1. POST CRISIS BANKING
LEGISLATION/REGULATION: THE
IMPACT ON ACCESS TO BANKING
SERVICES FOR THE ORDINARY PERSON
Annual Conference of the Commission on Urban Anthropology
Brooklyn College
June 2015
Carolyn E. Vick

2. Overview
Post crisis regulation/legislation has sought to
ensure liquidity, asset quality and protect consumers
Macro objectives have been supported
Banks are making business decisions to deal with these
new and expanded requirements
Consumer protection appears enhanced, but….
What is the real impact of these on ordinary people?

3. Background
To better understand the impact on access to banking
services for the general public, we first need to discuss:
US population segment impacted
Types of alternative financial service providers
The products and how they are used

4. US Population Segment
Key overall findings from an FDIC survey in 2013:
7.7% (1 in 13) of all households in the US are unbanked
Highest rates of unbanked households are found among non-Asian minorities;
lower income house holds; younger households; and unemployed house holds
20% are underbanked
They had a bank account, but used alternative financial service providers
outside of the banking system
So what does this mean?
More than 34 million households of the 132.2 million in the US do not
have access to/do not use basic financial services – transaction
accounts, credit cards, loans or savings accounts

5. Why do they not have bank accounts?
They cannot afford the minimum balance
requirements and/or fees
They do not meet creditworthiness criteria
As banks have closed branches over the past decade,
they do not have access to a bank in their
neighborhood
Various individual concerns: do not want their spouse
to know how much they earn; concerns about safety
of money held at a bank; tax reporting (no social
security number)

6. Alternative Financial Service (AFS) Providers
FDIC defines these as:
Check Cashing Services
Money Service Bureaux/Money
Remitters (like Western Union)
Pawn Shops
Mobile Phone Providers
E-Wallets
In addition to these mainstream providers:
Hawaladars
Peer-to-peer (or P2P) lending
Organized crime
Alternative Financial
Service Providers process
more than $500 billion
annually.
This exceeds the GDP of 7
countries tracked by the
World Bank.
It is not a fringe issue

7. Banking Products & Their Common Usage
Check Cashing
67% of all checks cashed are
payroll checks
18% are state and/or federal
benefit checks
Prepaid cards
Primarily used for payroll for
employees without checking
accounts
Pay Day Lending
Small dollar, short-term,
unsecured loans
For borrowers experiencing cash
flow difficulties – most have few, if
any, borrowing alternatives
Wire transfers/remittances
Majority of these are 1st
generation immigrants, sending
money back to family members in
their home countries
Value of international remittances
was expected to reach $582
billion in 2014
Money Orders
Like a check, but more trusted,
because it is prepaid
Most often used by people with
no checking account
Used to pay bills and/or to send
money to family members in
remote areas

8. Issues/Challenges
AFS providers are under additional regulatory scrutiny
Individuals can circumvent the conventional banking system using
an AFS provider; the AFS provider MUST themselves use the
traditional banking products and systems
FinCEN details regulation on their registration and record keeping
Various regulators dictate how banks are to evaluate the risks of
doing business with AFS providers
Why all the fuss?
AFS providers are consolidating transactions and executing on
behalf of third parties – conventional banks have no transparency
into the originator of the transaction, nor the purpose behind it
This causes concerns about the controls in place to prevent money
laundering and terrorist financing

9. The Fight against Financial Crime
Various regulations – both federal, state and local
– govern these AFS businesses
Failure to comply can - and has - resulted in
monetary penalties and jail time
Most basic requirement – identify and verify your
customer/client
Increasingly, these AFS providers are requiring a
government-issued ID for this purpose

10. Customer Identification Program
Requirement comes from the Fianancial Recordkeeping
and Reporting of Currency and Foreign Transaction Act of
1970, commonly referred to as the Bank Secrecy Act (BSA)
and the USA PATRIOT Act
A 2012 study found that 3.2 million Americans do not
possess a government-issued picture ID
Those least likely to have on fall into one of 4 categories:
The elderly
Minorities
The poor
Young adults aged 18 to 24
Sound
familiar?

11. PrePaid Cards
Primarily used as alternatives to paying employees in cash, by check or
direct deposit for those, who have no bank accounts
Benefits:
Provides quick and convenient access to wages without having to have a
bank account
Can be used to make purchase, get cash, and conduct transactions on line
Federal protections that limit the cardholder’s liability for fraud, theft and
errors
In some neighborhoods, reduces the risk of losing funds to theft or violent
crime
Potential drawbacks:
Usage fees, which the employer is not willing to pay

12. PrePaid Cards, cont.
Class action lawsuit filed in June 2013 against a
McDonald’s franchisee in Pennsylvania
In February 2015, the NY State AG introduced the
Payroll Card Act , which among other things limits
the fees that can be charged for this product
So, what are the banks doing in response?
Both JPMorgan and Citibank have announced that
they will either exit and/or spin-off their prepaid card
business

13. Pay Day Lending
These are small dollar, short-term, unsecured loans, primarily for borrowers
experiencing cash flow difficulties
Most have few, if any, borrowing alternatives
Complaints include unreasonable fees and unauthorized withdrawals from
checking accounts – if they have them
Studies have shown that only 15% of borrowers can repay the full debt
without borrowing again within 14 days; 20% eventually defaulted on the
loan; and 67% ended up renewing a loan, some more than 10 times
FTC currently enforces a variety of laws to protect consumers
In March of this year the Consumer Financial Protection Bureau unveiled a
framework of additional proposed rules to regulate payday lenders and other
costly forms of credit.
So, what are the banks and AFS providers doing in response?
All 6 large banks that offered a payday-like loan business exited this early in 2014

14. So What?
Conventional banks are either exiting relationships with
Alternate Financial Service providers (derisking) or
increasing their oversight and requirements to continue
doing business with them
AFS are seeking alternative banks – normally, smaller, less
sophisticated financial institutions that cannot afford the requisite
staff and systems to adequately monitor for Financial Crime
Some immigrant populations can no longer send money to their
home countries
— 80% of the more than 30,000 Somali immigrants living in
Minneapolis/St. Paul can no longer send money home through
their current remitter – their bank refuses to process wires to
Somalia any more due to terrorist financing concerns

15. So What?, cont.
Due to heightened money laundering concerns
with Mexico banks are closing branches along the
border
JPMorgan, Bank of America, and Citigroup-owned
Banamex have been closing branches and client
accounts since the start of this year
This includes business accounts, and the business
owners are now having to travel 50+ miles to a bank
branch

16. What’s the alternative?
These new regulations and enhancements to
“protect” the consumer have had the opposite effect
The alternative to prepaid payroll cards is to go back to
payment in cash – which increases the risk of theft and
violent crime. Also increases costs for the companies (dual
control, security), which gets passed to the consumer
Loansharking offered by organized crime is the probable
option for most of this population to replace payday lending
For wire transfers to their home countries, hawaladars will
be the choice
Travelling longer distances for businesses increases the
personal risk to the business owner – transporting cash

17. Conclusion
Given the current state of affairs:
The risk in the financial system is increasing
AFS providers are moving their business to banks that are not equipped to adequately manage the
inherent risk in their business
The population that is financially challenged has less access to financial services
They cannot produce government-issued photo ID cards for CIP
AFS providers are changing their service offerings either in response to the regulators and/or to their
banks
Banks are closing branches
This same populations is potentially at greater risk for theft and/or violent crime
More of the cash flows are driven into the informal economy (hawaladars), impacting the
global economy negatively, including the ability of governments to adequately manage their
economies