrogging here? Why aren't low income people with cell phones, which are now ubiquitous, why aren't we focusing on using cell phones as a way of delivering financial services to the poor? What can we do with Internet kiosks and Internet access for the poor?

I think there are ways of driving forward with new technologies that would let us move low income people to the forefront in electronic banking services. And that is all I have time to say.

Let me just suggest that all of this is really still new. We're still very much learning, and I'm still very much learning from all of you. But I do think there are encouraging developments, and I do think that we're seeing that all of us working together can make a difference in bringing more Americans into the financial mainstream. And for me, that is very exciting news.

MS. SEIDMAN: Thank you, Michael, and I assume we will make Michael's slides all available. Right?

PROF. BARR: Yes. Sure.

MS. SEIDMAN: Okay. Evelyn Edwards.

MS. EDWARDS: Good morning. I would like to thank Chairman Donald Powell for the opportunity to be a part of this symposium. It is an honor and a privilege to stand before you today.

A CRA Officer has many challenges. In order for a CRA Officer to pursue and conquer those challenges, the support of his or her bank is vital. Therefore, I would like to thank BancorpSouth for its support of my efforts in the community.

In an article that Chairman Powell contributed to ABA's Fall Newsletter he stated that: "Financial education is essential if we are to create successful banking relationships with emerging markets." BancorpSouth realizes that the unbanked is an emerging market. It must embrace the unbanked population with incentives that truly go beyond toasters. It must be a financial institution that does not neglect our role in encouraging, influencing, and prompting people to better themselves in order to make financial prosperity a reality, instead of a dream.

Financial independence is a goal all Americans share; yet, many Americans do not know how to become wealth accumulators. They never learn the basics of personal finance, the tools necessary to build financial independence for themselves and their families one dollar at a time. They never learn the value of saving and investing, or about the magic of compound interest, and how a little planning early in life can make a huge difference in later years.

Today, I would like to take a moment to speak briefly on how BancorpSouth is empowering the unbanked with knowledge instead of toasters in order to bring them into the banking mainstream, and the initiatives we are utilizing in different markets; in markets such as our future, which are juniors and seniors in high school; our present, which are young families, primarily single parent homes; our lost, which are the homeless; and last but not least, our final life cycle, our senior citizens.

We're going to watch a movie for a minute. Okay? Let's put in "Beyond Toasters", a newly released movie. Now press fast forward. Everybody do this for me, press fast forward. Now stop. Now here we have BancorpSouth looking into the future by initiating the formation of Mississippi Jump Start Coalition. It is an all volunteer 501(C)(3) organization that designed a financial literacy workshop entitled "Money Matters."

The workshop targets high school juniors and seniors throughout Mississippi, which makes up a large segment of the unbanked population. The workshop is structured in a way that it offers information, yet fun and interactive financial wisdom. The workshop covers topics, such as savings, ways to avoid financial fraud, investing, student loans, dangers of credit cards, and other personal finance subjects.

Now while the students receive training, the teachers receive their own specialized coaching. The teachers are provided free personal finance curriculums and other resources so personal finance instruction can continue in the classroom.

I did not realize the effectiveness until last year at a workshop in Greenville, Mississippi. A 12th grader from Mount Bayou High School approached me to express her thanks for our seminar on Money Matters. She said with tears in her eyes that she wished her mother could have been there for the workshop.

To further encourage our future, BancorpSouth via its partnership with Mississippi Jump Start Coalition, sponsors an art and essay contest for Mississippi students in 9th through 12th grade. The theme for the contest is based on how Chuck Taylor got what he wanted, and how you can too. The top two entries in each category receives a $1,000 savings bond provided by BancorpSouth, and a $1,000 Mississippi prepaid affordable college tuition account, which is provided by the Mississippi State Treasurer's Office.

Okay. Now stop and rewind for an important message about our present. BancorpSouth has partnered with Earned Income Tax Coalitions across our six state assessment area. The Jackson Asset Building Coalition, spearheaded by the Mayor's office in Jackson, has developed six VITA sites where free tax preparation is offered.

BancorpSouth offers financial education workshops that focus on the basics of banking, assets allocation, and homeownership in the month of December prior to tax season. We will also be on site to open up accounts for those that wish to acquire one.

Statistics from one of last year's sites revealed that 196 filers were assisted, 83 percent have bank accounts, 35 percent expressed interest in opening a savings account, and 42 percent expressed interest in purchasing a home, 38 percent save from every check, 43 percent save sometimes, and 19 percent save rarely or never.

Our goal is to move them deeper into the banking mainstream, where they can begin investing and hopefully build more wealth by owning a home. Based on the analysis, those filers are just standing in the doorway and not enjoying the full incentives of where the doorway can lead.

After attending a Jackson Asset Building Coalition meeting in September to discuss the unbanked population, I was scheduled to teach Basics of Banking, which is a session in the Money Matters curriculum that same afternoon to a GED class. There were 39 students in attendance. Of the 39, there were only two with a banking relationship, and 35 of them were single parents.

Okay. We're still watching, now hit the pause button and take a moment to reflect on our lost, which are the homeless. Over the past three years, BancorpSouth has built a relationship with Voice of Calvary Ministries in Jackson. Within the past two months, BancorpSouth submitted an application to the Federal Home Loan Bank of Dallas' Affordable Housing Program on behalf of Voice of Calvary Ministries in order to fund the From Homeless to Homeowner project.

Now this project will work with the homeless population to prepare them for homeownership, as well as to provide post purchase follow up with the new homeowners to reduce the risk of default with this high risk population.

Now the pool of clients will come from a longstanding relationship with a local drug and rehabilitation program, which is called New Day Ministries. As a result of this program, persons with substance abuse problems will receive help with their addiction problems, as well as their financial problems. And we will offer them the opportunity for homeownership to enable them to become productive citizens of the community. The program will also provide a follow up program of regular monitoring of their financial obligations in conjunction with monitoring for their substance issues.

Okay. Now press fast forward. Now you're going to have to go a little faster for me because I'm only 31. Now we're still watching "Beyond Toasters." Now stop and focus on the final life cycle. Over the past three years, BancorpSouth in partnership with the Mississippi Secretary of State Office and the Better Business Bureau have been successful in reaching a vulnerable segment of the unbanked population, the elderly.

We designed an event called "Scam Jam". The event brings together state agencies, city and county government, local, law enforcement agency, postal service, non profit organizations, and financial institutions in order to provide a One Stop shop for enrichment.

The one day event focuses on the following; how to protect yourself against mortgage fraud which is my pet peeve, which is predatory lending. Investment fraud and rip offs, protect yourself from telemarketers, recognizing the latest scams in regards to mail fraud, Internet fraud, identity theft, medical fraud, and credit card fraud. Now some may say that we're instilling fear in our elderly, but I say we're empowering them with knowledge to make them alert and aware at all times.

Now as you have heard, BancorpSouth is about the business of providing services, investing in and lending to the entire community. We believe that our efforts to educate the unbanked will have a positive impact on the bank's growth and recognition in the community that expands far beyond toasters. Again, I extend my gratitude for the opportunity to be here today.

MS. SEIDMAN: Thanks very much, Evelyn. And now, Dory Rand.

MS. RAND: Good morning. I'd like to thank everyone at the FDIC for inviting me to participate in this event, especially Glenn Brewer, who I know from Chicago's FDIC branch, who worked very hard on this. And also, thanks to Ellen for the kind opening remarks. We're ready to go.

I just want to give you a little background on how I approach these issues. I used to be a Legal Services lawyer in the Uptown neighborhood that Yman Vien talked about in Chicago, representing welfare clients and low income workers. And it was from that experience that I got interested in financial services, because our former welfare clients were starting to get their benefits electronically, and the option opened up that they could have benefits transferred directly into bank accounts. But I noticed that only about 5 percent of our cash assistance recipients in Illinois were taking advantage of that, so working through a number of different groups, including the Chicago CRA Coalition, the Illinois Department of Human Services, a committee to work on electronic benefit transfer, we started working on helping our Welfare to Work population get into mainstream financial services.

One outgrowth of that is something called FLLIP, Financial Links for Low Income People, sort of an unfortunate choice of a name, but it was before I knew much about predatory lending. Anyway, FLLIP it is, and it's a wonderful diverse coalition in Illinois that includes non profits like National Center on Poverty Law, representatives from all the federal banking regulators, including our friend, Harry Pestine, who's here from the Federal Reserve, Michael Frias and Glenn from FDIC in Chicago, and other representatives. And together, we decided to do a pilot project with the Illinois Department of Human Services to do financial education for welfare recipients and low income workers, and also, to do an Individual Development Account program. And you have the list of the funders there.

And we were fortunate not only to have the Department of Human Services funding and the Foundation funding, but also contributions from over a dozen financial institutions. So we did the financial education program in partnership with community groups. We trained the instructors, and then they provide the training at the local level to people in the community. And this is the way that we try to overcome that distrust we keep hearing about, and try and bridge that gap between people who have never had a bank account or walked into a bank lobby before.

And then those local partners develop relationships with the financial institutions in their area. And many times, the bankers come to do some presentations or to offer a tour, or to provide some toaster like incentives to encourage people to take what they've learned from the class and open accounts, and start a real banking relationship.

Our target audience is both the working poor that Joe mentioned earlier, but not just the working poor. I think it's appropriate, as some of the other speakers have mentioned, to start even at the pre work stage, or the welfare recipient stage, because they're going to need to know how to make choices among job offers, and about job benefits, and what to do with their paycheck and so on, so I don't think we should wait until people are already working to do these programs.

So here's the toaster equivalents. And I want to let you know that this is not just a wish list that I made up. These are all real examples that banks are doing. Almost everybody knows about free checking, but the fee waivers is an interesting one. Charter One Bank is in Chicago, and they are offering to their new account holders waiver of the first three NSF fees, overdraft charges. And they use it as an opportunity to educate their customers and learn how not to do it again, and warn them that if they get passed three, these big fees will come down. But for the first three, they help get them through that initial process.

Bill payment options some of the banks, like First Bank of the Americas and other groups, will offer the same services that the check cashers offer, but at a lower price and in a bank setting to help make that transition.

Initial deposits some of the partners near our financial ed sites would put in the first $5 into a savings account if someone came with their certificate of completion of the program. Another bank, Harris Bank, does matching funds. The students at the YWCA in Waukegan pay $20 up front before they start the class, and at the end of the class if they've completed it, the bank will match another $20, so they'll have $40 in their savings account.

No credit checks very few banks do that. TCF bank is one of them that doesn't use ChexSystems. Sometimes the customers end up getting it on the fee end, but at least it's one way that if you can't open up an account based on ChexSystems, you can start fresh there and build up again.

We've heard a lot about convenience, having ATMs and financial institutions in under served areas. We think it's very important because we know that sometimes the reason people use the check cashers is simply because they're there on the corner in their neighborhood and the banks aren't. So more and more of the banks are seeing the importance of brick and mortar. We've heard about a lot of expansion now, and we want to work with our bank partners to make sure they're in those neighborhoods that don't have banks and ATMs. Obviously, we want them to hire from the local community, speak the language, know the population's needs and make them feel comfortable.

Several banks now are accepting the matricula consular cards in cooperation with the Mexican Consulate. I think we have 40 or 50 now in the Chicago or Illinois area alone, and that's thanks in large part to Michael Frias' work, and the Mexican Consulate there. And now that Treasury has come down with the final rule under the Patriot Act, there's no reason why any bank and credit union shouldn't accept these cards and help more people into the mainstream system.

We heard a lot about free tax counseling sites. ShoreBank and others pioneered that. Other banks have participated in this kind of outreach, and it's a perfect opportunity to get people to open accounts because they've got a chunk of money. The average return I think is about $1,400. And especially as Michael Barr suggested, if people could easily split that to put some of it into savings and maybe use another part for more immediate needs, we could get more people into banking that way, as well.

Get Checking is a program that you may have heard of. University of Wisconsin Extension developed this specifically to get around ChexSystems. And by having people take a short course and pass a test on how to balance a checkbook and maintain a checking account responsibly, with the agreement of the bank and eFunds that runs ChexSystems, they can erase that black mark on ChexSystems. I know the people at Wisconsin who do this. If you're interested in that, I could get you information on it.

Let's see. There's also a couple of things I didn't put on there free wire transfers. Charter One Bank does a free transfer. There might be a fee at the other end. Also, another thing Charter One does is a $100 deposit if you sign up for direct deposit of your paycheck, so that's a major toaster there.

There are some other incentives that have worked for our clients. Individual Development Accounts, as you probably know, are matched savings accounts where a low income working person agrees to save a little bit each month towards a particular asset goal, like buying a home, starting a business, going to college. And then from public or private resources or both, those savings are matched to help them reach their goal more quickly.

For people who are receiving cash assistance through the Temporary Assistance for Needy Families program, the welfare program, there are additional incentives, such as counting participation in financial education classes as a work activity. We do that in Illinois. Delaware has picked that up. There's no reason other state agencies couldn't do that. IDHS has also provided funding for us to reimburse participants for their child care and transportation in order to attend the classes.

Finally, being allowed to exempt the money in the IDAs from the income and asset test for Means tested programs is very important, and something that we need to do more work at the federal level and the state level, because we shouldn't be penalizing people who are doing good things like saving in a bank account, and having a long term vision.

I want to brag a little bit about our evaluation results. As Ellen mentioned, I think we have one of the best studied financial education programs in the country so far. Professor Steve Anderson at University of Illinois is working with us over a period of two years, and we're doing two different kinds of evaluation.

The first one is to use a pre test/post test approach so that the people taking the financial ed course answer a series of about 40 questions tied to the curriculum. And then they answer the same set of questions after completing the curriculum so we can measure how much they're learning. And I'm happy to say that overall, our participants are making significant knowledge gains, improving their scores by up to 20 percent, so it shows us that financial education really does work.

The other part is, we're doing follow up interviews by telephone six to twelve months after people complete the course. And it's the same curriculum in both the financial ed classes and the Individual Development Account Program. And we're seeing these results, that 74 percent increased savings, 25 percent opened new accounts, and other really positive behavior, like tracking their expenses, doing household budgets, changing the way they pay bills. And also, applying for and receiving government benefits. There are things like food stamps, and cash assistance, and medical coverage that can really help working families that often aren't taken advantage of, so I think it's a good thing to include in financial education programs, and something for banks to be aware of, that there are other sources of money and support for families that will free up their other money so that they can save more. Also, many started taking advantage of job benefits like a 401(k) plan, or other savings plans.

So on the policy level, I have a number of suggestions. One is to provide adequate funding in the government programs, like TANF, the Earned Income Tax Credit, Free Tax Counseling Programs, and also, continued funding for Individual Development Accounts. Many people have talked about the need to start early with financial education. I agree with that completely. I'd like to see it in K 12. Schools are huge bureaucracies to deal with, so I don't expect to see that overnight, but I think we need to keep working on that. And not to do it as sort of an unfunded mandate, the way the No Child Left Behind Act has put a lot of pressure on teachers and schools without giving enough resources to do what they're being asked to do.

I agree with Michael Barr about the importance of using direct deposit in a lot of different circumstances, for government benefits, for paychecks, for direct deposit of tax refunds. That can make it easier for people to get into the system. There's some pending bills that would along these lines. In H.R. 7, the Charitable Giving Bill, it currently doesn't include as passed the Savings for Working Families Act, which would provide a federal tax credit for financial institutions that contribute to IDA programs. The Senate version, CARE Act, included that, so now when it goes to the Conference Report, it would be nice to see that federal tax credit for IDAs included.

And finally, other people have mentioned the CRA Service Test. I agree with Michael Stegman and the other researchers who have encouraged our regulator friends to put more emphasis on the service test, because having that basic bank account is the first step towards asset building, and there's just not enough emphasis on that, and on having banks and ATMs in the under served areas.

Related to this, I think that we would like to see the examiners and the regulators give a negative mark to the banks that are cooperating with payday lenders. I think it's contrary to the goal of this symposium, and all of these good ideas for building assets and getting people into the financial mainstream. If we get them into a checking account and then they turn around and go to a payday lender and sink deeper into debt, we're really not accomplishing much. And Jean Ann Fox is here from the Consumer Federation of America, who I'm sure could fill you in on a lot more details about that, but I really hope that we'll continue in the direction of helping low income workers, welfare recipients, all the unbanked people move into real bank accounts and move up the economic ladder. Thank you.

Q&A for Panel II

DR. SMITH: I know you haven't suddenly gotten shy. Would you start.

MS. RICHTER: Thank you. I'm Lisa Richter, National Community Investment Fund. And Ellen talked briefly about the Retail Financial Services Initiative, which is trying to find market driven ways that insured depositories can serve the unbanked market. And I think that's really key because we're hearing a lot about the labor intensity today, but there's enough ingenuity in this room and in the depository sector to figure out how to make this work on a profitable basis for banks. And I just wanted to give one example briefly, that Alternatives Federal Credit Union in Ithaca, New York, in addition to doing a bang up initial Earned Income Tax Credit Program last year, provided their own refund anticipation loans, and had great success with them. And if any were interested in getting some information about that product, we could provide it.

And I also wanted to echo several of the commentors about employer based financial services. One of the other FDIC projects underway is under the leadership of Chairman Powell because he really got this moving, is to look at how we can best leverage the workplace to reach the unbanked population. And there are a series of forums that are going to be taking place in Chicago, that focus exclusively on that issue, and that will particularly look also at making the business case for why employers should take on various levels of involvement in helping their employees to be better served financially. And we would love to keep all of you abreast of that. I'm sure that you could probably share your card with Michael Frias over there, or Glenn Brewer, or even me, and we'll try to keep you in the loop.

MS. FOX: I'm Jean Ann Fox from Consumer Federation of America. And since you all have already made my points on payday lending and refund anticipation loans, I want to ask you about one other feature. We're concerned that a growing number of banks are starting to market something called "Courtesy Overdraft", or "Bounce Protection", where they encourage consumers who may have come into the banking system on free checking because they don't have a lot of money to put in deposit, to overdraw their bank account and then charge them the penalty rate, rather than giving them the contractual overdraft protection at a fair price, with a fair repayment term, and that's a real problem.

You mentioned NSF and overdraft fees as being part of the barrier. What do you think the solution is here on backing up overdraft fees?

MS. SEIDMAN: Let me just start, and I know there are going to be other people on the panel who want to talk about that. I think there are a bunch of solutions and a bunch of strategies.

The first thing I think is, it's really important for advocates working with banks who are doing this to get into the bank in a way to make the bank understand what they've just done, because in at least some portion of these institutions, the retail people, the people who are working with the customers, think they're providing an accommodation product. The people who are in charge of profit centers see a glorious profit center. And trying to make the bank at the highest levels understand that they are essentially doing this, that they are going in two totally different directions at once, is extremely important.

In terms of products that can be used to respond to the issue, the line of credit re looking at your line of credit rules, and trying to figure out whether you really need a 650 FICO score to get a line of credit. I mean, come on, guys. If the mortgage folks can do it, the retail folks can do it too, and re evaluating that step.

And then finally, I think when you get to the sort of the lowest level, the very riskiest folks, in addition to the kind of risk management things that are in the paper that RFSI has provided in the book, there is the possibility of collateralized checking accounts so that whether it's a community group or a foundation, or somebody puts the money in the bank and it sits there essentially to collateralize the first year of a high risk person's opening of a checking account. And then it becomes in everybody's interest not to draw on that collateral so it can be used for somebody else. So I think there are internal bank structural issues, which I think it's really important for advocates to work with the banks to help solve, but there are also some product solutions.

DR. SMITH: There are several questions here that relate to the exact same area, so why don't I just get them out on the table now. The combination of questions has to do with what are we really doing to reach the unbanked. Some people say that the problem is that most of our banking is statement driven. And since the unbanked and low income often move, shouldn't we return to something like a passbook kind of operation.

Another person says wait, don't just go to the passbook operation. Some of the unbanked have chosen payday lending. Why do you, the panelists, imply that payday lenders are predatory, when in fact we're being selected. Shouldn't we give them options as we give others? We just want to spice it up a tad. Go ahead, panel. Let's see what you have to say.

PROF. BARR: I'll just say, I guess, maybe a little bit about both questions. On the first one, the product side, just to continue the suggestions Ellen made, I do think that banks could be more creative and this is partly in answer to the second question, as well more creative about products that respond to the needs of low income people as I focused on to receive their income, to store it and to pay their bills, but also for short term credit.

So, for example, in the payday lending area, a bank product that might respond to the same need would be one that is based on a direct deposit into a bank account, have available a line of credit or an overdraft with repayment over a long period of time, say 12 months or 18 months, with automatic withdrawals from the bank account out of the direct deposit. So it's possible for banks, I think, to offer products that are useful in this area, that are reasonably low cost. And I would think that focusing on those would be partly an answer to that question.

DR. SMITH: Any quick comment on passbooks, or something that's more mobile. I think that's the issue.

PROF. BARR: Well, my own view is that we ought to be relying less on the older forms of delivery, less on bank branches, less on passbooks, less on paper intensive activities. So I think the more we move towards electronic modes of delivering financial services for low income people, the more low income people are going to have access to low cost financial services.

DR. SMITH: While we're getting the mic to the people on that side, just let me say, the other card I have that I didn't ask said okay, you're suggesting these electronic means. How do you protect people? How do we have a sense of security? They want you to solve or give some suggestions as to how to solve the technological security identity theft issues that come along with what you're suggesting. And it's not just directed at Michael. Why don't we let Ellen say something.

MS. SEIDMAN: One of the interesting things about identity theft, and there was a paper that I just read recently about this, is that in many ways the electronic is much less prone to it than the paper. I mean, just think of all those credit card slips that you used to get, that were rolled through the machine and then thrown out in the back of the restaurant. Or even these days, the ones that you do get, which I hate, that have my whole credit card number printed out on them, the electronic stuff where there's no person in the middle who could be tempted to do something can, in many ways, be more secure. And I think to some extent this is a generational learning problem.

DR. SMITH: Thank you. Yes.

AUDIENCE MEMBER: This question is for Michael Barr. On the issue of direct deposit of paychecks, it's a very simple question. What are the obstacles to employers providing that? I was under the impression that it's actually cheaper for them to do that. And I do find that this would be one of the really easy ways to get people banked. And I operate free tax clinics, and most clients who come in don't have that option.

PROF. BARR: I think you're right that it is, on balance, less expensive for employers to use. It, on balance, reduces their payroll cost rather significantly. It's not all in one direction, but on that it's a gain for them.

Large employers tend to offer direct deposit, and smaller employers and employers that hire seasonal or temporary workers tend not to. And so the barriers are greater in the area of expanding direct deposit for those types of employers. It's still very possible to do, and we ought to be spending attention trying to convince employers to do that. And I think it also might make sense to think about working with the major payroll companies who are going to eventually lose the paper based part of their business, to push these firms in that direction, as well.

DR. SMITH: We have a question here.

MR. SILVER: Good morning. Josh Silver, National Community Reinvestment Coalition. I did a little research in preparation of this event, and looked at 31 FDIC CRA exams of lenders doing business in Houston, Chicago, New York, and Puerto Rico. And even though there is a lot of Hispanics in these cities and states, not one of the banks offered remittance program for these Hispanics. And this also goes to the rigor of the CRA Service Test.

Michael Barr was talking about Professor Stegman's research, and we found of the 31 CRA exams, 22 of them, the percent of bank branches in low and moderate income census tracks were much less than the percent of low and moderate income census tracks in the assessment area. So in other words, under service, a disproportionately low amount of banks in low or moderate income census tracks. And I do think that contributes a lot to the problem of the unbanked.

And last but not least, Professor Stegman found that the FDIC, taking the controlling factors like bank asset size, the FDIC was 1.8 times more likely to award higher grades in the service test than the Office of the Comptroller of the Currency. And the question is, in order to increase the rigor of the CRA exam, do the panelists support on the CRA Service Test, data on simply how many low income people or people in low income neighborhoods have checking accounts, having savings accounts, and have other accounts like debit cards for the unbanked. That's not part of the service test now, and we need that data.

DR. SMITH: Question to the panel.

PROF. BARR: Well, I wrote an article saying that we should do that, so yes.

DR. SMITH: Do any of the other panelists want to disagree?

MS. RAND: No. As a proud member of NCRC, I agree with Josh.

DR. SMITH: People are holding up their cards now. We're ready.

MS. WACHSLER: Hi, Irene Wachsler. I have a quick comment and question. First of all, to the comment of using cell phones for banking, they can be captured. MIT captured 10,000 accounts, so don't put personal information like I told my mom as a CPA don't ask for clients' Social Security numbers because they will be captured.

My question is, I just wanted to know on people who are unbanked, the biggest issue for people I spoke to is they're living paycheck to paycheck. Okay. They have an employer who has like five or six employees, doesn't have the infrastructure to do direct deposit, cuts a check. The bank takes three days to clear. They're paid weekly, but the people need the money now, don't have much money saved, can't afford if a bank check gets overdraft, and that's why they use check cashers. Any comments? Anything out there, any programs out there that are combating this issue? Now I asked these people, if you could save three or four hundred dollars to cover your checks, would you use banks, and they said yes, help me.

MS. SEIDMAN: I think this is and I know there are going to be folks who are going to throw tomatoes at this point, but you don't have any, which is a good thing this is where some of the interesting partnerships between check cashers and depository institutions can come into play, because you're right. The need for immediate funds at a reduced price is critical. And if you have that partnership, you can syphon off a piece of the paycheck directly into a savings account.

The Stored Value cards that some of the RFSI institutions are beginning to think about, the idea of having a savings component on that is another way to deal with the immediate need for funds with a savings component, while simultaneously avoiding high check cashing fees.

All of this is in various stages of development, and there's a lot of experimentation going on all over the country. And I know that you started a real e mail flurry which, you know, got a lot of juices going here, so I just urge you to talk to all those people who answered your e mails. But there are a lot of experiments going on, and a lot of them are showing up in the current conference book, and I think more will show up in the second volume.

DR. SMITH: We have another question over on this side. Yes.

MR. MATTHEWS: Hi. I'm Ernest Matthews from Housing Initiative Partnership, Prince George's County. In light of the situation that took place with the embezzlement of retirement accounts I won't mention any lenders, any prior situations we're all aware of that. There's a great mistrust from the populous, I believe, that if they invest their money in retirement accounts, how do they know whether or not if they invest it, the money is going to be there when they're ready to retire? I think that's a question for the panel to address, primarily, because I agree with the fact that we're trying to get the unbanked into the bank to start a savings and checking account, and to do business, to do some asset building. However, to have someone come in and say would you like to start a retirement account with X number of dollars, and knowing what the media is showing, even going back to Fairbanks. There is a great mistrust. How would the panel address that question?

MS. RAND: I'll take a stab at it. I'm not a banker or a Certified Financial Planner, but in our curriculum, we do have a chapter on investments. And I think just one of the very basic principles is, don't put your money in something you don't understand. And two, when you invest, you need to diversify, so don't put all your eggs in one basket. And I think that's a pretty basic concept that people can learn through financial education.

MS. EDWARDS: Also, you have to look at the age that the person is at that time, because there are particular investments for that particular age group. And we utilize a great presentation with asset allocation with our juniors and high school students to show them at this age you know, we look at different stocks that they're most interested in, as Coca Cola. We use those type of examples. And when you go to the markets, Viagra, it wouldn't be for our age group, you know, that younger age group. It would be for the old ones because it'll make them some money fast. And so you have to look at the particular age, whatever the age is at that time.

DR. SMITH: All right. There are a couple of questions related. I'm going to give you two at the same time, and remind us that we've got about three or four more minutes before we need to end this panel, so you'll know we won't get to everybody.

One says how do you properly price tax refund loans to encourage a customer to stay at the financial institution? Isn't it possible that they're going to go to a rapid return provider anyway? What can we do? What's the pricing mechanism we, as lenders, should use to be fair and just? And one other comment that may relate to this, but not directly.

How do you see payroll and Stored Value Cards working with the unbanked? And I want you to know that there's two other questions which they won't have time to answer now, that have to do with we've got kind of a digital divide, and a lot of what's being suggested requires that people have computers or computer access, and the group about which we're speaking does not necessarily have those. So they'd like the panel, particularly those who are teaching, are you including some of this in your teaching, and how do you reach folks? We've got kind of three questions one that deals with the digital divide, another that deals with payroll and Stored Value cards, and then if I want to be a decent lender, how do I properly price the stuff?

MS. SEIDMAN: Well, let me just answer the last one first, and Lisa referred to this. Alternatives Federal Credit Union did a spectacular EITC Program this year. They did over 600 returns, but they made I think about 40 refund anticipation loans, and the pricing was fairly simple. They charged people $20, and then they charged I think it was something like 16 percent on the actual loan. And since the loan was outstanding for all of about a week and a half, you know, the actual interest paid was about $2. In fact, it was probably less than that. So they did it in order to keep those people in their system, to make them credit union members if they weren't previously, to encourage them to put at least some of the refund into the savings account. And as far as they were concerned, it was a very profitable operation in looking at the whole customer relationship.

PROF. BARR: Let me just say one other thing about refund anticipation loans. Part of this problem is not about lenders versus tax preparation services and so on. It's about a larger structural problem that the IRS is partly to blame for, in not permitting splitting refunds, and having a very poor track record that hasn't improved fast enough on speeding up refunds. And third, on focusing enormous resources on audits of EITC and pre certification procedures for the EITC, that higher income tax payers where there's widespread incidents of underpayment don't have to face. So part of this is a structural issue that's not going to get solved by individual lender decisions, but by changes in policy.

MS. RAND: I'll try to answer some of the other questions. As far as do we include this kind of information in curriculum yes, we do. We have a whole chapter on avoiding money traps, that includes payday loans, refund anticipation loans, title loans, rent to own, all of those things we strongly discourage our participants from getting into.

On the payroll Stored Value card, I just had this conversation with Ellen and Lisa recently, but the technology is available to use those kinds of cards and to link them to accounts and savings vehicles. My preference would be that if an employer is going to use a payroll card to deliver the paychecks to employees, that they make sure to include the savings option as part of it. It makes it a little more expensive, but I think that if we just move to these debit cards that are not attached to savings, we're kind of creating a second class citizen there. And we're also not including the consumer protections a lot of times with the debit cards that you would have with regular bank accounts or credit cards. So I know the Retail Financial Services Initiative is exploring this, but also with a goal of building assets and moving people up the ladder.

MR. COLEMAN: It's that check casher fellow again, Joe Coleman. Actually, my tablemate here raised a very good question. You said it was employers, employers, employers. I think the real issue in low income financial services is liquidity, liquidity, liquidity. I think that's the real problem.

I can't help but say that I think in New York we have a partnership with my check casher and Bethex Federal Credit Union. The customer can come in, open a credit union account in my check cashing store. And I've got my friend, Brian, here as a partnership with the credit union also. They can cash their check. They pay my fee for cashing the check, but they could then deposit all or part of that check into an account and get immediate credit for that deposit as cash, or they can deposit the check for free. But the point is that now a person can come in and cash the check, get the liquidity that they need. They can also leave a little bit of that check on deposit in a savings account.

I really feel that the solution isn't to kind of demonize the alternative providers, and it's not really an either/or. I think the creative thing that would be helpful is to try to find a marriage between these two different kinds of institutions, the financial services, the transaction based, fee based services and the insured deposit. I think some kind of marriage may be a good solution to all these problems.

DR. SMITH: We have a marriage proposal. Do we have anyone accepting? I think you're going to have to do a little suiting, a little more wooing during the lunch break here.

Once again, we've had a panel that's been absolutely tremendous. They presented you with information. Much of it is already duplicated for you, what isn't will be. And they've responded to a wide range of questions. I think we owe them a real round of applause.

Lunch And Guest Speakers

CHAIRMAN POWELL:Good afternoon. I trust that you're enjoying your meal. Please continue. We have some time constraints here, so I'd like to get started. We had a great discussion this morning. And, this afternoon, we're also in for a treat. I'm looking forward to it.

I mentioned Reverend Floyd Flake this morning. He was not in the audience then, but he's here with us this afternoon. And he's going to serve on the panel in a moment. Dr. Flake, we're delighted you're here today. I told the group that you serve on the FDIC Advisory Committee. A lot of people don't know that, but I tell them jokingly that's really your claim to fame.

One little story about Reverend Flake that speaks to the man. When I went to New York to talk to Reverend Flake, I had not met him, but I'd heard about him. I had done some homework before asking him to serve on the FDIC Advisory Committee. He was telling us a little bit about his church, his vision and his ministry. I will never forget what he told me.

He said when he first started his ministry, the foundation was his faith and belief in Jesus Christ, and the focus was on economic issues and social issues. He said that he discovered he was going the wrong way, so he changed the mission and vision. His foundation remained the same, but the focus shifted to education. Education is why we're here today - economic literacy. I've watched him, I've heard about him, and I've talked to members of his church. That vision is solid and sound, Reverend Flake. So thank you for setting an example. Thank you for serving that part of New York, and thank you for serving your country. We're delighted you're here today.

Now, I'm honored to introduce you to Michael Oxley, a gentleman who is well known to this audience, a leader on Capitol Hill, a central figure in all the financial services matters in the United States Congress. Since becoming Chairman in 2001, Chairman Oxley has led his committee in tackling key issues in the financial services arena, and achieving a number of legislative milestones. One near and dear to me, and those of us at the FDIC, was the federal deposit insurance reform legislation that was overwhelmingly approved by members of the U.S. House of Representatives.

I'll cite a few others: one, the Sarbanes Oxley Act of 2002. We kid him a little bit about that. I told him that my granddaughters and my grandson will be reading in the history books about the Sarbanes Oxley Act, and I will be happy to tell them about it. I'll say now, sweetheart, that's two people, not one person. The Sarbanes Oxley Act of 2002, as you know, is a comprehensive new law to stop corporate scandals and accounting fraud. Also, there are a number of bills to assist this country in responding to the challenges of terrorism, affordable housing legislation to expand homeownership opportunities nationwide, and landmark legislation to address the enormous problem of identity theft.

As the Chairman of the Committee on Financial Services, Mike Oxley has demonstrated his commitment to promoting competition in financial markets, maintaining the health of capital markets, protecting investors, and ensuring the soundness of the banking system.

Chairman Oxley represents Ohio's Fourth Congressional District, and is serving his 11th term in Congress. I'll note that he is a graduate of Miami of Ohio, which had a big victory last night, and he is a graduate of the reigning national champions, the Ohio State Buckeyes. Chairman Oxley.

REP. OXLEY: Thank you, Mr. Chairman. If I'd only known, I would have brought my Miami hat that's the real Miami, folks Oxford, Ohio. Thank you, Mr. Chairman, for that wonderful introduction. It's good to see my former colleague, Floyd Flake, here, who when you were in Congress served on the Banking Committee, now the Financial Services Committee. Love to have you back. I know you have other responsibilities, but I know we don't pay enough. Tell me about it. Sounds like my wife. But it's good to be back. And let me say to Chairman Powell what a wonderful thing this symposium is, and the series of symposiums that you put together. This is my second opportunity, and the second time you've had to wear the Ohio State hat. That's why I come, by the way, so I can see the Chairman, and we have photographers out there to make sure we see him with his Ohio State hat on being a good Texan.

It's terrific that everybody can get together and talk about some of these very serious issues that confront us as citizens, and as people who are very interested in our financial footing in this country. And I'm proud to participate in this. And I know some of my colleagues this morning were here, as well.

This is, obviously, of fundamental importance to our economy, increasing education about and access to the banking system. As Chairman of the House Financial Services Committee, I'm often bogged down in the details of intricate legislation that can take a pack of lawyers and a bottle of aspirin to understand. It's not often I have the opportunity to speak about education, and I'm pleased to have that opportunity today.

Recent studies have shown that approximately 10 million Americans don't have bank accounts. That's a remarkable statistic. It means that nearly 3 percent of our population in this country is without the tools necessary to establish a credit history and participate in the credit markets. The financial dreams of so many Americans are absolutely dependent on establishing and maintaining a good credit history.

Currently, 3 percent of our population has no reasonable chance of achieving those dreams. Not only are those consumers unable to fully participate in our credit markets, they are also much more likely to be taken advantage of by scam artists and other unscrupulous operators, from predatory loans, to exorbitant and unnecessary fees, to disadvantages from a lack of simply shopping around, uneducated consumers face an additional tax that more educated consumers do not.

The Financial Services Committee has held two hearings related to this issue just this year. In June, we heard from Assistant Secretary of the Treasury, Wayne Abernathy, and National Credit Union Administration Chairman, Dennis Dollar, who testified on efforts to get more people into the financial mainstream.

In October, we heard testimony from experts on broadening access to the remittances market. And during these hearings, the theme that emerged time and time again was the need for education and encouragement. Educational campaigns that promote the fundamentals of personal finance, the need to save and provide a basic understanding of how credit works are the keys that unlock the mysteries of the banking system for an awful lot of people. Encouraging financial institutions to enter previously under served markets also lowers the unbanked rate.

In combination, these efforts are beginning to bear fruit. One specific area where the financial institutions have had recent success in serving the unbanked has been in the market for remittances. At least three major U.S. banks, and a handful of credit unions, have entered into the market for remittances. These institutions understand that today's remittances customer is tomorrow's depositor or mortgage borrower, and that cultivating these individuals makes long term good economic and business sense. We must commend these efforts and encourage more. They're moving us, clearly, in the right direction.

Not to be excluded, the public sector has also made some great advances in reaching the unbanked, from educational programs like the FDIC's Money Smart Initiative, to similar efforts at the NCUA and Treasury Department. We're making good headway.

Any effort to reach the unbanked market must balance the need to expand access to credit with a need to protect consumers. The FDIC has done exactly this in its recent Guidance to Examiners on Payday Lending. The agency was able to strike a difficult but appropriate balance in expanding access to small denomination short term credit, while protecting consumers from unscrupulous lending practices. My hat goes off to the FDIC for their leadership in this important area.

From a legislative standpoint, solving the problems of the unbanked is a daunting task. While law makers are always tempted to prescribe more regulations as a solution to the problem, this is a classic example of an issue that should not be addressed by greater regulations. It's an issue that Congress can take the lead on, by encouraging financial institutions to reach out to broader markets, and by assisting in educational initiatives.

On that front, I have co sponsored legislation offered by Representative Dave Dreier who, as many of you know, is the Chairman of the Rules Committee, which will require the Department of the Treasury to establish a media campaign to highlight the importance of financial literacy and foster a greater understanding of personal finance for all Americans.

The Dreier Bill would fit naturally with legislation that the Financial Services Committee and Full House approved to re authorize the Fair Credit Reporting Act. As many of you know, the Senate is considering that legislation this week. And with any luck, they'll pass it today so we can go to Conference.

The House version of that legislation, which we named the Fair and Accurate Credit Transaction Act, or FACT Act, is a piece of financial literacy legislation in its own right. The bill gives consumers the right to a free annual credit report, which will arguably do more to promote informed consumer choices than any measure passed by Congress in several decades.

As the Consumer Federation of America, Stephen Brobeck, said during one of our hearings on the bill, and I quote:

"In terms of educating consumers, making available a free copy of a credit report will do more than just about anything that I could think of. First of all, it would generate an enormous amount of media coverage, which people will have difficulty avoiding." And by the way, that was the news story I heard this morning on the radio coming in, was exactly that that the Senate was poised to pass a bill providing for a free credit report once a year for every American.

"It will also stimulate a great deal of demand for information about the data in the credit report and scores. And if that is properly explained by the credit bureaus, that will represent a very useful educational mechanism."

Similarly, the FACT Act's requirement that mortgage lenders provide applicants with a free credit score, together with information on the range of scores possible, and the factors that negatively affected the score, will both increase the transparency of the often confusing mortgage application process, and facilitate greater consumer awareness of how spending and borrowing habits can affect their eligibility and their credit.

Now to his credit, the Chairman of the Financial Institution Subcommittee, Spencer Bachus, who was with you this morning, held eight hearings in his subcommittee on the re authorization of the FCRA. Over 100 witnesses, everybody who had any ideas on the Fair Credit Reporting Act and all of the issues dealing with identity theft, and consumer information had an opportunity to testify.

I think, as I told Spencer, it was the classic example of how the legislative process ought to really work, where we sat down and worked in a bipartisan way to get a piece of legislation that we hope would be permanent so we could create a national system of credit throughout our country that is really the underpinning of our whole economic system. It is, indeed, the infrastructure of that economic system to be able to get credit. And it was interesting to see how the process worked out. It took over a several month period. We knew we were against a deadline of having to come up with a bill before the end of this year because of the expiration of the Act. And make no mistake about it, the Fair Credit Reporting Act, originally passed by Congress in `96, has had an enormous impact in a positive way on our economy and on credit.

As the FTC Chairman told us in his testimony, 14 percent of Americans move every year. We are the most mobile society in history. And it's one of the strengths of our economic system, is the ability of people to move from jurisdiction to jurisdiction, from state to state in search of a better economic opportunity, a better job. But we also have to make sure that when they secure credit, that they're operating under the same rules as they would in the state that they lived in previously. That's how important this legislation truly is to our economy, and it's amazing how the Committee really came together around that issue, as well as the identity theft provisions.

We found also, to our dismay, that according to the Federal Trade Commission who had just recently done a study, that 10 million Americans every year are victims of identity theft. And it's starting to soak in, and people are starting to understand it. You're already starting to see advertisements by credit card companies and others regarding identity theft. But what we tried to do in this legislation that we hope will be completed in the Conference over the next couple of weeks, was to provide an avenue for the consumer, to empower that consumer to have the ability to take care of those situations where they think they might be a victim of identity theft, and empower the consumer to follow that path. And we think it's a solid piece of legislation the strongest piece of privacy legislation that any Congress will have passed in many, many years. And we hope to get that bill to the President very soon.

This is an important aspect to our economy that we just can't overlook. The synergy between private sector programs and public sector awareness campaigns can have a dramatic impact on the lives of the unbanked. I'm confident with a continued commitment by both the private and public sectors, and with seminars and meetings like this, we can introduce more Americans into the financial mainstream.

Thank you very much for allowing me to appear again, Mr. Chairman. It's always good to participate in these events. And congratulations once again for having the foresight and the leadership to put these kinds of symposia together, where we can exchange ideas and that is in the best interest of our entire system, and I applaud you for your leadership. Thank you very much. It's good to be back.

DR. SMITH: In about a minute or two, we're going to have for you the second of the three very positive events here at the lunch. The second will be a 10 minute video. The video is entitled, "A New Opportunity: The Unbanked."

This morning, several of the questions that came, both the ones that were written and the ones that were asked from the floor, asked who are the unbanked? Who are you talking about? And several of the panelists responded in terms of people they have worked with directly and tried to help, and gave some of their own personal stories about how they and their families were at one point unbanked.

The video gives you an opportunity to hear some other persons who are unbanked. If you're interested in the video later, there will be an e mail coming to everyone in the audience giving you an opportunity, if you wish, to request it. So it'll take a minute or two to get it set up. Enjoy the folks at your table. And when it starts, you'll be seeing "A New Opportunity: The Unbanked". (Video shown.)

MS. CHAPA: Good afternoon. I'm Judy Chapa, Senior Advisor for Money Smart, and I have the distinct pleasure of introducing your next speaker. He is not just a friend and colleague, but someone who shares my passion for financial education, and who puts that passion to work everyday.

Let me tell you a little bit about Kelvin. And here again, it's a very brief introduction. Kelvin Boston grew up in public housing projects in South Wilmington, Delaware. He graduated from Lincoln University, and returned home to organize the South Wilmington Housing Counseling Service, which helps low income families become homeowners. By the way, today that is one of the largest housing counseling agencies in Delaware.

However, it was in 1979, while Kelvin was a Special Assistant for Community Relations for Wilmington's Mayor McLaughlin, that he met an African American economist who inspired him with the following words: "The social progress of Black America will always be tied to the economic progress of Black America."

Well, that was the start of Kelvin's illustrious multimedia career in educating the public about financial services and products. He began as a Financial Planner with American Express, and later turned to the airwaves to spread his message by producing the nation's first weekly financial television series for people of color, called "Financial Insight", which aired on cable television in 1990.

After several name changes and cable network homes, his shown became "Moneywise with Kelvin Boston", and became an official PBS series. Today, "Moneywise with Kelvin Boston" is the nation's leading multi cultural financial affairs series distributed on public television stations reaching 83 million households last year.

Kelvin is President of Boston Media, Inc., a financial information company responsible for producing not just this show, but the "Moneywise Minute" ABC radio program, the "Moneywise Report Newsletter", and "Moneywise Financial Literacy Outreach Program."

Please join me in welcoming the man that the New York Times has referred to as an outspoken voice for economic empowerment, Kelvin Boston.

MR. BOSTON: "I am one with the infinite riches of my subconscious mind. I am happy, healthy, wealthy, and successful. Money flows to me freely, copiously, and endlessly. I am always aware of my true self worth. I use my talent, and I am wonderfully, wonderfully blessed financially."

My friends, I know that many of you think you are here because of some corporate mandate, but I think that you're really here because you have a date with history. And such being the case, I'd like for you to really think about why you're here today. I'd like for you to just close your eyes for a moment and think about the reasons which drove you to come to this conference. And while you're doing so, I want you to think about the millions of people whose lives are going to be changed forever because you made this trip. And I'd like for you to understand the words of Dr. Joseph Murphy, who wrote: "In the power of your subconscious mind, that you are one with the infinite riches of your subconscious mind; that you are happy, healthy, wealthy and successful; that money flows to you freely, copiously, and endlessly; that you are always aware of your true self worth, and that you use your talents, and you are wonderfully, wonderfully blessed financially."

So I want to thank you. Give yourselves a round of applause for being here. I'd like to say good afternoon to our honored guests, distinguished panel members, Members of Congress, other notable political leaders, business leaders, banking leaders, community leaders, religious leaders, community leaders, ladies, gentlemen, and my beloved brothers and sisters all. It is, indeed, an honor for me to be here and participate in the FDIC's first national seminar on providing banking services to the unbanked. And I also want to thank Chairman Donald Powell for allowing me to be here today. I really appreciate it.

Before I begin my remarks, there is an important announcement that I must make. Evidently, someone in this room has lost a roll of $100 bills wrapped in a rubber band. Will this person please see me after the program, because we found your rubber band. Now we got that out of the way, we could move on.

Today I've been asked to come here and share with you why I think it's important for us to provide mainstream banking services to America's most financially vulnerable consumers. And with this task in mind today, I'd like to share a few thoughts on the topic.

Banking the unbanked or why we must invest in people, profits, and a forgotten promissory note. Why we must invest in people, profit, and a forgotten promissory note. All of you know that I am the host of the "Moneywise" PBS television series. That makes me laugh sometimes, but you may not know that I've dedicated my life to making sure that all Americans have the financial information that they need to live their lives with financial dignity.

This being the case, it still doesn't make me a banker or a policy maker, or a community developer who is committed to working in the trenches with the unbanked. But still, I hope that something I share with you today will be enlightening.

I must also ask that you forgive me, however, if I make my case too simply, because it's not my intention to try to help you run your business or tell you how to run your business. Basically, what I'm trying to do is just help you understand that if you're going to work with the unbanked, then you have to make an investment in the people, and investment in profits, and an investment in a forgotten promissory note.

During my remarks, I will try to answer three questions. The first question is, who are the unbanked? And we're going to go and talk a little bit about who are the unbanked. The second question we're going to try to answer is, who profits most by serving the unbanked? And third, we're going to talk a little bit about a forgotten promissory note.

Now to me, all these questions must be answered if we're going to help low income consumers become banking customers. The FDIC has invited organizations from around the country that have a vested interest in this topic. Some of you do represent governmental agencies and some of you represent banking and other financial institutions. And some of you represent the community, but all of you have a vested interest in the topic. And all of you, therefore, should understand the importance of investing in people, profits, and a promissory note.

Now I know that some of you already understand the importance of investing in people when you start talking about the unbanked. And at the same time, I understand that some of you don't care about people. What you care about is the profit.

Likewise, I understand that some of you understand the importance of profits when working in this community. And likewise, there are some of you who don't care anything about profits, because you're concerned about people.

And while both of these concerns are relevant and legitimate, people and profits, I want you to understand that neither can survive without the other, and neither can fulfill their ultimate purpose unless they're linked to a forgotten promissory note. You see, my friends, it's all about investing in people, investing in profits, and investing in a forgotten promissory note.

Now let's first turn our attention to the people. Who are the unbanked? According to a Federal Reserve survey, 10 percent of all American families have no banking relationship. Now this figure includes 25 percent African American and Hispanic Americans. This figure includes one fourth of all families with incomes less than $20,000. And this figure includes 50 percent of the families who are moving from Welfare to Work. That's a lot of people, that's a lot of people.

Reverend Flake, when I think about that number, I'm reminded of the words of the great Reverend Ike. He once said that: "The best thing you can do for poor folks is not be one." See, there's a lot of them. You know, you can't help them if you're down there with them, you understand.

But the financial writer, Stegman, he goes right to the point of our meeting today. He said in an article entitled, "Bringing More Affordable Financial Services to the Inner City", that "bringing the unbanked to the financial mainstream is important because one's banking status has a profound implication on the long term family self sufficiency."

He also wrote that, "Even when controlling for income and other factors, that low income households with a banking relationship, at least 43 percent of them are more likely to have a positive net worth, but who are they?"

You see, it's so easy to forget that statistics are really people. We do that all the time. But when we traditionally think about the unbanked, we think about the poorest among us, but we should also think and remember that the unbanked are also the working poor.

Often when we think about the working poor, we dismiss it. We just assume that they want to be poor. And we think that they always want to stay poor, and we forget the bad conditions that they endure so that many of us can have a comfortable life. And this was expressed in a book entitled, "Nickel & Dimed" by Barbara Ehrenreich.

She writes here, and it's a very good book she writes about how hard it is for the non poor to see the distress that poverty causes the unbanked. She talks about the lunch that consists of Doritos and hotdog rolls, leading to faintness before the end of the shift. She talks about the home that is also a car and a van, the illness or injury that must be worked through with gritted teeth because there are no sick days or health insurance, and the loss of a day's pay will mean that there's no groceries for the next one.

She concluded that these standards of living represent an emergency situation, and that when we think about what the poor and the working poor go through, we should think of it as a state of emergency. Many of our fellow Americans don't understand that living in poverty today represents a state of emergency.

Likewise, they don't understand that a family that has few financial assets, a family that today is unbanked can be bankable tomorrow. But more importantly, these people don't understand that people and families that are bankable today, can be unbanked tomorrow. They can be unbanked tomorrow.

You know, my friend, Dr. Dennis Kimber, likes to tell the story of a young boy, a third grader named Johnny. One day Johnny was in school and he was frantically drawing a picture of God. His teacher saw him drawing and saying Johnny, what are you drawing? Johnny said I'm drawing a picture of God. And the teacher said Johnny, you can't draw God, because no one knows what God looks like. Johnny kept on drawing and said they will in a minute.

My friends, in a minute, people who are bankable today can be unbanked. You see, because of the economic hardships of a jobless recovery, no one is spared from becoming unbanked. The hardships of a jobless recovery show no respect of person, education, class or zip code. And according to another book, and you see, I read all these books. I can't help it. This is entitled, "The Two Income Trap." For anyone who is married, you have to read "The Two Income Trap", by Elizabeth Warren.

This book just came out and she points out that families that are in the worst financial trouble today are not your usual suspects. They're not the very young tempted by the freedom of their first credit cards. They're not the elderly trapped by failing bodies and declining savings account. And they are not a random assortment of Americans who lack the control to spend within their means. But rather, they're people who consistently rank in the worst financial trouble today, they are two middle income married parents with children at home.

Her report on bankruptcy shows that married couples with children are more than twice as likely to file bankruptcy as their childless counterpart. And if these trends persist, more than 5 million middle income families with children will file for bankruptcy by the end of this decade. This means, my friends, that across this country, nearly one in seven families with children will declare themselves flat broke and a loser in the great economic game of life.

Now this is an important finding for our discussion today, because it illustrates the point that people who are bankable today could be unbanked tomorrow. But it's also important because as we are making plans to work with those who are unbanked today, we must also makes plans to work with those who may be unbanked tomorrow.

Finally, this is important, I think, because it brings home the whole point that everybody, regardless of their financial situation, is bankable. But in order to appreciate the bankability of the unbanked, you must first appreciate the human. You have to appreciate the human spirit of the unbanked. But, my friends, I'm sorry to say today that many of the organizations that service the unbanked do not recognize their humanity.

Such organizations, they appreciate the unbanked's Social Security number. They respect the unbanked's weekly check. They appreciate the fees that they collect from the unbanked, but they do not respect the personhood of the unbanked client. To these organizations, the real humanity of their unbanked client is invisible. And this should not come as a surprise to anyone because, indeed, in many respects the poor are invisible to all of us.

Again, I go back to the book, "Nickel & Dimed", where the author states that by some odd optical property, there's something that makes the poor almost invisible to their economic superiors. The poor, she continues: "They can see the affluent society on television and on covers of magazines, but the affluent rarely see the poor, because they do not catch sight of them in public places."

And they can't really see the poor, my friends, because the poor know how to dress. I mean, we look good. We may not have any money, but we look good, and that's what happens. These poor families will go to consignment stores and yes, Wal mart, and they will buy something that looks good. And most people will assume that they're in a more comfortable class. But my point, and the point that the author makes is that the affluent Americans' blindness to the poor is really caused because affluent Americans rarely share public spaces and services with their less affluent counterparts. And even people who provide services to the unbanked after today is over, the owners of those organizations go back to the suburbs, and the unbanked people go back to the inner cities.

You see, these people really don't share any public spaces or services other than their so called quasi banking relationships. But it's important for you who want to become the future bankers of the unbanked to understand that you have to make an investment in the people. You have to see the humanity in the people you serve, because once you do that, then you can understand that unbanked individuals are proud, hardworking and generous.

As one writer said: "The working poor are the major philanthropists of our society, that they neglect their own children so that the children of others will be cared for, that they live in substandard housing so that others' homes will be shiny and perfect, and that they endure the injustice of poverty so that our inflation as a country will be low, and our stock prices will be high. To be a member of the working poor, is to be an anonymous donor and a nameless benefactor to everyone else in our society."

That's why we have to understand and respect the personhood of the unbanked. And when you're able to recognize and respect, and appreciate the personhood of the unbanked, then you'll be able to help your unbanked clients overcome their past economic obstacles and embrace their future financial opportunities. But you have to first see the person.

I know some of you are wondering well, I don't know how I'm going to do this. This is going to be kind of hard to take back to my organization because I am a bank. And there are certain things and rules that I have to go by. When I think of this, I'm reminded of a story about a female entrepreneur who walked into a bank and she applied for a business loan. The banker looked at the loan application and said, you know, there are some questionable remarks on your credit application. The young lady replied yes, but my future is spotless.

My friend, when you work with the unbanked, you have to remember that regardless of their present economic circumstances, that their future is spotless. You know, many of your people that we call the unbanked, what they're really doing, they're facing probably one of the worst financial situations in their lives. That's what's happening to them. They're just down on their luck right now. And as people who are really the gatekeepers to the American Dream, you know, our job must be to help them get up when they're down. So to do that, my friends, when the unbanked come to see you, don't turn them away. When they're there and they're hopeless, don't forget about them. When they're in your office and you can't think of anything else to say, just remind them of the words of Donnie McLaughlin.

Just tell them that, you know, life is not about how many times you've been knocked down. It's really about how many times you get up after you've been knocked down. Just let them know that everyone falls down sometime in their lives. Let them know that people fall down, but that they can get up. That people fall down, but that they can get up. That people fall down, but that they can get up, and then let them know that you're there to help them get up.

You see, my friends, it's all about investing in people and profits, and in their forgotten promissory note. And we just talked a little bit about people. Now I want to try to answer this second question. Who profits most by providing banking services to the unbanked?

Now right now it seems as though everybody else is profiting but the unbanked. Someone said all right out there. It's okay. I just heard you. It's all right. You could talk to me, girl. Anyway, don't let this bow tie fool you, you know what I mean? But it seems today as though everyone is making a profit on the unbanked but the unbanked. Credit card companies are making profits, check cashing operations are making profits, banks are making profits, subprime lenders are making a profit, even community organizations that service the unbanked are making a profit. It seems like everyone is making a profit but the unbanked.

But it also seems as though all of these financial institutions are banking on the unbanked. You see, we think that the unbanked need us and our financial institutions, but it looks like we need them to exist. You know, it seems like everybody is banking on the unbanked, but since I know we had some discussions earlier about some of these other organizations and how they're making money on the unbanked, I won't go there, but there is something that we have to talk about as relates to our purpose for being here today.

We have to recognize that if banks indeed are going to become the major providers of banking services to the unbanked, that they, indeed, will be the persons or the organizations that are going to make the most money from servicing the unbanked. And, therefore, I just want to spend a few moments talking about how modern day banks make their money.

Now don't be afraid yet. This is a good discussion, but it is a needed discussion. Because, see, there is a lot of mistrust out there. And part of the mistrust comes because people don't understand how other people are making their money, so we're going to try to deal with this as best I can.

Now the first thing I think we should understand today is that contrary to popular opinions, bankers are the highest profession in the world, and doctors are second. Now this is because bankers must know how to sell and they must understand how to calculate profits. Now I'm not going to say too much about doctors, but they're good sellers, but I don't know about that profit thing, but that's another story. But no organization understands how to make a profit more than banks.

Albert Einstein said that: "The most powerful invention of man is compound interest." And I'm convinced that a banker created compound interest. Bankers know how to make a profit, but we need to understand that today's banks, they don't make money the way they used to 20 years ago. Then banks made their money the old fashioned way. They lent it to people, and they took people's money and had these deposit accounts, and they made money on those two basic services.

Today, these two sources of revenues represents only small fractions of banks' revenues. Today's modern banks are large businesses that earn the majority of their profits from the fees they generate by electronic payment services, trading, derivatives, mortgage processing, credit cards, and syndicated lending.

Gone are the days when banks basically lent their neighbors money. Those, indeed, were the good old days. Modern banks today, they don't even really have the opportunity to have their bankers meet with customers. That was the old days. Today many banks reserve that right for only 10 percent of their customers, which happen to be their most affluent. The other 90 percent of us must use some form of electronic banking services, or we must deal with a teller, not a banker, but a teller who can help us fill out a form or refer us to another mortgage broker, or some investment advisor.

Today you don't need to even go into a bank to be qualified for a loan. They can do it by phone. And, in fact, all the bank needs to know is your credit score to qualify you for a loan. If the credit score was good, then you'll get the loan. If the credit score does not meet their criteria, then you will not get the loan. But the point is, there does not have to be a human contact for the bank to give this loan.

And lastly, my friends, to talk about the good old days, in the good old days banks lent you their own money. They don't do that any more. Today many banks have partnerships or relationships with mortgage companies, and finance companies. Or it might even be one of their subsidiaries, and that company lends the bank customer money. Boy, I long for the good old days.

I'm reminded of a time that a banker called in an oil man to review his loans. We loaned you $1 million to revive your old wells, the banker said, and the wells went dry. The oil man replied yeah, but it could have been worse. Then we loaned you another $1 million to drill new wells, and they went dry. Again, the oil man replied it could have been worse. Then we loaned you another $1 million for drilling with some new equipment, and that equipment broke. The oil man said yeah, but you know, it could have been worse. And then the banker got upset. He said listen, I'm getting tired of you saying that. How could it be worse? The oil man said it could have been my money. Oh, I long for the good old days, you know. Today banks don't loan people their own money.

Well, we can see why banks like this need businessmen, because as we now understand, if banks can support their basic businesses and their basic business opportunities with fees, and if their mortgage departments can make profits by just referring other clients to other subsidiaries, then the bank never really has to put their hands in their own pockets; and, therefore, the banks don't need many assets to generate a large return of profits.

You know, the modern banking operations work well for the bank, but they don't work well for the unbanked, because the unbanked want to see their bankers. The unbanked want to see their bankers. You see, there is a lot of fear that the unbanked have. I mean, all of us have fear but you have to understand how you can be intimidated about just beginning to save money, or try to get yourself out of debt, or buy your first home. It's an intimidating factor, and so fear is quite prevalent.

And we all deal with fear. I mean, in today's again jobless recovery, and with the war in Iraq, and just issues as relates to terrorism, we all have to deal with fear. And sometimes the fear we have to deal with is not even our own fear. In fact, I remember when I started my business 10 years ago, I remember the fear that my mother instilled in me. The first thing I did when I decided to go into business was to call my mother. I was so excited. I said mom, I'm going to have my own business, and I heard this long loud silence on the other end of the phone. Then my mother said, "Baby, what you doing going into business? You're not a businessman. You don't know nothing about business." That's how my momma talks. And for a long time I thought she was right because we lost so much money those first couple of years. And I remember waking up having nightmares. And in my nightmares my mother would be chasing me around the room demanding the money that she gave me for my college education and saying, "You're not a businessman. You're not a businessman."

And it's interesting that, you know, in time we got things together. I hired some good people, got some advice. And about a year ago my mother had a birthday, and I was so busy I couldn't get her a gift, so I just sent her a check. And she called me and she said, "Baby, you're such a good businessman." But that was almost 10 years after she instilled this fear in me of owning my own business, you know what I mean?

Now, again I was fortunate that as I was dealing with my own fear, I got some help. But keep in mind that many of the unbanked, they don't have any help. There's no one that they can talk to that will help them get to the next level. And again, this is where you can help, my friends. But in order to help them, you're going to have to adopt a new business model. You're going to have to find some business model that will allow you to provide hands on service, and at the same time, make a profit.

Now can banks do this? I don't know, but I think that we can. I think that when I look around this room and I see the wealth of intellectual capital here, I'm sure that there has to be a business model here that we can use that will allow banks to make a profit, and at the same time, allow them to provide some personal attention to the unbanked.

Now I want you to know that I don't begrudge banks making profit. I expect banks to make profits. I understand that you have to make a profit so that you can stay in business, so I'm not going to get mad at you for following some sound business practices.

Now what concerns me is not when you make a reasonable or respectable profit by providing services to the unbanked. What I'm concerned about is when you have to make a ridiculous profit for providing services to the unbanked. You see, I don't mind if you make a couple of dollars on me by cashing my check, or wiring one of my family members some money. But I get very upset if you make $50 or $60 on me for providing that same service.

And likewise, I don't get upset if you want to charge me some interest for a small home improvement loan. But I'm going to get pretty damned mad if you try to take my house to pay for that small home improvement loan. But you see, overall I don't mind banks making a profit. And if I must say, I don't think that the unbanked are going to mind banks making a profit, because the point is that we want to make a profit too. And this, I think, is where we must have some discussion. Because, my friends, it bothers us as a people, as a race, as a group of consumers when we see banking institutions who want to become wealthier, but don't understand that we, as a people, whether we are banked or unbanked, that we want to be wealthier too.

And so there is, indeed, a new day. And just like the banks have a new business model, you should understand that the unbanked have a new business model too. And our business model is simple. It simply states that if we're going to help you become profitable, then we expect you to help us become profitable. Does that make sense to everybody? I mean, is anybody here? Don't have me talk to these walls now. But you understand what I'm saying.

You see, you have to understand that just because a person is unbanked, it doesn't mean that they don't have any wealthier aspirations. The unbanked do not always want to stay unbanked, and so we don't see any conflict with banks coming in to our communities, and how that's going to fit in with our new business models, because banks are about the business of making money. And banks' competitive advantage is supposed to be that they can provide the unbanked with access to depository accounts, mortgages and business loans.

So if you're not going to bring that into our community, why come? I mean, if you're not going to help us become wealthier, then why come? And, therefore, when banks plan to return to give services in unbanked communities, I'd just like to warn you that don't come to our communities with a credit counseling program and not be ready to teach us how to increase our net worth.

Likewise, don't offer us lower fees on banking services and not give us a savings account to put those savings in. And again, don't use or give us a credit card and not offer us a mortgage. And please, please, don't give us a car loan, and not give us access to a business loan. You see, for us, it's all about profits. Profits for the banks, and profit for the unbanked.

So I just wanted to warn you. I know again, some of you are saying boy, I don't know how we're going to do this. I'm going to have to take this back to I started to say boys, but the boys and girls upstairs. And indeed, you are. And when you have to explain this whole new business model to your superiors, my friends, and they don't really understand, remind them of the wealth aspiration of the unbanked, relate it to the story of the hungry man and the fish.

I mean, we all heard this parable that says that, you know, if you give a hungry man a fish, he'll eat for a day. If you teach a hungry man how to fish, he'll eat for a lifetime. And recently, I had the privilege of being with Reverend T.D. Jakes, and he took this parable to a whole new level. He said that if you show the hungry man how to buy the pond that's filled with fish, then he'll never worry about being hungry again.

My friends, what you must understand today is that the unbanked want to own the pond. That's what they want. They want to own the pond. So it's all about profits, profits for the bank, and profit for the unbanked.

Now we have reviewed the question as relates to people, and we reviewed the question as relates to profit. And I want to talk about the last question, as relates to this forgotten promissory note. But I must also say, as the Chairman was saying earlier, that indeed, the unbanked do need more financial education. We can't understate or overstate the importance of financial education, not only for this group of Americans, but for all Americans.

And I think of this, and I was just reminded of the story of the loving couple in Washington, D.C. They met at Howard University. They got married after they left Howard. They were lovers, and everyone referred to them as the good husband and the good wife. And they were married for many, many years. And one day without any notice, the good husband passed away. And the good wife, being the good wife that she was, she went down to the tombstone dealer and she purchased the most expensive tombstone that she could buy. And on this tombstone she had engraved the words "Rest In Peace."

Then the good wife went home to get her financial affairs in order. And she came across the good husband's life insurance policy, and to her surprise, she learned that the good husband had left the insurance money to another woman. This didn't bother the good wife. She was a good wife. Then the good wife came across the husband's mortgage and learned that the good husband had left their home to another woman. This didn't bother the good wife. Then the good wife came across the good husband's last will and testament, only to learn that the good husband had left all of his worldly possessions to another woman.

Well, this bothered the good wife, so she went back down to that tombstone dealer and she said listen, I don't want that tombstone. The man said it's too late. I've already engraved the words "Rest In Peace". The good wife said no, you don't understand. I'd like you to add some words, "Until I get there."

Now we all understand that the good wife is going to take care of the good husband whenever she catches up with him. But the point of the story is that the young lady would not have to go through that problem had she had some good financial counseling. You see, we all need good financial counseling.

But again, we talked a little bit about people, we talked about the profits. Now we must talk about the promissory note. And I'm reminded when I think of the promissory note of Dr. Martin Luther King, Jr. I'm reminded of the words he said many years ago, when he said, "Free at last. Free at last. Thank God Almighty, we're free at last." These are the famous words Dr. King told 250,000 people at the March on Washington.

Now, my friends, you may find this interesting. Today, African American ministers all across this country have changed this quote. Today instead of saying or leading their congregations in saying "Free At Last", they say "Rich At Last. Rich At Last. Thank God Almighty, we're rich at last."

Now to some who don't fully understand Dr. King's famous speech, they may take this as being disrespectful. But nothing could be further than the truth. You see, because on August 28th, 1963 when Dr. Martin Luther King stood on the steps of the Lincoln Memorial and delivered his famous speech, "I have a dream", his speech was not just about social equality. It was also about economic justice.

This speech has been called the speech that transformed America. And during this speech, Dr. King talked about his youngsters. He said eloquently that: "I have a dream where my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character." And it is unfortunate that today that's the only thing that many people recall about this speech. It is unfortunate, because in doing so, they forget all the other social, political and economic issues that Dr. King was trying to address in this speech. So today, people can remember Dr. King saying, "I have a dream", but they can't recall him saying that "Black America lived on a lonely island of poverty in the midst of vast ocean of material prosperity."

Likewise, today people can remember Dr. King saying, "I have a dream", but they can't recall him saying that "America has given the Negro people a bad check which has come back marked insufficient funds. But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation."

My friends, Dr. Martin Luther King presented his symbolic promissory note to America more than 40 years ago. He presented it knowing that were it redeemed, that poverty and economic justice as we know it, would no longer exist in our society. But today, 40 years later, we are having a meeting to discuss why banks should provide banking services to millions of poor Americans. And, therefore, I must suggest to you that Dr. King's promissory note is still uncashed.

I must suggest to you that our ultimate goal today is in keeping with Dr. King's goal 40 years ago. Today, if we really understand where our work must ultimately lead us in serving the unbanked, then we, too, must say that we are committed to eliminating poverty and economic justice in this country.

And so the reason this conference is so important is because our cause is just. But to fully understand the justness of our cause, we must understand that serving the unbanked is connected to forming mutually profitable relationships that will ultimately eliminate poverty in this country.

In short, we must understand how people, and profits, and the promissory note of Dr. Martin Luther King, Jr. are all interrelated. You see, my friends, it's all about people, it's all about profits, it's all about the promissory note.

Today I will ask you to remember Dr. King's promissory note. I will ask you to link your efforts to provide banking services to the unbanked to Dr. Martin Luther King's dream of America. I will ask you to do so understanding that as King understood it, that once his check was honored, that the unbanked households of this country will be able to enjoy the richness of freedom and the security of economic justice.

I know that linking your work to the work of Dr. Martin Luther King, Jr. will not be easy. And, therefore, I ask that you find comfort where he found comfort. I ask you to remember that you can say many things about Dr. King, but one thing you must always say, and that is that he was a man of God. And as such, he understood the importance of the words "In God We Trust".

So, my friends, when things get tough for you, I just want you to take out a dollar bill. I want you to find the words "In God We Trust", and then I want you to think about those words. I want you to understand, my friends, that indeed, the unbanked community needs so much. But isn't it good to know that in God we trust.

We need homes, businesses, and entrepreneurs to grow. But isn't it good to know that we have some place to go. So when you try to love and share, and others return your love with despair, don't be discouraged. Know that somewhere someone cares. And when unforeseen challenges get in your way, don't give up. Don't be discouraged, and don't be swayed. In fact, when you're trying to succeed, never, ever give up. Go regroup if you have to. Cry, confide in a friend if you must, but always remember that in God we trust. Yes, the unbanked community needs so much, but isn't it good to know, I mean isn't it good to know, that in God we trust.

My friends, this afternoon I've tried to answer three questions. The first question was, who are the unbanked people that we wish to serve. The second question is, who profits by serving the unbanked. And last, the third question was, why is it important for us to link our cause to the cause and that forgotten promissory note of Dr. Martin Luther King, Jr.

I tried to answer these three questions by just reminding you that really it's all about investing in people, profits, and a promissory note. I'm here to tell you, my friends, that if we make this investment, that indeed, we can provide meaningful banking services to the unbanked. And by doing so, our country will be better, because we would have helped also to eliminate poverty and economic justice in this country. And we can do that, my friends, if we understand that "all Americans are one with the infinite riches of their subconscious minds, that all Americans are happy, healthy, wealthy, and successful, that money can flow to them freely, copiously, and endlessly. And that what they need to understand is how to become aware of their true self worth. And that when they do so, that all Americans can use their talents, and all Americans be wonderfully, wonderfully blessed financially." Thank you very much.

DR. SMITH: Let me thank Mr. Boston for his excellent presentation.

Panel III
Thinking Outside the Bank: How Groups In Your Community Can Help You Reach the Unbanked

DR. SMITH: If I may have your attention, please. The final panel of the day, not necessarily the final presentation, but the final panel of the day has not just three panelists, but has four panelists because they heard the quality of questions you were using in the morning. And more people wanted to be here to make sure we can adequately respond to the brilliance of the audience.

Leading this panel and its moderator is a person who was Chief of Staff for nine years on Capitol Hill, was the Deputy Administrator for Government Contracts and Business Development for the Small Business Administration, and who currently is with the American Bankers Association as the Director of Community Development. Wait until you see this panel, it's going to be something. This is James Ballentine. Please welcome James to the platform.

MR. BALLENTINE:Good afternoon. I want to thank the FDIC for holding this event, and for putting this panel together. I thank them not only for that, but some 39 years ago, I was born over in Anacostia, Washington, D.C., southeast D.C. And for those of you that don't know Anacostia, it's two Harlems and a Brooklyn put together. And for me to be standing at the National Press Club speaking was a dream of mine, and I'm glad that it was accomplished at this event.

We are going to do two things today. We're going to practice the three Cs. We're going to be clear, we're going to be concise, and we're going to be correct for this panel. We are also going to practice the five Bs. Please, ladies, this may not apply to you. The five Bs being "Be brief, brother, be brief." And we will be brief this afternoon because we want to hear what you have to say.

Our panel is, "Thinking Outside The Bank: How Groups In Your Community Can Help You Reach The Unbanked". I don't want to brag, but I think we are the best lineup here. We have a distinguished lineup of people that we believe can provide you with the best information.

When using the word "tap" or "tapping" as a verb, Webster says that it means "to draw to, or to draw from, or to cut into, or to connect to." Webster defines markets as "a geographical area of demand for commodities." Although there is no definition of unbanked, some have said that it is people who do not have a banking relationship with a traditional financial institution, such as a commercial bank or savings and loan.

For purposes of this panel, we will try to define it as a way that banks can connect with people who do not have a banking relationship by cutting in or drawing from the profits that check cashers are making in geographical areas.

Who are those unbanked? You've heard many of the statistics that are out here, 10 million. Yesterday I heard 22 million when I was down in Atlanta. The numbers are all over the place. What we do know is that there are unbanked, and we want to reach them.

Who are these unbanked? They are family, friends, neighbors. They're black, they're white, they're Asian, they're Hispanic. How do we stop this cycle is what we want to address on this panel. It is simple. We have to stop this cycle by listening, and learning, and applying what we leave here with. My pastor often says, after he gives a prayer, he says thank you, and I hope that it is something that you not only have heard, but that you will apply. And it doesn't make any difference what we hear here today if we don't go back to our institutions and to our community organizations, and apply it, all this work was for naught.

Today's panel will share with you how bankers have formed partnerships with community networks to reach the unbanked. It is important that we be frank with each other as we discuss this important issue. For years, the relationships between banks and community groups have been fractured. For years, the relationship between banks and the unbanked have been fractured.

I believe that dramatic steps, and I want to repeat that, that dramatic steps have been taken over the past few years. But clearly, by the fact that we're having this event, more work needs to be done. I'm going to stop my preaching now because Reverend Flake, I can start preaching also, but I'm going to stop and let you all hear from our panelists today.

I will introduce them in the order that they will speak. First up is Ernest Skinner. When we were on a conference call talking about what we were going to talk about today, Ernest said, "Tell them" I can't even do your accent. "Tell them I'm a community activist", is the way he says it. But Ernest is a friend, and he is Vice President and Community Relations Director of Citibank in the Mid Atlantic region right here in Washington.

Ernest maintains an active interest in civic and professional affairs beyond his job responsibilities. He is head of a number of organizations here in the Washington, D.C. area, and he is also and Ernest, I didn't know this the 2002 winner of the Minority Business and Professionals Development Network "Fifty Influential Minorities in Business". Outstanding. Outstanding. He also has more hair on his face than I have on my head, so that's very good, Ernest.

The next person is Cynthia Amador. Cynthia is President and CEO of CHARO Community Development Corporation. She has over 18 years of economic development experience, and is nationally recognized for her program design expertise. She has also been very instrumental in designing and implementing marketing campaigns that create a new venture or business relationships with local, state, and federal entities. It's a pleasure to have you here, Cynthia.

The next speaker with be Clara Martinez. Clara joined Wachovia's Training and Development Department in 1993, and currently manages the Strategic Programs Team within the Community Development Group. Wow, very impressive. A line banker with over 20 years of commercial, real estate, and international expertise, Clara and her team are responsible for the programs generated by the Federal Home Loan Bank of Atlanta, the BEA[Bank Enterprise Awards]. You know about the BEA, don't you, Dr. Flake. You sure do. And she's also designed and implemented the Financial Literacy Services strategies, such as Borrow Smart, eCommunities First, and Money Smart. Pleasure to have you here.

Our last speaker has a two page bio here, because he's so impressive, I should read it just to punish you. But former Congressman Floyd Flake when I was on the Hill, I would literally stop him in the hall, and I was a young legislative director, younger than I am now, and he would stop and he would speak to you for as long as you wanted. And he's a very, very kind person.

Dr. Flake is Senior Pastor of the more than 17,000 member Greater Allen A.M.E. Cathedral of New York in Jamaica, Queens. And he's also President of Wilberforce University in Ohio. During his 28 year pastorate, Allen has become one of the nation's foremost Christian churches and development corporations. The church and its subsidiary corporations operate with an annual budget of over $34 million. The church also owns expansive commercial and real estate residential developments, a 500 student private school funded by Reverend Flake and his wife, Elaine. And various commercial and social services enterprises.

He is a leader that has been spotlighted on CNN, CBS, BET, C Span. Dr. Flake has been everywhere, and we just love him, and we appreciate his being here today. First person up, Ernest Skinner.

MR. SKINNER:Thank you, James. This accent is a southern accent. Yes, south of Florida in that wonderful twin nation of Trinidad and Tobago, better known as Paradise.

You know, as I came to the podium, I was thinking some wise person once said that, "At this juncture sometimes in programs that everything that had to be said had been said, but there were some people who were still to be heard." So, unfortunately, I am one of those people who are yet to be heard. And I will try to stay as a matter of fact, I promise to stay, Jim, within the time line that you accorded me. Half an hour, you said? Okay. But, ladies and gentlemen, I am happy to be one of the panelists. And given that, as James indicated, I'm the Director of Community Development for Citibank in the Metro area, I will speak about the activities, mainly what Citibank has been doing to reach out into the community. And further, given the discussions earlier about Individual Development Accounts, I thought that it might be good to give a sense of what we have done, and what we're in the process of doing.

We came into this marketplace in 1986, and by 1997, I became aware of an organization that was embarking on Individual Development Accounts program here in Washington, D.C. And I was invited to a meeting by one of my colleagues from a foundation, the Moriah Foundation, I believe. And I'm almost sure it was Christine Robinson. And I thought I was just going to another one of these meetings where we have a good meal, you know, and go back to the office.

To my surprise, I learned of this new development something similar to an Individual Retirement Account where low to moderate income people would have a matched saving program, where if they wanted to acquire an asset and an asset as defined would be purchasing a home, starting or expanding a small business, being involved in post secondary education or job training that if they were to save money, that it would be matched. And I thought to myself, what a wonderful idea.

And I went back to the office, and I called the Executive Director of the program and said I really would like to get to know more about it. And they took some time to explain to me what they were doing. And the organization involved is a group that we hear called the Capital Area Asset Building Corporation. Dick, are you in the audience? Where are you? Dick, would you stand? That's Dick Hall, the Executive Director of the Capital Area Asset Building Corporation.

You know, it was said, let's see the face of the unbanked. Well, we also need to see the faces of the people who are working to change that unbanked status. And what impressed me about the Capital Area Asset Building Corporation was that they were a group of community organizations. Remember what I said, I came here in 1986. That many of them, in my capacity as the Director of Community Development, and given that I also wear the hat being a Caribbean, we do more than one job I wear the hat of being the Director of Volunteerism. Many of these organizations were organizations that we were already making grants to, so among these ten organizations were groups, such as the Community Family Life Services, Gospel Rescue Ministries, the Latin American Youth Center, Latino Economic Development Corporation, Manna, Marshall Heights Community Development Corporation, Nations Community, the Nation's Child, Capitol Child and Family Development it used to be called a different name then See Forever, Maya Angelou's Public Charter School, Urban Alliance, and the Washington Project. I'm happy to say that I now serve as a member of the Board of Directors of the Capital Area Asset Building Corporation, and one of our Branch Managers by the name of Al Pearson, he serves on that Advisory Board.

Well, what did getting affiliated with CAAB do for me? What it did for me, as I read the names purposely, you heard organizations that have a Latino or Hispanic touch. You heard others that you would not otherwise know, but some of them are headed by African American Executive Directors. The Board of Directors might overwhelmingly be African American, and some might be headed by Anglos, but serve the need of the low to moderate income families. So I was happy to be affiliated with an organization that very much represented the group of people we were trying to meet.

Well, in short order we made grants to the Capital Area Asset Building Corporation, and I suspect in part because of the leadership role we did here in the local Citibank, and because of that of my colleague on the west coast, CitiGroup, through its foundation, made a $1 million commitment to the whole matter of program for Individual Development Accounts.

Well, by 1999, having successfully launched CAAB, we found that many organizations were coming to us and asking for support. And I remember distinctly in 1999, that Boat People S.O.S., an organization that caters to refugees from Viet Nam, approached me to provide them with a support letter so that they could start IDA program.

Well, the group was new to me. They had been referred by one of the Citibank affiliates. And after talking to them, I gave them a support letter. They were unsuccessful in that first effort. But remember what I said, the first effort. And Boat People S.O.S. was smart enough to ask the people who scored this, where were we deficient? And they found out that they had not clearly shown that they had had a long term relationship with a financial institution, but more about that in a little while.

Come 2000, another organization approached us, the Maryland Center for Community Development, which was starting a statewide IDA Initiative, and I provided them a support letter. That organization, in due course, got a $100,000 grant from the state, and later a $367,000 grant from the federal government so that they could launch their IDA Program. And of their initial groups who would run the program, we were already supporting four of those organizations. Those were Druid Heights CDC in Baltimore, the Montgomery Housing Partnership in Montgomery County, Silver Spring Housing in Prince George's County, and the Housing Initiative Partnership in Prince George's County.

Again in 2000, we were now approached by CAAB, because there is a program in the Federal Home Loan Bank of San Francisco called IDEA. It stands for Individual Development and Empowerment Accounts. And having provided a support letter, CAAB was able to be awarded $221,000 in April of 2000, for downpayment and closing cost assistance for people who are working through the programs of its member groups.

By 2001, came another request this time from the Ethiopian Economic Development Council for support of their IDA program, which I readily gave. Happily, I can say that EEDC, as they are known, they were awarded a contract wherein, in a five year course, they expect to open 1,000 new accounts with about $3.6 million in client savings and matched grants.

Again, in 2002 come a knocking, the Housing Initiative Partnership, having heard about the Federal Home Loan Bank program, approached me for a support letter, which I provided. They got a grant of $60,000 to be able to provide downpayment and closing cost assistance.

Again 2001, Boat People S.O.S. you remember that group they came a calling. They indicated that the U.S. Treasury had embarked on a program requesting RFPs for First Accounts, so I readily provided a support letter. They were able to achieve $600,000 through the First Accounts Program to be able to provide services to the Vietnamese community, not just here in D.C., but expanding through Camden, Philadelphia, Hampton Roads, and the west coast.

Why am I saying this? I'm saying this to say to you that we try creatively to reach out to groups. And as of September 30th when I checked with my branches, we had established almost 500 yes, 500 Individual Development Accounts, and we now manage the relationships for 20 individual not for profits that have IDA accounts.

I'm also happy to say that in the District of Columbia, Citibank is the only bank the only bank providing IDA services to any of these groups. In Northern Virginia, we went into a relationship with a not for profit where a competitor had the initial relationship. We now have the primary relationships. We are aggressively seeking out partnerships with not for profits, and across the board, I believe we're making success. I will hold any other comments for the questions later on. Thanks.

AMADOR: Good afternoon, and greetings from Los Angeles, California. My name is Cynthia Amador. I'm President and CEO of CHARO. It is a 37 year old community based economic development corporation. I've been with CHARO for 17 years, and became CEO this past January.

CHARO focuses on three primary areas. We look to create access to capital and promote entrepreneurship through education. We also look to create jobs, and harness financial resources for our community. And the third thing we look for is to increase economic opportunities for under served communities. All of our core competencies, all of the programs that we look to develop or to provide as a service, we look to make sure that they meet one of these thresholds.

Our business model is based on a business model created about 1990 by the National Alliance of Business. And it said to have true economic impact in a community you had to have four things. You had to have a business incubator, you had to have a business and financial center, you had to have an entrepreneur training program, and a workforce center. We have all those components. We've also added a small business incubator, and a small business procurement center.

The umbrella of our organization for our business services is the business financial center. To date, we have done $28 million in package and secured loans for hundreds of small businesses. We have done this within a period of about seven years. These businesses, about 75 percent of them, have sales of less than $1 million, so they're very small businesses that we predominantly deal with.

The services that CHARO provides, all of our services are bilingual bicultural, in that they are all served in Spanish. So you're familiar with our demographics. East Los Angeles is 95 percent Latino. We serve a five county area because of the uniqueness of our services. It's hard to find a service area or agencies that provide Spanish services at the professional level. Eighty percent of our clients speak English, but when you're talking about cash on cash, return on investment, these are real technical terms, and our clients are more comfortable speaking in Spanish.

So what the BFC does is we do loan referrals to our banks. We have set up relationships with our banking partners, and we do basically a turnkey operation. We take the 24 steps required of an SBA loan, and we ensure that the client has three years financials, the use of funds, how they're going to pay it back. We essentially do this so that we can turnkey it to a bank.

We have also launched our mortgage lending center, which we just did this past March, and that is our Home Expo en Espanol Program. Included in that component is a Money Smart en Espanol Seminar that we teach to all of the clients that go through these programs.

We also do investment referrals. We've trained close to 1,000 entrepreneurs in an 11 week program through our Entrepreneur Training Program that's offered in both English and Spanish. We offer seminars and workshops, such as QuickBooks training, and we also provide the banks with the service of pre and post loan assistance.

One of the things that the banks cannot do is provide technical assistance, so that's where an intermediary, such as CHARO, or the non profit comes in to be able to provide that pre and post loan assistance.

Our clients will come in with anywhere from a shoebox, literally, of their receipts, or they have had a bookkeeper. And that's the other battle we fight is with bookkeepers, because bookkeepers tell our clients oh, you don't want to pay taxes, so you have to show you have a loss. They come to training and they want to get a loan. And we tell them well, you can't get a loan if you've been showing your business has a loss, so we need to transfer you over to a CPA. So that we're training our clients how to read their financial statements.

The BFC focuses on bilingual technical assistance. We do pretty much all of the underwriting for our commercial loans. The commercial loan origination, we do the restructuring. Of the $28 million in small business commercial loans that we have had, we have had no defaults. We have had one client whose business failed, but we brought him back. He continued to make his payment. We helped him restructure the deal so he now is getting a new loan for a new business that he's working on. And we also do real estate and finance restructuring.

How the partnerships work the community agency, and those of you who are bankers in the audience we serve a critical role in this three ring loop; and that is, we're the trusted advisor. For a community agency such as CHARO, we've been in our community for well over 30 years. The community knows us, they trust us. We have a high integrity record. We have provided social services, community services. We have lots of outreach that we do. That's the link and the role that we provide the community needs banking services, payroll services, and the bank is providing the banking services and access to credit.

Now one of the unique things that we encounter in serving a bilingual bicultural community, and particularly the Latino community, is whether they're first generation new immigrants, second or third generation, they come from a culture where in Latin America it may take six months to get a checking account, or if you put $500 in the checking account or savings account, it might only be worth $10 the next month because of devaluation they've experienced. Or it might be based on class, whether you get a checking account or not, if you live in Argentina. So knowing these things, this is one of the cultural issues to overcome when tapping into the unbanked, and by using a trusted advisor, such as a community agency, to help bridge that link between the two parties.

What CHARO has done is we have established, because we have been doing community business lending, we do not actually lend money we work with our banking partners, so what we have established is tier partners. Our first tier partners are Tier One lenders. Those are our major banks in Los Angeles, such as Washington Mutual, Wells, Union, Citibank, Nationwide, Advantage Bank. These banks have all contributed a minimum of $25,000 or more. Wells Fargo just gave us this year a $300,000 capacity building grant. Washington Mutual gave us a $95,000 capacity building grant, so some of our banks are giving us a sizeable amount of funding for capacity building.

Those banks, what we have figured out is they're Cinderella slippers, so to speak. Each bank has a portfolio they're trying to keep in balance, and so we know what each of the banks kind of like.

We give those banks, our Tier One banks, first right of refusals on our loans. They have 10 days to say yes or no, they're going to consider it, or no, they're not going to consider it. Because of the quality of the packaging we provide them, they have all the financial statements in their packet.

The next lender is a Tier Two lender. Those are community based banks, such as Café Bank, East West, and Far East Bank, and Innovative Bank. Those banks will provide us a referral fee. It takes us anywhere from 40 to 80 hours to package a loan, and it takes us anywhere from 45 days to 90 days, depending on how much we have to beat on the client to get all their papers in, because we can't turn anything in that's not complete because otherwise, we're doing a disservice to the client, because the bank isn't going to look at it until it's ready to go. And then we're giving shoddy work to the bank. And we really pride ourselves on being able to provide very high quality services.

Then we have Tier Three lenders. These are our micro lenders in Los Angeles, FAME and VEDC. We call them, these are our dog loans. These are for clients who have bad credit, who have not been in business long enough, who are really not creditworthy for a bank. Because remember, they also are lending your savings money, in addition to whatever else money they're doing. But our micro lenders can take riskier loans, so we have established relationships with our micro lenders to be able to refer a client. Because our objective is to ensure that a client gets access to capital.

The benefits of these strategic alliances and I invite all of you who are bankers, as well as community agencies to really look at this as a win win situation. There's an established referral system, staff is trained in underwriting. We've had Wells, WaMu, all the different banks we work with come in and train us on what their underwriting criteria is. Each one has a different kind of underwriting, so we need to know that.

We also provide increased access to Latino business community, which is the fastest growing in the State of California, and increased [access] to capital.

In bringing the parties together, it's a win win situation for both the bank and the community agency, and the community. To get to the table, one of the things we found that was effective for us was participating in Greenlining the National CRC Committee type activities. A major bank, such as Wells Fargo, wouldn't know who we are if I went and called on them. I now, because of Greenling or CRC, the committees that we sit on I know the executives of these banks. I know I can talk to them, and I can say we're having troubles with getting our business loans processed through your bank. Is there someone we can talk to, so that maybe we're just missing the mark, so we can get the right kind of client to your need. The other is that we belong to a number of chambers, and this, too, provides us access to a number of hundreds of small businesses.

In bringing the partners together also, we invite you to participate in CRA type activities. These are like financial literacy training program, such as we offer the Money Smart en Espanol, and our Home Expo Training. We are also offering the Money Smart program to our child care center. This is a new initiative we're doing with the FDIC.

We serve over 200 children daily. There are well over 200 parents that we can introduce, and we can track them over a two year period from the date they enter their child, which is about two years old, to the time they exit when they're ready to go to kindergarten.

The banks have also been able to provide us with employee training. One of the challenges I have with my own staff is getting them to use automatic deposit. Forty percent of my staff don't use it, and I can't understand why. It's just so easy.

The other thing that is a good development program for the community agency and the bank is staff development. One of the things that we've had a number of our banks do is to come into CHARO and offer professional commercial lender training. City National Bank came in for about six Fridays every afternoon, they trained our business development staff on commercial lender training. Citibank does this in Los Angeles, and they offer about a week long program to an assortment of community agencies who do lender training.

In summary, one of the things we look for is a good fit, having similar values and that you both are looking to have a win win situation, and you're looking for shared outcomes. We want to create access to capital. That one, if you're a community agency you're providing a value added service to your bank and to the community. If it's not a good fit, that's when only one side benefits, and there's no return on investment, and there's no capacity building.

One of the things I tell my banks is that I'm here to serve as the bridge to the community and to you, to make sure that my community is getting access to capital. But I also will not ask you for a dime of money next year, if I have not fulfilled my requirement and my commitment of making sure I get you loans, funded loans at your bank. So that's the win win situation that we use at CHARO, and thank you for your time.

MARTINEZ:Thank you. I'm Clara Martinez, and I'm with Wachovia. And we've heard a little bit about relationships and partnerships, and I want to thank the FDIC for a wonderful relationship, particularly Chairman Powell, and [Deputy Director] Donna Gambrell, and [National Coordinator for Community Affairs] Nelson Hernandez. Let me start off by saying thank you.

And regarding partnerships and connections, I have connections with three of the panelists up here. To that end with Cynthia, I lived in Los Angeles, and I am fluent in Spanish. With Ernest, he said he came from the Paradise of the south. I was born in Cuba, and we call Cuba the Pearl of the Caribbean. And as far as James is concerned, he is honored to be here, as am I, because 41 years ago, one month and one day, I came to this country as an immigrant from Cuba. So my father would be very pleased to know that I have such an honor to be speaking to each of you today.

I am going to be very brief, because I know that Dr. Flake has a plane to catch, so I'm going to try to be very brief. And as many of you know, for me and for a Latina, that requires a lot. So I'm going to take you from the big picture point of view, and then sort of narrow the focus of our conversation specifically to efforts that Wachovia has made in deploying financial literacy to the community defined as the low to moderate income, and the LMI. To that end, I wanted to briefly just say who is Wachovia? I think most of you know, but there were some people even from the FDIC that did not know how to pronounce the name, so it is Wachovia. It's Wachovia, and we're all up and down the eastern seaboard, and up until last week when my friends, B of A, announced their merger, we were the largest bank on the east coast, so I had to delete that from my slide.

But what I want you to sort of focus on is what we did in 2002. I know that Ernest was talking about everything that his bank has done. And I think it's important for us to know that collectively, the banking community does give back to the communities in which we serve. To that end, in 2002, we made more than 19 billion in community development loans and investments. We helped 450 lower income families realize their dream of homeownership every week. We created over 6,000 units of affordable rental housing by investing $250 million in equity. That is what a bank this scale, this size can do, and does, to give back to the communities.

Wachovia's community development activities underscore the tremendous need that exists in this community. And we've already seen this particular slide. Michael Barr went into it in terms of what are the key issues, what are the needs. But I, too, have folks that I need to beg, borrow, and steal from, and sometimes it does require that we focus on the need and revisit it over, and over, and over again. But I would call your attention to the one million folks that live in this footprint in the east coast. Those are the ones that we serve, that I am focused on specifically with the job and program that I manage.

While Wachovia has depository products suited to the unbanked, we have ATM Pay Access Account that is designed for direct deposit for government proceeds as well as payroll. We have free checking, et cetera. It's not just about the availability of products. It's not going to be just products that will get the unbanked into the financial mainstream. It has to be products, coupled with financial education. That will bring them forward.

To that end, let me briefly share with you what is our vision. And we talked a little bit about some of this today, and I just want to focus as I'm running through this, the Wachovia At Work Vision, the concept of a financial institution partnering with employers to deliver financial services at the work place. And as a bundling of services to also provide financial literacy in the work place. So that is a key success for banks and something that I would sort of position as an opportunity for all of us to consider going forward.

One more thing that I'd like to share with you. Individually as a corporation, for those of you bankers and even the non profit communities, I have a question to ask you do you give your employees the opportunity to take time off paid to contribute and give back to the communities? We have that as an established H.R. practice, within our corporation for giving back to the communities, whether it's to a school or whether it's to your preferred community we allow, we provide, we encourage six paid days for our employees to give back. That's a heck a lot of opportunities for community investment, considering we have 80,000 employees. Thank you.

Let me tell you just briefly, the financial literacy program that I manage is composed of three programs. The one that I'd like to showcase is the very successful financial literacy Money Smart Program that our friends here at the FDIC have put together. I have an H.R. background, and I had an opportunity to review many of the financial literacy programs that exist out there. I chose the Money Smart Program because it was so focused and aimed at what the need was. It's very basic education that's well designed from an instructional perspective. And it stands alone, and it can be coupled together. And the unique thing is that we're looking to couple the Money Smart program with one of our programs that we have internally, which is this eCommunities First, which is about closing the digital divide. So marrying the concept of delivering and deploying products through technology, our folks also need the education around the technology. So we're looking to marry and couple two programs together going forward.

We've had a lot of successes. We've had challenges at the same time. Let me share with you some of the successes that we've had. The concept of relationships 29 relationships with non profits, some of whom may be in this room today. That's how we designed the process of deploying and delivering financial literacy. It's identifying those non profits in the communities that we serve that have similar core values and mission statements in delivering to this segment.

We enhanced the delivery of the Money Smart Program by using resources that we have within our own corporation. We wanted to ensure the consistency of the great message that Money Smart had put together. To that end, we developed videos and Train the Trainer to do and accomplish two things. Number one, ensure the consistency of the message was being delivered with each of the modules. And number two, to try to minimize the amount of work that was required by the non profit community in delivering this. You don't need to now be a skilled trainer to deliver and deploy Money Smart. We have some sort of job aides in terms of the technology. We've built some videos around that. So that's something I'd like to sort of position as a triumph the opportunities that exist.

Our opportunities are such that we need to ensure that we're aligning ourselves with the non profits, again that have like missions; that those non profits understand the concept of sustainability, the concept that we're looking to close the gap with the unbanked. To be able to bring more people into this financial mainstream means that we have to have partners that have the capacity to deliver on a consistent basis year in and year out. So adopting some business models in terms of forecasting, and adopting some terminology that exists within sort of corporate America or just standard business practices, key performance indicators.

I have more questions than I have answers, and I look to the group to sort of provide me with some opportunities for a rich discussion, but I've posted some questions up here that I'd like for us to consider. How can we together get better at closing this gap? How are we going to be able to obtain and align resources for our community partners? What's the best way for us to track behavioral changes in this community that we serve?

It is not just about counting how many classes we delivered. It truly is, truly is about changing people's behavior. That has lots of implications. It has implications around the concept of privacy. It has implications in terms of the cost to the non profit in tracking it. But unless we start now, we won't know whether we're getting any traction. We won't know what changes we will need to make. So I put these questions out there, and I encourage you to help sort of generate some rich discussion on that.

Finally, last slide. We launched Money Smart in January of this year. This is a direct quote from Ken Thompson when he was delivering and deploying this program in conjunction with the folks here in Washington, and Chairman Thompson. I'd like to just let you read it very quickly, and I'll highlight some words that resonate for me, and resonate for this particular topic; and that is, Ken talks about community. You see the word "partner" in there, and you see the words "stakeholder" and "shared success."

Each of us in this room will need to come together in the spirit of community as partners, as stakeholders to create the shared success of moving the unbanked into the financial mainstream. Thank you.

HONORABLE REV. FLOYD H. FLAKE: Thank you, Clara. And I think that that sets the stage for a segue into the final statements that I will make, and I will be brief. It is Wednesday, and during my 11 years in Congress, I made it a practice of flying back to New York most nights, but certainly on Wednesday nights to teach my own bible study. And I will be there tonight with your assistance, because as soon as I finish, I'll run out and get a plane. I've already written it, by the way, so it's not a real struggle in terms of getting it ready.

I want to thank Chairman Powell, first of all, for being on the Advisory Committee, and for bringing us together in this forum. It is important for us to understand this community that we speak of and that we speak to, so that we might be able to hopefully create synergies among them, and an understanding of what it takes to really bring people into the mainstream who have historically not been there.

I'm in my 28th year at the Greater Allen Cathedral, which is a rather large congregation, which has 11 corporations under it. And those 11 corporations have emerged in large measure by defining what the community need is. And through our own surveys, concluding that we have a responsibility not only to give the word, but to give meaning and visibility to the word through the manifestation of what I call "The Presence of God and the Life of God's People".

Through that, we have been able to demonstrate to lending institutions a responsibility to share with us in a partnership, and this has not come about easy. A partnership that started out when I first came with a dream and a vision that we should build a school, and banks telling me that that is an impossibility impossible because they had no way of being able to do an assessment of the congregation's ability to be able to handle the responsibility of paying back the note. We were going to do tuition based schooling, but also the church itself was taking responsibility for the loan itself.

They could not find a way to quantify it, and then three banks came together; Carver Federal, Citibank of Newark, and Freedom Bank which was then in business, came together and said we'll do the loan. We'll package it, and they did it.

One of the great things that happened was in the process of that becoming reality, we also started dealing with the government on the Older Americans Act, the 202 Program, with urban renewal land that had been declared such by the City of New York in 1973. So by 1976 when I arrived in the community, nothing had been built on the land. The homes had been torn down, but there was no sense of commitment either on the part of government, and certainly on the part of lending institutions of being able to make investments in the community.

It became clear to me that there had to be a reversal of a historical paradigm. First of all, the paradigm involving, as Kevin said, the people. People driven by fear factors, brought out by various events and occurrences in their lives, persons like my parents, fifth and sixth grade educated who came through the Depression and had a fear of banks. Before my mother and father died, they never had a checking account; but rather, on Fridays they took it upon themselves to go to the store, their local grocery store, get money orders and send those money orders to pay the bills because they had no trust of banks.

If you come into a community like the one I found in `76, that was pretty much the attitude of the people, which has given rise to the check cashing agencies and to those other financial entities that seem to think that they have a corner on a market. And they have the corner, in large measure, because financial institutions take an attitude and an approach that in many instances say, we can't do anything about it because we don't feel that you are bankable, or that you're worthy of making the investment.

Those three black banks came together though, and they indicated and showed that we could not only handle the mortgage, but if given the opportunity, we could do even greater works. We began to take our tithes and offerings and began investing in the community by buying up any vacant land, any boarded up stores, and places that drug dealers were operating. And in that 26 block area, we did that with tithes and offerings.

I don't want to give you my tithing lecture today, but it does make a huge difference when you can get a congregation to understand its responsibility to itself, and its responsibility to its community. That changed the minds of a lot of people in terms of their perception of church, and it also changed their perception as it relates to their responsibility to give to an institution that promised to make investments in their community.

An interesting thing began to happen. Once the school was built and an $11 million senior citizen center built on urban renewal land, people had a different concept about their own community, and began to want to make their own investments in it so that persons who were not members of the congregation started giving to the congregation, persons who were members of other congregations came and gave their tithes at this particular church, praise the Lord, and they still do. But something else happened.

Walter Shipley was Chairman of the Chemical Bank at the time, President of Chemical. And one day I got a call out of the blue. Walter Shipley called up and said, "I want to come and see you. I hear great things about your church, and great things about what you're doing. I'd like to come and see what you're doing, because our bank would like to try and find community groups in which they can make an investment, and participate as partners."

Walter came out, looked at what we were doing, all the land we had bought, the buildings we had bought, but I had no way of being able to accumulate enough resources to make full investments in them. And then what he said was, "Let's do some projects together, and let's see how they work out. Let's see whether or not this church has the capacity to do it."

I will tell you, even today with Walter having left and the bank having merged and become J.P. Morgan Chase, Chase is still our largest lending partner. There was a time when we wanted to build a school. I went to about 30 banks. Nobody would lend money on it. Now people come to us or people call us and ask us what our next project is, because they want to participate with us in a partnership.

What it brings about is, there must be an understanding on the part of both parties that it is good investment. These communities represent a great deal of hope and possibility. I would urge them that as we look at how we get people into the bank, let's look at how we create something visible for them.

Every Sunday morning my offering appeal is preceded by an appeal that every member of the congregation who is not a homeowner becomes a homeowner. And I say to them we reverse the paradigm. No longer do we buy cars we can barely afford, simply because the bank makes it possible for us to do so. Rather, we lease cars and we do what? Their response to me is that we buy homes.

My question then is, why buy homes? And they respond it is an investment and an appreciating asset. We have to build in people an educational sense of what it means to own that one piece that represents historically the number one item in one's portfolio. You cannot talk about wealth building in most of these communities without getting people out of the pattern of renting. And you do so by trying to change the face of a community.

We built, with J.P. Morgan's help, first of all, with Fannie Mae's help, because I was able to approach Fannie Mae and get guarantees, secondary market guarantee to build homes. We have built over 600 homes through my church corporations. And those homes have been sold to first time home buyers.

When you get people to take a stake in the community, you change their attitude about themselves. They make not only that investment, but they make other investments to improve the property, and they also learn what it means to develop a creditworthy portfolio.

I challenge them by bringing bankers in and various financial people to talk to them about what it means to develop the proper kind of credit, and make them understand that you cannot go to the bank and say God sent me, and expect the bank to give you a loan. It just doesn't work like that. And the power of the Holy Spirit is mighty, but the power of the Holy Spirit does not give comfort to the bank who have regulatory obligations that they must respond to.

So when you begin to challenge people in that way, you come to the realization, and they come to the realization that, indeed, they can participate. They know that they can do things for themselves, that they have not historically been able to do.

We built two family homes, one unit within the home for the home buyer, and I will finish after I make this statement. And that is, what we discovered is that there were people for the first time had an understanding of what it means to really be able not only to possess your own home, but also to be able to have that renter. And in our case, the State Mortgage Agency, I'm talking about other partners that came in State Mortgage Agency came in. We were able to discount the mortgages, so that anybody who was creditworthy would be able to purchase a home with a 5 percent down payment. My agency did all of the bank clearance, did all of the counseling, got people ready before they went to the bank so that they would not be turned down. And once we took them through that process, the banks were readily waiting because they wanted the end loans, but first they wanted the construction loans. But then, of course, long term they wanted the end loans. It was to their benefit to partner with us.

And as those home buyers moved into those homes with a mortgage of $797 a month, some of them today are renting those three bedroom units that we put with that home at $1,000 to $1,200 a month. In other words, they're living free, they're getting the equity, they're getting the tax reduction. Everything that you could possibly want in homeownership, they have learned how to make it work for them.

My challenge then for you today as we leave, look for partners. There are partners out there who have opened up a process by which they are open to doing business with persons who have historically not done business with banks. Many people are afraid. They are fearful of what's going to happen to their money when they put it in the bank. I don't understand that, because they ought to be more fearful of what's going to happen when they have to deal with these unscrupulous dealers up and down the block. But those people make billions of dollars a year simply focusing on this population.

I would urge us, therefore, to not consider ourselves as mere banks, by virtue of the building we occupy, or the platform on which we set, but deal with the reality that if we are going to be participants in wealth building, if we're going to move a population on the Fannie Mae foundation board, our studies indicate 72 percent of whites or more are homeowners, 43 percent of African Americans, 42 percent of Latinos. If we're serious about making America the kind of nation that it ought to be, one that feels free in exporting its democracy to other countries abroad, we ought to make sure that we've given the best opportunity for those who are here in this nation of our's. We ought to offer them the opportunity for homeownership. And I promise you, they will change their attitude about banking when they have to do business with banks, and they have a stake, that is that visible evidence of the manifestation of God. And that's the place where they turn the key that they call their home. Thank you very much.

Q & A Panel III

MR. BALLENTINE: That's their story, and they're sticking to it. It's a good one, indeed. We have time for a couple of questions.

MR. SMITH: Marty Smith, Federal Reserve Bank of Philadelphia. There seems to be an interesting theme that has evolved today that needs further scrutiny. One view says that the best way that we can serve the unbanked is to form alliances between check cashing operations and traditional financial institutions. Another view says that if we are ever to bring the unbanked into the mainstream, we cannot allow such marriages to take place.

First, I'd like to hear from the panel what their thoughts are on these two opposing views. And second, if you're against these marriages, what must the traditional financial institutions do in order to provide the services that are currently being provided by these alternative service providers?

REV. DR. FLAKE: I think banks can find partners that are not necessarily those who are represented by those check cashing entities. There's too much of a mixed bag. You don't really know what you're dealing with. I think if you find community institutions that have been operative, as mine has been since 1834, when you find those community institutions, you know they're not going anywhere. They are people that have developed some viable means by which they have addressed community needs. They have not just been there to take profit from the community.

I think the other piece is that with banks' regulatory requirements, they would be better served dealing with in community institutions, as opposed to in community entities like check cashing and others. And with all of the issues surrounding how these institutions are operating now, and the prejudices and other issues relative to loans, I would be reluctant to want to see banks partner with many of them. I know some of the folk in the business, and I would be very careful about that, personally. And I have a plane to catch. Thank you.

DR. SMITH: Let's thank Reverend Flake. One more question for the panel. How do the banks you work for address the need for more ATMs in low income areas, as mentioned a little bit earlier? How do the banks you work for deal with that need for ATMs?

MR. SKINNER: In the case of Citibank, we keep ATMs where we have premises. We don't, as a general rule, do off premises ATMs.

DR. SMITH: Let me push you just a second, because I think the questioner intends okay, now we have low income communities that don't have access to the quality ATMs and your quality services then. How do you then reach, if you're going to use that policy?

MR. SKINNER: Well, in this case we don't just rely on any one form of attracting customers. As I said, we do have relationships with several not for profit and community based organizations. We do seminars monthly within our premises, as well as outside of the premises. We do have access by phone. We do have access by computers. So as a general rule, we believe that we do quite a competent job of reaching whoever is available, and who wants to use our services.

DR. SMITH: I know Wachovia wants to say something.

MS. MARTINEZ: I think I agree with Ernest. I also need to focus the fact on that from a regulatory point of view, we have got, by regulation, by law, to ensure that we are in the communities in which we serve, so we can't redline, in effect. And I know that Wachovia, like Ernest's organization, is very deliberate in looking at not just whether we're going to open up or close, but when we need to refurbish in a low mod area. So by law, we are regulated. But also, we recognize that there's a growing opportunity to deliver and deploy services to this community, so it's enlightened self interest, quite frankly, as we have heard earlier today.

DR. SMITH: Okay. Thank you. I see one more hand. We're very, very close to our time, very close. Is it a short question? Okay. We'll need a short answer.

AUDIENCE MEMBER: Okay. He's not letting go of the mic. I think this forum is very informative. I think it's great, but there's still one population that I hadn't heard much about, and that is the special needs population. We have a large group of those that are hard of hearing, blind, MS. That population goes without income limitations. How are you addressing that population?

MR. SKINNER: In the case of Citibank, if you were to visit a Citibank Financial Center, and we call them Financial Centers, not branches, and you were to look at our machines, you would notice that it has Braille amenities, and platforms that are lower, so we're in compliance, and try to stay ahead of accommodating people with those type of disabilities.

MR. BALLENTINE: Thank you all for listening, and let's thank our panel.

And the Survey Says?
A Case Study of Financial Education in Chicago:

DR. SMITH: And to introduce our next speaker, I'd like to bring up to the podium Mr. Art Murton. Art Murton is the Director of Insurance and Research for FDIC. Mr. Murton.

MR. MURTON: Thank you very much, J. I have the privilege of introducing our next speaker, Dr. Angela Lyons. We've heard a lot about Money Smart. We're very proud of it at the FDIC. One of the things that Chairman Powell always reminds us is we should try to measure how effective our efforts are, and this next presentation speaks to that.

Dr. Lyons is an Assistant Professor at the University of Illinois at Urbana Champaign. Her research there focuses, among other things, on financial education, and she's the co director of the University of Illinois' Center for Economic Education. Professor Lyons received a Ph.D. in Economics from the University of Texas at Austin, and I'd like you to join me in welcoming Angela Lyons. Thank you.

DR. LYONS: I want to thank the FDIC for inviting me to talk today. Last week, I had the honor of testifying before Congress on the importance of financial education for students, and I feel that it's an honor to be here today to talk about the importance of financial education for another very important segment of the population, the unbanked.

Before I start, I wanted to give you just a quick little bit about my background, because you heard Professor and Researcher. And sometimes you're thinking oh, my gosh, are we going to see tons of numbers up here. It's like going on 4:00 in the afternoon. No, I wanted this talk to be a very practical discussion for all of you today. I'm going to quickly give you some of the key findings, but what I really wanted to do, is that I know that a lot of you guys out there have your own financial programs and initiatives going on. And I wanted to take what we've learned from the evaluation from the Money Smart Program, and share with you some of the challenges that we've seen, and what we've gained from that, so that you can take that back and think about your own programs and initiatives. And, hopefully, you will find this helpful.

About two years ago, I received a call from Michael Frias from the Chicago office [of the FDIC], and he asked me if I'd be interested in helping to evaluate the Money Smart Program. An evaluation team was put together, and thinking back about those initial meetings that we had, I'm thinking I really don't think we had any clue what we were getting ourselves into.

The challenges that we faced in terms of the time and resources that were involved to do an extensive program evaluation, especially the labor intensity. I bring this up because I know that a lot of you are not for profit organizations. And I know the challenges that you're facing in terms of how do we show program impact with the programs and initiatives we've got going on out there. And I hope in sharing some of these things that that will help you as you think about your own programs.

So real quick, I do want to thank a couple of groups here. I want to thank the Women's Bureau at the U.S. Department of Labor, and the Department of Agricultural and Consumer Economics. They helped to provide financial support for this study. And then I also want to thank the Money Smart Evaluation Committee in Chicago, because without their time and energy, this research would not be possible.

Like all of us sitting here I mean, the theme here is that we've got this growing concern for the unbanked, that they're inadequately prepared for today's financial marketplace. We've got numerous programs and initiatives out there that have been created to empower the unbanked with financial knowledge, and to encourage them to enter mainstream banking.

Very few of these programs have conducted an extensive program evaluation. I know Dory mentioned the FLLIP Program. That's one of the few in the country, and along with the Money Smart Program, that I'm aware of that has conducted an extensive program evaluation. Many of these programs, as Clara had mentioned, are saying these are how many people are going through the programs. This is how many accounts were opened. And I hope that I can give a new kind of perspective on what we need to be thinking about in terms of program success for the unbanked.

So the Money Smart Program my guess is that most of you guys are familiar with the key objectives of this program. Just to highlight them real quick to provide individuals with tools necessary to evaluate and make their own financial decisions, to financially empower and encourage the unbanked to be banked. And then, to foster community stability and vitality.

The objectives of the Chicago evaluation, which is where we focused our evaluation efforts when we sat down as an evaluation committee, we wanted to investigate the account activity and financial behaviors of the Money Smart participants, so where were they currently at with what they were using? And then to examine the effectiveness of Money Smart in moving the unbanked to banked. And that's primarily what is the role of financial education. And then we wanted to provide an evaluation model that other researchers could use to follow and evaluate their own educational programs.

To date, Money Smart participants in the Chicago area have included Welfare to Work participants, Spanish speaking immigrants, Chinese immigrants, public housing residents in Chicago, and continuing education students at community colleges. This has been a very long road. We've been working on this project for two years, and so what I want to do real quick before I get to some practical application points is, first of all, tell you what's the history behind this evaluation project, where are we at now, and where are we going to go from here.

So where have we been? We collected data from select sites in Chicago, beginning in May 2002, and then we ended in February of this year. We collected surveys from 408 program participants. We had to drop a number of those due to the fact that there was just key missing observations, and missing information. And a lot of this was because of insecurity in providing financial information on a survey.

What we're working with is a sample of 338 observations. There were three key components to this evaluation. Like Dory, we conducted a pre and post evaluation so they would come into the program that first day. We'd give them a pre evaluation. Upon leaving and graduating from the program, they would then receive a post evaluation. We also collected information from the Money Smart instructors, and input from community banks.

To give you just a quick look at the information that was collected with this survey, with the pre evaluation, we collected savings and checking account information, their usage of alternative financial services, their borrowing behaviors, and some general financial knowledge. Did they know how to write a check? Did they know what APR was?

With the post evaluation, we collected some demographic information, we looked at their anticipated banking behaviors, and the impact of the program. From the instructors, there was some variation in what was taught across the different sites in Chicago, so we collected some information in terms of what specific lessons from the curriculum were taught. And then also, did the participants have any contact with community banks? Did a banker come in and talk to them? Did they take a tour of a bank? So we also collected that.

With respect to how we measure program impact, we had some very general statements on the survey that asked as a result of participating in the Money Smart Program, do you feel more financially knowledgeable? Do you feel that you can manage your finances better? And do you feel that you can use what you've learned from the program on your own? And then finally what we did, was we asked them and this was in particular for the unbanked is that if you did not have an account at the beginning of the program, did you plan to open an account? And if you did, why? And if you didn't plan to, why not?

So where are we at now? The findings. There's clear evidence from this survey that the Money Smart Program has succeeded in encouraging the unbanked to want to open an account. And what I mean by to want, is that we don't actually know if they did. But we do know whether or not they indicated that they planned to open an account.

Of those in the survey that were unbanked, 80 percent of those reported that they planned to open an account. Now we do need to be cautious about that figure because of the fact that this could be because they loved the program. They were excited and motivated by the end of it, and so we don't know, again, how many actually opened accounts at the end of the program.

The other thing is that there were distinct ethnic differences. And I don't think this should surprise anybody in the room. That of those who were unbanked, African Americans were more likely to plan to open an account, and Hispanics were least likely.

Some other interesting information that came out of this is that, when the unbanked were asked their reasons for why or why not they planned to open an account, this was following the program, it was interesting that those who had planned to open an account were communicating that they felt like they were financially prepared. It's like we went through this program. We lacked the financial knowledge. Now we've got it. Now we're ready to think about they were saying things like long term financial security, very forward thinking, thinking about long run financial goals, savings for an education, for a house.

When we looked at those who went through the program who said they didn't plan to open an account, it was not because they were indicating that they had a negative experience with the program. In fact, as we're going to see with the next slide, there was overwhelming positive support for the program at the end. The sense was that we went through the program. We've got the knowledge now, but we're still not in a position where we're financially prepared to even open an account. But we know what we need to do in order to get to that point. A lot of them were saying we still just can't afford it. We're unemployed. We still don't trust banks. That theme has come up again and again.

So if we look at in terms of attitudes and some of the responses, it's not surprising that participants who strongly agree that they were more financially knowledgeable and better able to manage their finances, these individuals were significantly more likely to report that they plan to open an account. However, and I brought this up before, that planning to open an account doesn't mean that they did. And it also, perhaps, doesn't mean that they should. And I'm going to talk about that in a little bit.

So just some more key findings in terms of financial constraints, not surprisingly again, played a predominant role in preventing the unbanked from opening an account. Over 70 percent of unbanked participants cited financial constraints as the main reason for not having an account. And we kind of mentioned this before, is that program participants who planned to open an account were more financially prepared to open and maintain a healthy account than those who weren't.

So at this stage, this is more where I get into the practical application. I mean, I went over those results really quickly. I mean, there's a huge report that I'm going to cite some sources at the end if you'd like to get a copy of that. There's also a research paper, but I really wanted to spend some time right now talking about what we learned from all of this.

I think the first key observation, because I remember the evaluation committee sitting around a table with a group of community bankers, and they were telling us that yes, there were these accounts that were opened. But after six months, many of them closed. And so there was a little bit of depression, but I started thinking about this from the standpoint that I don't think we should think about this as this wasn't successful. I think we need to think about how we're defining success with these programs for the unbanked.

Success, the best measure may not be the number of accounts that are opened, but instead, with this financial education did we provide them the necessary skills and tools so that they can make that decision on their own when they leave the program. And in my mind, that's the better measure of success.

Another key observation that we gained from this is that, if the key objective of programs like Money Smart are to get the unbanked banked, then it's absolutely critical that we start identifying who the unbanked participants are that we can get banked. And what I mean by this, is that a lot of researchers will constantly say that this is such a heterogeneous population, how can we specifically target this? We talked about some of the characteristics of the unbanked today, but the thing is that we're not I almost want to say we're putting the cart before the horse.

We developed all these programs and initiatives, and now they're out there. But now we're like trying to identify who this target population is. And I guess I'd like to say that we've heard two themes today. One is like on this financial education path, and one is on the products and services, targeted to whoever we're trying to identify as this unbanked population. And through the research that I've done with the Money Smart Program, I've made some observations that probably are not going to surprise you. But I think if we kind of think about things in terms of the unbanked in three categories, I think it might help us to further think about our evaluation. So the next slide kind of breaks down these three groups.

The first group is those who are in a financial position to open and maintain a healthy account, but who did not have the knowledge needed when they entered the program, to enter the mainstream financial system, these individuals clearly, there's a strong role for financial education.

The next group is those individuals who are in a marginal position to open an account, but need the right product. And we talked a lot about the toasters today in terms of what we can do to get them banked.

The third group and I might get some tomatoes thrown at me on this one is, those who are unable to open and maintain a healthy account regardless of knowledge and/or product. I mean, the reality that I have really seen with the Money Smart Program is that there is a group of the unbanked, that no matter what we do, they are just not in a financial position to open at a bank. That's not to say that financial education cannot be successful. I've seen huge success with the Money Smart in terms of things that I've heard from the instructors, that they walked away knowing that right now it's not right for me, but I know that this is what I have to work towards for me to get into that position.

You know, I don't know if you want to frame it with these three groups or something else, but this helps us with a starting point to say okay, within these groups what are the characteristics of the first group? What are the characteristics of the second group? So we can start doing more targeted programming for financial education. And also, in terms of products and services. So I really would encourage you within your own programs to think about who you're targeting, who they are demographically. And in terms of these categories, what you can do to meet their needs.

Which brings me to the third observation, which is programs such as Money Smart are not a one size fits all program. And I mean this in a very positive light from the standpoint that there have been numerous groups and organizations that have gone through the Money Smart Program in the Chicago area. City Colleges, which is the community college system in Chicago, they have had just huge success. Community colleges, at least what I've seen in Illinois, they have been incredibly effective at reaching limited resource audiences with financial education, bringing in the numbers. But some of the key things that have come out of that in talking with instructors there, is that Money Smart needs to take that next step, needs more on savings and investing, more on credit management, credit cards, using credit cards responsibly.

And I know, too, that there has been talk in terms of making this connection in high schools and things like that. I mean, we need to think about whatever program or initiative you have going on, really think about who that audience is for. And sometimes, in many cases, that program is the best program for that particular audience. And if you're taking it to another audience, you want to think about ways that you can tweak that or enhance it.

I know another observation that I have made out of this, is that and this kind of came also out of testifying last week before Congress, and also attending a conference recently at the Federal Reserve Bank of Chicago on Asset Development for Limited Resource Audiences was that there's another key area where there's been success, and that is with the critical connection between students and parents, especially for the Hispanic community.

I've heard a lot of stories where it's been incredibly effective to bring, banking into the school and Hispanic community, and they're taking that home to get kids to bring their parents to events after school or in the evening. And so I would encourage you to think about, too, the role of taking this down to the schools and prevention in bringing this forward.

So with that I want to say we've come a very long way with this. And I know that so many of you guys in the audience have programs and initiatives. With Money Smart, I mean this has been a two year effort. We're still looking at things, a cooperative partnership with a number of organizations. And so I want to leave you guys with some thoughts about where do we go from here? Just again, more targeted programming with financial education, but not only with financial education. We want to think about these products, mainstream services and products, and alternative services and products.

And I think you might be thinking okay, alternative. I'm not thinking of that as predatory lending. I mean, I'm thinking of that as other things outside of a traditional savings and checking account. And I think for that marginal group, we do need to think about alternative services and products.

We also need to think again about specifically who these people are, a critical examination of program participants. I know we had a significant drop out rate in the program, and that was a lot of times due to the organizations we were working with, especially Welfare to Work Programs, where once they got a job they left the program. That's a challenge, and we need to think about if that's going to be happening in the groups that we're working with, who's dropping out, who's staying in, and what are we going to do about that?

Also, this is really key. An effective financial education program for the unbanked requires a combination of innovation and cooperation from local banks, community based organizations and policy makers. All of you guys are sitting there thinking that's really obvious. We had a real struggle with this in Chicago, in terms of bringing the banks on board. And some of it was the fact that what happened was they were seeing that accounts were being opened, and then they were closing six months later. So you want to think about it. This works best when you've got everybody on board, and you want to think about ways that we can do that.

I just want to leave you guys with one little personal story; which is, yesterday I had my wallet stolen here in D.C. at Union Station. I was panicked there for a little bit, and then I kind of thought about the irony of all of this which I feel a little unbanked right now. I had to close all my credit card accounts, shut down some of my bank accounts because within 20 minutes they were already charging things to my stuff. It was unbelievable.

Then I was thinking about alternative financial services. How am I going to get back? I need to fly, and I have no I.D. But I guess for the last 24 hours, this has really hit home to me what it feels like to be unbanked. And I guess what I just want to leave you guys with is that what I've gone through in the last 24 hours is really a far cry from what the unbanked go through every day. And I think I'm just going to leave you with that, and I'm going to put up right now real quick some reference lists. The first one is the report that has the Money Smart findings. The second one is a research paper, and the last one is if you're looking for tools and resources about evaluating your own program, this might be helpful. So if you want to contact me, I'd be more than happy to send them via e mail to you. Thank you.

Q&A for Dr. Lyons

DR. SMITH: Even though she's unbanked, she not unknowledgeable, so let's give her at least one round of applause, and one question before she leaves. One question, just so each person has one question from the audience. Any questions? Here's someone who's willing to give you a loan.

DR. LYONS: Oh, thank you.

DR. SMITH: Knowledge as collateral. Yes, here's one here. All right.

AUDIENCE MEMBER: I think that I saw in the summary of the evaluation that there was a difference between the programs that were volunteer run versus those that had paid staff. And I was wondering if you could talk a little bit more about that, particularly with the Asian American community, particularly with all the languages that are spoken. And if there's not some infrastructure there, I just wondered if you

DR. LYONS: Basically, what she's referring to is the fact that we work with a number of organizations. Some of them, the instructors are paid, some of them are volunteering to do this. And, I mean, there's a large time demand on people, and for those that are volunteering, it was a lot more of a struggle for us to get the survey information, for us to know exactly what was being taught in the classes. This is another one of those lessons that you can learn from this.

Those that were getting paid were much more conscientious in getting us back surveys, in providing us information. It's all about incentives. And even those that were paid, they're underpaid, so that's a very good point. Thank you.

The Silver Rights Movement
The Unbanked as a New and Emerging Opportunity For You!

MS. GAMBRELL: Good afternoon. Well, we are coming to the end of this wonderful symposium. My name is Donna Gambrell. I'm the Deputy Director for FDIC's Division of Supervision and Consumer Protection. Like a worried mother hen, I was sitting, pacing and kneading my thumbs, and doing a number of things today, but I didn't have to worry because I had such a tremendous group of people, not only in you who are here, but certainly people who are working behind the scenes. Dr. Lyons, thank you so much for your comments.

We, at the FDIC, are always saying that we are continuing to learn always. And actually, it was the Chicago study that spurred us on to do even more in our efforts in the financial education area, to look even deeper, to work with organizations like Gallup, not only to identify the number of people who were forming banking relationships, but now moving to the next step in determining just exactly what behaviors are being changed.

Just for your information before you leave today, in the back of your notebooks there's a tab after that that looks at best practices, and asks for you to fax that form back to the FDIC.

Basically, what the form is asking for is your thoughts, examples, anecdotes, hard data on some of the best practices that you all have seen. And to be honest with you, I have to agree with my colleague from the Philadelphia Fed, who said that there has been a continuing theme today. And I think many of you heard that, and that is this real tension between using traditional approaches to bring the unbanked into the mainstream, versus non traditional approaches. And that includes partnerships, perhaps, with organizations that you may not have partnered with before. But I think it's an interesting question. I think it's a critical question that we have to put forward and think about how do we do that, and what's the most effective means to do that?

I now have the pleasure of introducing our last speaker today, and no matter what words I use, they will never be descriptive enough to describe John Bryant, who is the CEO and the Founder of Operation Hope, which is based in Los Angeles, California. So I will be very, very simple in my introduction. He is a good man. He is a good friend. He is a good partner. He has been working with the FDIC for the past year and a half on financial education efforts across the country.

He also has been able to extricate himself, and I don't even know how he did this, because I'm looking at his schedule. You don't know that I had your schedule in front of me, John Bryant, but I do, because he has been up since I don't know what time this morning. At 7 a.m. he had a talk show interview with a Cleveland television show. At 9 a.m. he was at the Cleveland Fed for a breakfast meeting. At 10 a.m. he was teaching financial literacy at the Cleveland Fed. I don't know at what point you got on a plane, but somehow he managed to get on a plane and get into Washington, D.C. on time to really just cap this wonderful symposium that we have had today. So without further delay, I'd like to introduce to you the CEO and Founder of Operation Hope, Mr. John Bryant.

JOHN BRYANT:Good afternoon. Hello, Ernest Skinner. First of all, I want to give honor to God who got me here somehow. Anybody who knows Atlanta to Cleveland knows it's not a very long flight. I left Atlanta at 4:00 yesterday, and I got to Cleveland at 3:30 this morning. The plane ran out of gas circling Chicago because they couldn't land. And I had and made a commitment to be in Cleveland at 8 in the morning. And I told them I was going to keep that commitment and asked God to help me, so I managed to get there at 4 this morning and do the T.V. show at 6 this morning. But I'm honored to be with you today. I'm honored that Chairman Powell is here, a true visionary, a good man, and I have some remarks for him in a second.

Now for all of you who may know me and are a little concerned that I'm your last speaker, no need for concern because I talked to my Reverend Cecil "Chip" Murray on may way here and he said adhere to the A.M.E. Doctrine of Public Speaking. Be good, be quick, and then be gone. So I know that brevity is the soul of wit, and I'm going to be brief. I've been told you guys are a little crispy. Hey, Linda Ortega. There are some incredible heroes and sheroes in this room. I know that you've had Ellen Seidman and a bunch of inspired speakers, so I'm just going to kind of try to wrap this up with a message about what we can do.

I call it the Silver Rights Movement. I'm not going to read a prepared speech. I'm just going to talk to you, but I'm going to go with an outline so I don't ramble. Item number 1, in order to do this work, I think you've got to have what I call an inspired perspective. The task you seek to undertake and master here is difficult and challenging on a good day with the wind blowing in your favor.

Someone once told me that success was going from failure to failure without loss of enthusiasm. Some of you will get that later. I think you've got to have a positive attitude if you're going to do this work. You've got to understand, you cannot have a rainbow without a storm first. It's a scientific fact that you cannot have a rainbow without a storm first.

Certainly, if you're going to be about this work, then you have to also be committed to what I call the three Ps; be positive, be proactive, and be progressive in your thoughts. Be positive, be practical, and be progressive in your thoughts.

Dr. Scott Peck wrote a book called "The Road Less Traveled." Many of you may know this book. It's been on the best selling list for 20 plus years. It's a 200 page book. The first line, the first sentence, the first page of this book states, "Life is difficult." Translation if you can't get with that statement, don't read the rest of the book, because no one promised you a rose garden. Nobody promised you that life would be free of grief or pain. Life is 10 percent what life does to you, and 90 percent how you choose to respond to it. Whether you believe you can or whether you believe you can't, you're right.

So first of all, with more than 10 million American households representing upwards of 65 million individuals outside of the traditional banking environment, the first thing I have to say is the obvious. No one of us here, no matter how smart, has the answer to this otherwise endemic problem. Otherwise, it would have been solved long, long ago. By the way, I'll start with myself. I don't have the answer.

Secondly, the reality of item number 1 should not mean that we don't try every ethical approach possible to get an answer, to get at an answer. And I don't know what your bible says, but my bible says where there is no vision, the people perish.

Third, you all didn't know you were going to have some church in here, did you? Third, let's all understand that moralizing and idealistic hand ringing alone, no matter how well meaning, will not I repeat, will not solve the multiplicity of chronic problems facing our under served communities like the one I grew up with, and grew up in, Compton, California and South Central Los Angeles.

Fourth, we have got to be about the business of doing something. It is with this in mind, and I commend my friends at the FDIC, including my hero, FDIC Chairman Donald Powell, the best dressed man in the administration. I'm going to get that tie before you leave, Mr. Chairman, who co taught a "Banking On Our Future" class with me in Anacostia last year, and will go back into a class with me and Mayor Anthony Williams later this year, who came to South Central L.A. with me over the summer on his vacation day and toured South Central Los Angeles with me, walked the streets, talked to the people, sat down with some bankers, listened to what they had to say, and encouraged them to do more. I don't know about you, but Chairman Powell certainly qualifies to me as an honorary black man.

I want to commend and thank my friend, Donna Gambrell, a true shero. And Nelson Hernandez, who I call Nelson Mandela, and Bob Mooney, and Judy Chapa, and all of the heros and sheros here, and my friend of the bible, Jodey Arrington, for all that you do.

And so the message here is to say thank you to the FDIC, for what? For doing something. To those who criticize what you do, I say I like what I'm doing much better than what you are not doing. I think we should stop at this moment and thank Donna Gambrell. This is hard work, folks. This is not easy. No good deed shall go unpunished, and Donna has done, and her team has done a great job in pulling this together, which leads me to my next, and probably most important point.

We should be about the business, I think, of delivering what I call practical hope. Within the framework of what's honest, ethical, and has integrity, and is doable, the question should be what can we do? Ph.D.s are good, but Ph.Dos are better. So what I have to offer to you today are models of the practical and the possible in an imperfect world.

Number two, believe in people. We don't do business with companies, governments, or organizations. We do business with people. Deepak Chopra has said we're not human beings having a spiritual experience. We are spiritual beings having a human experience. I believe that. There's not a welfare mother in this country in her right mind that doesn't want her child to grow up to be intelligent, hardworking, tax paying, if for no other reason than to feel proud of them. It's not a black issue, it's not a white issue, it's a motherhood issue. But you can't give what you don't have. In a blind town a one eyed man is king, when you don't know better, you can't do better than an old southern saying. Thank you for the charity laugh. No matter how much I love you, my son or my daughter, if I don't have wisdom, I can only give you my own ignorance. No matter how much I love you, my son or my daughter, if I don't have wisdom, I can only give you my own ignorance. The path to hell is paved with good intentions.

And so out of bad habit we pass down bad habits. Out of love we also pass down bad habits. Folks are not dumb or stupid. They're uninformed, or misinformed, and worse is what they don't know that they don't know, that's killing them. And when you come at this thing from a people place, you quickly really realize that the communities of the wealthless are different in this respect. There's a difference between being broke and being poor.

Being broke is an economic condition. Being poor is a disabling frame of mind, and a depressed condition of our spirit, and each of us must vow never, ever, ever to be poor again. My pastor has told me oftentimes it's not what people call you, it's what you answer to that's important, and never answer out of your name. And then I added, to argue with a fool proves there are two.

Number three, support an institution of change. The one that I decided to support was Operation Hope. I founded it in 1992 after the worst civil unrest in U.S. history. It was America's first non profit social investment bank, a budget of $61,000, one employee, and a vision to change the world and eradicate poverty. Linda was there with me. One employee, a vision to change the world, America's first non profit social investment bank, Michael Nathan, they said, non profit social investment bank? That's an oxymoron. And, John, you're a moron. I love when people dismiss me. I love when people suggest that the ideas have no merit.

Today we have nine non profit companies under Operation Hope. We have an annual budget of $6 million. This year we will raise $10 million cash, the best year of our history in the middle of a recession. We believe in a three legged stool of government, community, and the private sector working in collaboration and in partnership, because no one of these entities can eradicate poverty by themselves.

Supreme Court Justice Stephen Breyer said that our work that we are doing is the last most important piece of unfinished business in America today. If Dr. King was alive, this would be the work that he would be working on. It was the work he was working on in 1968 when he died. It was called the Poor People's Campaign. It was about poor blacks, poor Latinos, poor Asians, and poor whites, because there's more poor whites in America than poor anybody else. It was about moving them all up the economic ladder, because he realized you couldn't legislate goodness, and you couldn't pass a law to force someone to respect you. In a capitalist country, the only way to social justice is economic parity.

And so tying it from civil rights to silver rights, if the 20th century was about erasing the color line, the 21st century is going to be about class and poverty. So Operation Hope put together nine companies focused on poverty eradication. Today we have 130 bank partners with over $2 trillion in assets between them. We have funded $110 million in loans, creating 600 homeowners and 100 small business owners, and not one home loan has ever gone bad in nine years.

We focus on what I call the power of conversion. We convert check cashing customers into banking customers. We partnered with Union Bank of California to do something innovative. Now any of you who have heard me will know I hate check cashers. I think the morals of these check cashers are morally repressive. It's a morally repressive business. Every time you educate a customer, you lose them. You educate them, you lose them. I think it's a horrible business. I bought a check casher. If you can't beat them, buy them.

So we partnered with Union Bank of California, Rick Hartnack, and Navistar Financial known as Nix Check Cashing. Those of you who are familiar with California, they have 47 locations 600,000 customers, some of which are across the street, by the way, from banks. You figure that one out. And we bought 45 percent of Nix Check Cashing, and got them out of the check cashing business and into the conversion business, moving people up and out of poverty.

Last year, 2002 data showed 30,000 new accounts opened in a multi state platform from Union Bank of California, 30,000 accounts opened bank wide. We opened 3,000 of those accounts, or 10 percent of their entire account activity.

You can do well and do good. You can do well by doing good. And by the way, 30 ATM machines in the 46 or 47 Nix locations, the last time I checked were on target to have one million ATM transactions by the end of this year. Now you can't have an ATM transaction without a bank account.

We convert renters into homeowners. Do you know in South Central L.A. after the riot, 35 percent of the folks owned their own home, and 65 percent rented for the same cost of the mortgage payment. Isn't that interesting? If you knew better, you'd do better.

And guess what the voter turnout rate was in South Central L.A. in 1992 38 percent. It wasn't a black issue, or a brown issue. It was an enlightened self interest issue. It's called becoming a stakeholder.

My momma used to always say you better get off of my porch with that mess underline "my" to everybody hanging out on the street corner. The best policeman you can have is a homeowner. And so we have created Hope Centers, which is a cross between a Kinkos for empowerment and a bank branch. One Stop shopping for changing your life. And when you walk in the front door it says, "No loans denied".

Now the bank you can't do that. Let me tell you about the value of a partnership with a non profit. With the bank you can't do that. You must approve or decline day one. But as a non profit, I can do whatever I want, as long as it's legal. So we put up our own balance sheet. We approve you day one subject to the resolution of your primary denial factors. Translation Donna's cousin comes in. We pull her credit report. Whew, baby. It looks like a bus accident. Okay. But it's what you didn't know that you didn't know that was killing you, and I'm not going to judge you based on what you did yesterday, or your shopping spree with Donna last week. So it's from this day forward, you're going to take responsibility and you're going to move forward.

We then approve her day one, give her her hope back, subject to the resolution of her primary denial factors, which means credit counseling, case management, financial planning. We call it private banking for the working poor. We vertically integrate hope.

I know you have talked about going beyond economic literacy. This is what I'm talking about, making it practical. And so what we have done, 80 percent of what do at Operation Hope is education whether it takes us 30 days or three years, we don't give up on you unless you give up of yourself. So we give you credit counseling, and financial planning, and case management, and thick file underwriting, copies of utility bills, copies of rent statements, copies of phone bills. We'll give you financial CPR if you have to. If you don't have a downpayment, we'll open a savings account for you. For every dollar you put up, we'll grant you a dollar up to $5,000. As long as you buy a home, the money is your's.

Where does the money come from? Banks. Why did Hawthorne Savings with a billion dollars it had in assets at the time put up a quarter of a million dollars? Because they got charitable credit, they got CRA credit. They became a hero and shero in the community. They also go their $5,000 back. Why? They got the first right of refusal on that mortgage when they wrote the mortgage, after we did all of that credit counseling and case management. At the end of the day, Mrs. Sanchez became low hanging fruit. Everybody wanted to fund that loan. We had wrung all the risk out of it, so they funded the loan, and got $5,000 back from reasonable fees and interest on a $200,000 or a $180,000 mortgage. Doing well, by doing good.

So we funded $110 million plus. We have $170 million in outstanding lending commitments, 600 homeowners, 100 small business owners. We have 16,000 customers a month coming through three locations. And I'm proud to report, last year we became the first non profit in history to build a bank branch and sell it to a bank.

We are in the business of running ourselves out of business. You should not go to a Hope Center in Donna's high class neighborhood. You should not go to a Hope Center where Ernest Skinner lives. You should go to a bank, a Citibank, a Bank of the West, a Bank of America. We deserve those services, so as much as I love my model, we should be in the business of running ourselves out of business. And so, as soon as we could, we flipped it to a bank. Let them do the hard banking services. We stay there doing the soft banking services, so that our people will continue to be approved for loans.

By the way, we sold them for seven figures; the California National Bank, Hawthorne Savings Bank, Union Bank of California. We're now doing one in Oakland with Bank of the West and United Commercial Bank, and right here in Anacostia, a third world country in our nation's capitol, we're building one with eTrade Bank.

It is unacceptable in the wealthiest country in the world, we have a third world country right here in our nation's capitol. Four minutes from the White House, you have Pennsylvania Avenue with no sidewalks. We can do something about that. I'm coming home now.

The next thing we do is we convert minimum wage workers into living wage workers with new job skills. Greenspan once said that in the information age, the age we live in today, every economy goes through four ages; the agricultural age, the industrial age, technology age, and then the information age. In the information age, the irreversible asset is education and access, and information and access, because once you have those things, no one can take them from you.

I know that Chairman Powell in his opening notice, he said that someone once said if you open your brain and pour it in your purse, it was the best investment you could ever have, because no one can ever take that from you. Somebody once told me in a more crude way as I tried to get money out of them John, pick my brain, not my pocket.

So we partnered with UCLA Extension, Wells Fargo and SBC to create cyber cafes, in our Hope Centers because nobody ever drove by a bank branch and said ooh, a bank, to drive traffic into Hope Centers. We now have 800 students on backlog for 17 computer stations in three cyber cafes.

Finally, we convert the economically uneducated to the economically empowered. We call it Banking On Our Future. This is my proudest program. Banking On Our Future is the only national urban delivery platform for economic literacy in the country. We've educated 112,000 kids in checking, savings, credit and investment because kids are not dumb or stupid. It's what they don't know that they don't know that's killing them. It's what they don't know that they don't know that's killing them, so we have 1,000 Hope Corps members, bankers just like you in eight states across America, teaching children economic literacy. Even while we sit here, there are bankers around America in classrooms. And my mission to educate every child in an urban city before they get to the eighth grade in economic literacy.

Our partners are the FDIC and Money Smart, the Federal Reserve System, Department of Veteran Affairs, Citigroup, a national partner Wells Fargo online. You can go to bankingonourfuture.org. Check this out. They put up $1 million. You say oh, isn't that sweet. It is sweet, but they also got 2.8 million hits on that website this year alone. That's called a feeder, folks. It's called a feeder because it goes right into their website.

You can do well and do good, and do well by doing good. We include Banco Popular and Fleet Bank, and PNC Bank, and Citizens Bank, and Bank of the West, and others as our national partners. Working with Chairman Powell and others, we are now going on a marathon, two months, twelve cities to teach 20,000 kids with 1,000 volunteer banker teachers between October 21st and December 11th economic literacy. We will be here in your city December 11th. Meet us here. Come be a Hope Corps member. Come join the movement. You can do it. You can make a change.

As I close, I want you to do one thing be a little crazy. Here's to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes, the ones who see things differently. They're not fond of rules. They have no respect for the status quo. You can praise them, disagree with them, quote them, disbelieve them, glorify them, or vilify them. About the only thing you cannot do is to ignore them, because they change things. They invent, they imagine, they heal, they explore, they create, and they inspire. They push the human race forward.

Maybe they have to be crazy. How else can you stare at an empty canvas and see a work of art, or sit in silence and hear a song that's never been written, or gaze at a red planet and see a laboratory on wheels, or look at our depressed communities and see new markets. Because while some see these people as the crazy ones, other see genius. Because the people who are crazy enough to believe they can change the world are the ones who usually do.

Martin Luther King, Jr. was crazy. Jesus Christ, in some people's minds, was crazy. Nelson Mandela was actually out of his cotton picking mind. Goes to jail at 40 years old, stays there 27 years, come out, hugs the jailer, decides to become president of his country, becomes president of his country, turns around and makes his jailer his vice president, over mess and not in it.

We can make a difference. Each and every one of us can be a hero and shero. Watch how you live your life. It may be the only bible that anybody else reads. I'm going to leave you with one line. I want you to remember nothing but this Jesus is coming. Look busy.

Closing Remarks:

MS. GAMBRELL:: John Bryant never fails to surprise me. But I also hope that his words have also motivated all of you today to go forward, to proceed, to continue to do the important work that you're doing, not only individually, but with the other organizations with whom you are working.

I just want to make a couple of closing remarks here. And as I sat and listened throughout the day, this is what dawned on me. And I think in any organization, it is the person who is at the top of that organization that provides the vision and the guidance, and the direction. And if that vision is clear, and that guidance is straightforward, then the rest of that organization does well.

I want to thank Chairman Powell for being here today. He is an active supporter of our financial education efforts, and not just raising the awareness, but also in achieving results, sustainable, measurable results. And that is, combined with linkages to specific products and services, and our banking communities.

I'd also like to thank all the speakers and moderators who were here today, again for taking time out from some extraordinarily busy schedules that they have, including Joe Smith, who is the Banking Commissioner for the State of North Carolina, and should have been in a meeting with other state bank supervisors today, but who chose to be here and take his time. Thank you very much. As well as Ernest Skinner and others.

I also want to give a special thank you to J Otis Smith, because we could not have done this symposium without him. And I'd like to also just give a special thank you to the FDIC staff, the Project Team. If you all could just stand up wherever you are if you worked on this conference. What a professional job you have done today, and what a professional job folks, in particular, like Glenn Brewer and Nelson Hernandez did in making sure this happened. But clearly, the entire staff did just an extraordinary job.

And finally, I'd like to thank all of you. Usually at the end of a conference you have two people. I get to talk to two people who are remaining in the crowd. The fact that you all have stayed for the entire day means so much to us, and so I will wish you finally safe travels. Thank you. We will see you again. We will also be producing for your benefit a booklet on the best practices that were not only discussed at this conference today, but as I said earlier, those best practices that you are submitting to us over the next 30 days so that we can pool all of that together, and make sure that it's disseminated.

Thank you again. Have safe and happy travels. Thank you.

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