Bank compliance with national transaction account standards: Evidence from a mid‐western metropolitan area

• Published date: 01 June 2022
• Author: Julie Birkenmaier,Jin Huang,Alana Balu
• Date: 01 June 2022
• DOI: http://doi.org/10.1111/joca.12428

PRACTICAL APPLICATION

Bank compliance with national transaction

account standards: Evidence from a

mid-western metropolitan area

Julie Birkenmaier

1

| Jin Huang

1

| Alana Balu

2

1

Saint Louis University School of Social

Work, St. Louis, Missouri, USA

2

Christian Hospital, St. Louis,

Missouri, USA

Correspondence

Julie Birkenmaier, Saint Louis University

School of Social Work, 3550 Lindell Blvd.,

St. Louis MO 63103, USA.

Email: julie.birkenmaier@slu.edu

Funding information

The Emmett J. and Mary Martha Doerr

Center for Social Justice Education and

Research in the College for Public Health

and Social Justice at Saint Louis

University provided the funding for the

project.

Abstract

Increasing the fully banked population is related to the

availability of affordable bank accounts. This study

investigates the factors that are associated with bank

response to voluntary national bank account standards

for an affordable transaction account. We also examine

the degree to which account information is available

from bank websites. Account feature data were col-

lected from public bank websites and bank tellers

(N=108) in a mid-western metropolitan area. Results

suggest that most banks offer an account that meets

the majority of the standards. On average, bank

websites are missing information about eight (44%) of

the voluntary standards. There is weak evidence to sug-

gest that bank asset size is associated both with the

number of standards met and the numbers of standards

about which a viewer cannot assess from information

on their website. Practice and policy implications of the

voluntary standards on the availability of affordable

transaction accounts are discussed.

KEYWORDS

affordable, financial access, transaction account, unbanked,

underbanked, voluntary standards

Received: 11 June 2021 Revised: 15 November 2021 Accepted: 19 November 2021

DOI: 10.1111/joca.12428

Copyright 2021 by The American Council on Consumer Interests

982 J Consum Aff. 2022;56:982–1003.

wileyonlinelibrary.com/journal/joca

1|INTRODUCTION

Research has documented that St. Louis, Missouri has struggled with higher-than-national rates

of unbanked and underbanked populations, and disparities in access by race. High residential

racial and socioeconomic segregation has plagued the St. Louis metropolitan area for genera-

tions, and has led to differential access to a variety of resources, including banking resources

(Rigel Hines, 2019).

In the first national report of unbanked and underbanked in 2009, the St. Louis Metropoli-

tan Statistical Area (SL-MSA) had an unbanked rate on par with the national rate for the gen-

eral population, but an underbanked rate much higher than the national rate. Of particular

note was that the SL-MSA was found to have the highest percentage of unbanked Blacks in the

U.S., and the largest disparity between unbanked Blacks and Whites (FDIC, 2009). In St. Louis,

31% of Black households were unbanked compared to 1.1% of White households, and 34% were

underbanked, compared to 19.2% of White households (FDIC, 2009). By 2017, the rate of SL-

MSA unbanked had remained the same (7.5%) compared to the lower national rate (6.5%). The

SL-MSA underbanked rate dropped to 15.9% as compared to the national rate of 18.7%. Five-

year estimates from 2013 to 2017 for the St. Louis metro area suggest a continuation of differ-

ences over time across race (FDIC, 2017). While the national rate of unbanked declined

between 2009 and 2019, the decline can be explained almost entirely by improvements in the

socioeconomic circumstances of U.S. households (FDIC, 2018), rather than expansion and

uptake of affordable accounts. The COVID-19 pandemic and associated dramatic increase in

unemployment and poverty rate has likely caused a rise in the national and SL-MSA rate of the

unbanked and underbanked (Kutzbach et al., 2020).

The challenge of lowering the unbanked and underbanked rate and increasing the number

of people using formal financial institutions for their banking needs is a focus of both national

and local efforts. Nationally, people are unbanked for many reasons, including not having

enough money, lack of trust, privacy concerns, and high and unpredictable fees (Kutzbach

et al., 2020). In St. Louis, several initiatives are working to increase the number of bank bra-

nches in lower-income communities, the number of people with accounts, and lower the cost of

bank accounts. These efforts have emerged from the “Forward Through Ferguson”commission,

created after the death of Michael Brown in Ferguson, Missouri (within the SL-MSA) (Forward

Through Ferguson, 2015), and the creation and work of a St. Louis “Bank On Save Up”Coali-

tion of banks, funders and social service providers (CFE, 2021). In St. Louis, the high racial dis-

parity in unbanked and underbanked rates is viewed as one of many roots of the problematic

racial divide, and thus a policy and practice concern (Forward Through Ferguson, 2015).

In St. Louis and nationwide, both the unbanked and underbanked lack full access to the main-

stream financial services, which negatively affects their ability to gain financial well-being

(Baradaran, 2015; Servon, 2018). Instead, they turn to the alternative financial services (AFS) indus-

try for their products or services (Fern

andez-Olit et al., 2018;Servon,2018; Urahn & Plunkett, 2018).

These products and services, such as nonbank money orders, are costlier and do not offer the same

consumer protections as those from banks and credit unions (Urahn & Plunkett, 2018). The AFS cost

to consumers is large and growing: In 2013, consumers spent $103 billion in nonbank fees to the

AFS sector (Center for Financial Services Innovation, 2014). There are over 13,000 AFS locations

nationwide, where over 350 million transactions worth $106 billion are conducted with an estimated

30 million customers (Financial Services Center of America, 2014).

Access to affordable transaction (i.e., checking) accounts from a bank or credit union is criti-

cally important because these accounts are often the first step toward broader access to financial

BIRKENMAIER ET AL.983