October 4, 2007
HP-591

Treasurer Anna Escobedo Cabral Remarks
Before the Eastern Regional Conference
on Reaching Unbanked People

New York City - Thank you for that introduction. I'm pleased to be here this morning and to welcome all of you to the Eastern Regional Conference on Reaching Unbanked People. I want to recognize our many partners who have helped organize this conference. I also want to thank all of you for being here and joining us in our efforts to reach some of America's most financially vulnerable citizens – those who have no relationship with mainstream financial institutions, such as banks or credit unions.

Your participation is important today for a few reasons. First, I've spent the majority of my career working for the federal government, and I've learned that the government is most effective when we enlist the help of our many partners – the private sector, state and local governments and community-based organizations.

For example, Treasury is beginning an aggressive outreach campaign to connect with the homeowners who could face foreclosure in the next 18 months to two years. We want to encourage these homeowners to reach out to their lenders before they're hit with the payment shock of a mortgage reset. We know that for many people, products exist to help them. We want these homeowners to begin paying attention to their mortgage statements and talk to their lenders to determine their options early in the process.

There's a common misconception from borrowers that lenders want to take their homes, and as a result, borrowers do not reach out for help. In fact, we've heard that in 50 percent of foreclosures, the borrower never even spoke with their lender or a counselor. It is critical for borrowers to reach out as early as possible. In many cases, there may be a possibility to refinance or reduce the payment so the family can keep their home. If we can help keep more families in their homes, individuals, families, and our communities benefit, and our country and economy are better off as a whole.

The challenge to reaching struggling homeowners is similar to the challenge of reaching the unbanked. Just as we have to find creative ways to break down the barriers that keep borrowers from contacting their lenders, we must be innovative in our approaches to welcoming people into the financial mainstream. Our progress in reaching the unbanked population is only as strong as the partnerships we can create with each other.

This is a theme we've heard echoed in each of the three previous conferences we've held across the United States.

In Chicago we learned of effective partnerships and saw examples of the great work the Chicago Fed, community banks and others are doing to reach unbanked populations and new immigrants. In Texas, we learned about the unique challenges in border communities and saw creative business models community credit unions have adopted to bring in new customers. For example, one credit union offered small loans without a credit check on the condition that the individual receive broader financial education. Earlier this year, at the conference in Seattle, we heard about the efforts of Washington Mutual to reach out to the unbanked. We also heard about the unique challenges faced in serving diverse communities.

Today we're building on these discussions, and it's appropriate that we're here in New York City – the financial capital of the world.

That brings me to the second reason I think it's important that you're here. Each of you has unique perspectives and expertise to bring to the table. We benefit greatly when we can get your thoughts, hear what works and what doesn't. So I invite you to share your ideas with us and with each other.

Finally, I think it's critical that we're all here to talk about the issue of banking the unbanked, because at the end of the day, this is an issue of improving quality of life for individuals and families. This is about strengthening our communities and bringing Americans who are living on the edge of opportunity into the financial mainstream to experience the great promise our country has to offer.

After all, knowing how to manage your finances and take advantage of the wide array of financial products that exist in today's marketplace is critical to economic mobility. But we can't even begin to talk about financial education with the estimated 10 million Americans who remain outside of the financial mainstream. For these individuals, learning how to manage their personal finances is critical but abstract because they're outside of the system.

Now many people aren't familiar with the issues surrounding the unbanked, and they're surprised at the large amount of individuals who do not have a relationship with a bank or credit union. Quite frankly, it is surprising when most of us have several different accounts and a few too many credit cards. I'm sure there are a lot of us who could fall into the category of "overbanked" if it existed.

So why should we care about people who are unbanked? The answer is simple. Getting more Americans involved in the mainstream financial sector is about investing in our communities. If we can help individuals and families climb the ladder of economic success – our communities prosper and our entire country benefits. Becoming a part of the financial mainstream is the first step on that ladder. It's our job – working together everyone in this room – to find creative ways to lay out the welcome mat.

For our part at Treasury, we look for ongoing opportunities to demonstrate the importance of establishing a relationship with a financial institution. For example, the CDFI Fund does great work to support community financial institutions which often provide enhanced access to financial services and build bridges to the unbanked.

The Earned Income Tax Credit provides low income working families with a little extra money, and can be a valuable tool in lifting people out of poverty and opening up an opportunity to create a nest egg for the future. In fact, a recent Census study found that 4.6 million people were lifted out of poverty in 2002 thanks to the tax credit.

From our perspective at Treasury, this is a great opportunity to reach those families who don't have a bank account and raise awareness about the doors that could be opened by entering the financial mainstream. The IRS does a tremendous job working with organizations like the United Way and city mayors to help spread the word about the tax credit and encourage people to build on this wealth by opening a bank account and saving for the future.

Treasury also works hard on an outreach campaign called Go Direct which encourages people to sign up for direct deposit to receive their federal benefit payments. About 80 percent of federal benefits are made by direct deposit. That means more than 12 million Americans still receive their federal benefits in the form of a paper check through the mail. About 4.5 million of these recipients do not have a bank account, and we're working hard to let them know the potential benefits of direct deposit with a bank or credit union. In addition to saving the government money – it costs 80 cents to mail a paper check – direct deposit protects against identity theft and fraud and offers a more reliable and convenient method of receiving payments.

Our work with the Earned Income Tax Credit and Go Direct outreach efforts raises the point that the unbanked are in many cases hard-working Americans who are often good savers. We know there are many reasons why people are unbanked – some face language or cultural barriers, some live in rural areas with no convenient access to financial institutions, and some simply have never had a relationship with a financial institution.

To be sure, the unbanked population is diverse, and a diversity of financial products and services is required in order to meet their unique needs. This means that in some cases financial institutions might need to change their business models. For example, we've seen successful models of credit unions in immigrant communities who provide multilingual materials and put employees behind the counter who can speak the same language. Others found that simply changing the workplace attire from coat and tie to khakis and a polo shirt helped provide a more welcoming atmosphere for new customers.

We've also heard that many unbanked people prefer face to face interaction. Most of us today do our banking on-line and visit ATM machines, rarely stepping foot inside our financial institutions. This isn't the case with everyone. Some people would like to see their bankers and interact with a trusted representative because for them there's a certain comfort level that can be established.

The idea is that we need to know and understand the consumer – that includes knowing both current customers and potential customers. We need to identify their perspectives and experiences in order to understand how to reach them and what products we can develop to truly serve them. This can be a difficult task but also one that is worthwhile.

Today, I thank you again for being here and for your continued hard work to help more Americans experience the hope, promise and opportunity our country offers. I call on you to listen and learn from each other today and forge new partnerships that will help strengthen our efforts going forward. This is work that has the potential to not only make a positive difference for families and communities here and now, but it can help build a better life for generations that follow.

Thank you.