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Banking bills doomed in Congress still credited with fostering change


WASHINGTON — In an extremely polarized Congress, the odds of Democratic leaders advancing progressive reforms to shake up financial services are slim to none.

It may not matter.

Democrats such as Senate Banking Committee Chairman Sherrod Brown, D-Ohio, and House Financial Services Committee Chairwoman Maxine Waters, D-Calif., have pushed bills to offer free, federally backed accounts, restrict overdraft fees and cap consumer loan interest rates at 36%.

Such proposals have little chance of passing. Democrats hold a razor-thin majority in the Senate where 60 votes are required to pass legislation. But analysts say Democrats’ message focused on consumers having affordable financial services options is helping effect voluntary measures in the industry. Banks, experts say, want to preempt more credible legislative efforts and the perception that they don’t care about consumers.

“Being a member of Congress provides for a bully pulpit, and many banks, many financial institutions and businesses, as a general rule, want to avoid that press, avoid appearing in any way against the benefit of their customers,” said Ed Mills, a policy analyst with Raymond James.

In certain cases, banks are taking steps that are not as extreme as ideas proposed in Congress, but have objectives that resemble lawmakers’ policy goals.

For example, Brown has spent more than a year advocating for his plan to offer free digital accounts, or FedAccounts, held at the Federal Reserve to all consumers. (Consumers could access their accounts through a bank, credit union or post office.)

Democrats such as Senate Banking Committee Chairman Sherrod Brown, D-Ohio, and House Financial Services Committee Chairwoman Maxine Waters, D-Calif., have pushed bills to offer free, federally backed accounts, restrict overdraft fees and cap consumer loan interest rates at 36%.

Democrats such as Senate Banking Committee Chairman Sherrod Brown, D-Ohio, and House Financial Services Committee Chairwoman Maxine Waters, D-Calif., have pushed bills to offer free, federally backed accounts, restrict overdraft fees and cap consumer loan interest rates at 36%.

Bloomberg News

The idea of a Fed-backed competitor to private financial institutions is a nonstarter for banks. But the industry has responded to demands for accessible and affordable products with accounts endorsed by Bank On, a national program through the Cities for Financial Empowerment Fund that connects consumers with attractive options at participating banks. Bank On accounts typically charge low or zero fees, and lack overdraft charges.

In October, the American Bankers Association called on all of its member banks to participate in the Bank On program.

“Banks offering Bank On-certified accounts now make up more than 50% of the U.S. deposit market share and are available in more than 41% of all active FDIC-insured bank branches nationwide,” said Naomi Camper, chief policy officer at the American Bankers Association. “So while there’s still a ways to go, we’re seeing that intentionality is creating scale. So for those sort of other proposals that go to the same policy goal, our view is we have a market-based solution that’s ready now that’s actually happening.”

Bank of America, Truist Financial, JPMorgan Chase, Wells Fargo and U.S. Bank are among institutions with Bank On-certified accounts that cost no more than $5 per month in fees.

Bankers are more prone to offer affordable products if they fear Congress will create a government-backed account for all consumers free or charge, said Isaac Boltansky, director of policy research at Compass Point Research & Trading.

“The more that you see progressive lawmakers pushing for that type of offering, which would be at its heart a means of disintermediating traditional banks, you’ll see more of a willingness within the C-suites in the boardrooms of banks to take more consumer-friendly stances to counter the messaging bills from the Hill,” Boltansky said.

Some see a similar connection between Democrats’ criticism of large banks’ overdraft policies and subsequent changes to overdraft fee structures announced by certain institutions.

At two hearings in May, CEOs of the…



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