The U.S. House Committee on Financial Services, through its Task Force on Financial Technology, hosted a virtual hearing, entitled “Inclusive Banking During a Pandemic: Using FedAccounts and Digital Tools to Improve Delivery of Stimulus Payments,” to discuss potential fixes. The hearing, held Thursday, June 11, featured a panel of finance and law experts. The panelists included:
- Mehrsa Baradaran, law professor from the University of California, Irvine School of Law
- Chris Giancarlo, senior counsel at Willkie Farr & Gallagher and former chairman of the U.S. Commodity Futures Trading Commission
- Jodie Kelley, CEO of the Electronic Transactions Association
- Morgan Ricks, law professor at Vanderbilt University Law School
According to the fintech task force, economic stimulus payments were issued via direct deposit and on prepaid debit cards to many individuals, but millions of Americans received theirs by a paper check. Further, at the time of the hearing, 35 million individuals still had not gotten any payment at all.
Rep. Maxine Waters (D-CA), chairwoman of the financial services committee, proposed setting up basic bank accounts backed by the Federal Reserve, known as “FedAccounts,” to ensure everyone has access to banking services. These, she said, could be used to help deliver future stimulus payments more efficiently.
The hearing allowed the Task Force the “opportunity to explore low or no cost public banking options, like FedAccounts… to utilize technology and digital methods to deliver stimulus payments from the government more efficiently in a time of crisis, especially to underbanked and unbanked populations,” according to the task force.
Vanderbilt's Ricks warned, though, while the FedAccount program would expand access to bank accounts, it could come with some implementation obstacles. “[The program] would require the Federal Reserve to build the capacity to service retail accounts, which would be a major operational undertaking. In addition, cybersecurity and fraud prevention for FedAccounts would place a significant new burden on the Fed,” he said.
According to the committee, “vulnerable populations” have experienced severe delays in getting timely stimulus funding and some are at risk of not receiving any at all. One contributing factor to those risks is the lack of banking information provided by tax filers. In 2018, 41% of filers did not include banking information on their tax forms. Millions of those filers are considered “unbanked” or “underbanked.” The elderly, and those lacking broadband internet access were also identified as at risk.
As such, Ricks pointed out the U.S. lags other developed economies like the U.K., Canada, France, Germany and Japan in “bank account penetration.” While many Americans not fully participating in the “mainstream system of money and payments,” those other places boast more than 99% penetration, he said.
"In 2018, 64 million individuals filed taxes without bank account information. Today, @FSCDems are discussing ways to get the unbanked and underbanked stimulus payments more efficiently #COVID19."
Baradaran pushed a solution blending post office services with the Federal Reserve Payments System. She emphasized the importance of physical bank space for communities that might not thrive in a digital-only setup. “In order to cross the cash-to-digital divide, unbanked and underbanked individuals need an account with physical locations,” she wrote in her testimony. “Adopting digital accounts without providing access points for communities already excluded from the banking system would further exacerbate longstanding inequalities in access… The post office can provide the physical services necessary for the unbanked and underbanked to access FedAccounts, digital wallets, and other fintech services,” she said.
Giancarlo offered yet another take. He suggested creating a U.S.-backed “digital dollar” to make electronic cash payments directly. While most proposals of that kind are rooted in account-based systems, he said, tokenized digital currencies might work better in this instance. “The pandemic-induced crisis should be a call to action to renovate long neglected yet critical payment and financial infrastructure that is becoming increasingly outdated,” said Giancarlo. “Today, I would like to propose a far more fundamental ‘digital dollar’: a US central bank digital currency. This type of ‘digital dollar’ would be a new, additional format for US currency. It would be a digital bearer instrument that has the same legal status as the dollars in one’s purse, but on a smart phone.”
His plan calls for those digital dollars to be distributed through commercial banks and regulated transmitters, then recoded on “new transactional infrastructure,” and possibly “informed by distributed ledger technology.”
On behalf of the Electronic Transactions Association (ETA), Kelley said her organization has worked tirelessly in recent months to mitigate the fallout from the COVID-19. Members, she said, jumped at the chance to offer electronic payment tools toward that end. “We share your commitment to financial inclusion and recognize that the past few months have highlighted the need to ensure that individuals and businesses have access to useful and affordable digital payment tools and financial products that meet their needs,” she said. “As an industry, we have long worked to help ensure that all Americans have access to secure, convenient, and ubiquitous payments and related financial services.”