By: Sarah Johnson
This week we’ll take a closer look at some interesting failed legislation from 2020, the Banking for All Act. With the passage of the second COVID relief bill this week, the American Rescue Plan Act of 2021, elements of the Banking for All bill are particularly relevant to revisit. The bill offers definitions for digital dollars and digital dollar wallets and aims to implement the use of digital dollar wallets, or FedAccounts, as a method for those who are unbanked or underbanked to receive their economic stimulus payment.
Context leading up to the bill:
As we experience the anniversary of our COVID shutdown this week, the government has passed their second major relief act. The passage of the American Rescue Plan resurfaces an issue present throughout the entire pandemic; how do those who are unbanked or underbanked get easy access to their relief payments? What does “unbanked” mean? Unbanked is “an informal term for adults who do not use banks or banking institutions in any capacity. Unbanked persons generally pay for things in cash or else purchase money orders or prepaid debit cards.” Underbanked “refers to individuals or families who have a bank account but often rely on alternative financial services such as money orders, check-cashing services, and payday loans rather than on traditional loans and credit cards to manage their finances and fund purchases.”
According to Federal Deposit Insurance Corp (FDIC), in 2017 about 8.4 million U.S. households were unbanked. They also found an additional 18.7% of U.S. households were underbanked. Underbanked and unbanked individuals are disproportionately low-income Americans who often live paycheck to paycheck. This infographic from Money Experience shows just how expensive it is to be poor in the United States.
When we look at the COVID relief payments passed by Congress over the last year, it has been widely reported that it took a long time for people to get access to this critical relief. Some still have not received their first (up to $1,200) or second (up to $600) payments, and don’t know if they will receive the newly passed third (up to $1,400). The Recovery Rebate Credit was introduced to address this issue. The Recovery Rebate Credit helps individuals who never received their Economic Stimulus Payment or were not paid the full amount they qualified for. It has been clear over the last year that our financial institutions and structure do not serve low-income Americans, those who often need this relief the most, in a productive manner.
All of this lead up to Senator Sherrod Brown introducing the Banking for All Act .
What the bill would have done:
This bill aimed to give unbanked or underbanked US households direct access to a bank account so they can receive their stimulus checks by leveraging digital dollars and digital dollar wallets. A digital dollar can be defined as “an electronic credit that would only exist on computers, but which consumers and businesses could use to pay one another like a physical dollar.” A digital dollar wallet is defined in the bill as “a digital wallet or account, maintained by a Federal reserve bank on behalf of any person, for the purpose of holding digital dollar balances.”
This bill required Federal Reserve member banks to provide digital dollar wallets (or “FedAccounts”) to residents, citizens, and businesses located in the United States. FedAccounts would have been required to provide specified banking services to eligible persons who elect to deposit funds into these accounts, including COVID-19 relief payments. What is a member bank? Member banks are “commercial banks part of the Federal Reserve System. These banks maintain reserve deposits in the Federal Reserve Bank in their districts. National banks must be members; state-chartered banks may join by meeting certain requirements. In total, 38 percent of the 8,039 commercial banks in the U.S. are member banks.” For large banks, the bill contained a provision requiring online applications for digital wallets be made available. The bill stated that the wallet “shall not be subject to any account fees, minimum balances, or maximum balances and shall pay interest at a rate not below the greater of the rate of interest on required reserves and the rate of interest on excess reserves.”
Some low-income areas may not have a Federal Reserve branch. With the mandate in the bill that the Federal Reserve assist in the supply of digital dollar wallets, or “FedAccounts”, the legislation also required a partnership for areas not served by the Fed with the US Postal Service to carry out this mandate. People would have been able to set up FedAccounts at the post office and for access to the digital cash, ATMs would have been provided. “FedAccounts” set up at local banks served by the Fed and post offices would have allowed account holders to receive debit cards, online account access, automatic bill pay, mobile banking and ATM access at post offices.
The Automatic BOOST to Communities (ABC) Act introduced in April last year also presented digital dollars as a more efficient delivery mechanism for stimulus relief funds.
The Senate Committee on Banking, Housing, and Urban Affairs released this statement.
FedAccounts can be used to make sure that everyone who is entitled to COVID-19-related relief receives it quickly and inexpensively. ,” the Senate Committee on Banking, Housing, and Urban Affairs said in a statement. “That means that people will not have to rely on costly check cashers or other alternative financial services.
Brown also released this in a statement
My legislation would allow every American to set up a free bank account so they don’t have to rely on expensive check cashers to access their hard-earned money. I look forward to continuing to negotiate with my colleagues, and urge them to prioritize people over big banks and corporations. At the height of this pandemic we must do more to protect the financial wellbeing of hardworking Americans and consumers. They are on the front lines of this crisis and are already feeling the effects of the economic fallout.
Reservations
Many people are concerned about electronic currencies and their implementation, asking “Why on earth would we trust big tech with our banking system?” The bill’s sponsor, Sherrod Brown, said this during a virtual hearing on the digitization of money and payments, “Big Tech companies have made a lot of big promises about the better society they were going to allow us to build, [but] they have not lived up to them. [There] are problems we need to tackle — but I’m skeptical financial technology firms will solve them. Given these companies’ record, it seems more likely they’ll only make the problems worse.”
The Credit Union National Association (CUNA) sent a letter to the Senate Banking hearing on digitization of money and payments stating
While credit unions agree with the spirit of those proposals to create FedAccounts, we think that Americans would best be served by leveraging the banking system already in place. There is no need to pass legislation requiring the Federal Reserve or the United State Postal Service to provide products and services that the organizations were not designed to provide. Instead, Congress should be using its public platform to encourage all consumers, especially the most vulnerable among us, to seek out financial services from a community-based, not-for-profit credit union. As the nation’s original consumer financial protectors, credit unions have a long history of providing affordable, responsible access to banking services.
Conclusion
There is still much unknown about digital currency, cryptocurrency, and how we as a nation need to bring our financial structure to all people equitably. Low tech solutions, like implementing some amount of banking at Post Offices, are interesting ideas that definitely merit consideration too. I’m interested to see what legislation like this Banking for All bill is proposed in the future.
Cover Photo by Vadim Artyukhin on Unsplash
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