House Dems wants the Fed to open up its digital banking services
Congressional efforts to send hundreds of billions of dollars in stimulus packages to Americans in the wake of the coronavirus pandemic have been marred by a rushed legislative process and a lack of ready-made technologies able to find and contact millions of Americans traditionally excluded from the banking system. The end result was that tens of millions of citizens were forced to wait weeks or months to receive what were supposed to be immediate emergency funds.
As House Democrats contemplate future outbreak relief plans, they are also looking for ways to learn from past mistakes. Specifically, they explore how to modernize laws to make the banking system more user-friendly and expand access to financially troubled groups using digital services.
“Many of these people who needed help the most were the last to get it,” said Representative Stephen Lynch (D-Mass.), Chair of the House Financial Services Committee’s Financial Technology Working Group at the time. of a hearing on June 11. “While the IRS and the Treasury moved quickly to distribute the payments to Americans, they quickly ran into problems. Some of these problems were predictable: They exist because of long-standing inequities and deficiencies in our banking system. . “
According to a background memo Written by the committee, the IRS distributed more than $ 202 billion in stimulus funds to 117 million Americans through direct deposit, $ 55 billion to 35 million Americans by paper check, and an additional $ 9 billion to approximately 5.7 million Americans by prepaid debit and direct express cards.
However, as of June 5, as many as 35 million Americans had yet to receive their economic impact payments from the IRS. Many of those who stay have never opened a bank account, don’t earn enough income to justify filing federal taxes, or lack stable housing or mailing addresses. Yet other groups may not have broadband internet access to use online tools or may not know how to use prepaid cards.
“Even with several methods of distributing salvage discounts, members of vulnerable populations would experience serious delays in receiving salvage discounts or receive no salvage discounts at all,” the committee wrote.
An idea that House Democrats have already embraced: to open a digital wallet with the US Federal Reserve through its existing FedAccounts platform. Money in FedAccounts earns much more interest than a checking account at a private bank, could be an alternative to more predatory non-bank service providers, like payday loans.
However, these accounts are currently only available to banks and government entities. The president of the committee Maxine Waters (D-Calif.) law Project which would set up digital wallets through FedAccounts for most Americans. The bill would also establish new monthly stimulus payments of up to $ 2,000 per individual until unemployment falls to at least two percentage points from pre-recession standards.
Professor Mehrsa Baradaran of the University of California, Irvine called on the Federal Reserve to partner with local post offices across the country, not only to disperse potential future stimulus payments, but also to provide services basic banking services and bridge the “digital-money divide” between the haves and have-nots.
“On the consumer side, you can go to the local post office, deposit your money, withdraw money from the ATM at no cost, you can set up automatic bill payment through online or mobile banking. [and] get a debit card and use it to shop online, ”Baradaran told the committee.
It would require some infrastructure, such as installing ATMs and increasing the Fed’s ability to process payments in real time, but Baradaran and other panel experts said it “fits” well. technological and institutional capacity of government.
Members and witnesses agree that some modernization is needed for the financial services industry to keep pace with the 21st technologies of the century.
Chris Giancarlo, former chairman of the U.S. Commodity Futures Commission, said that just as underinvestment in U.S. physical infrastructure led to the collapse of roads and bridges, so too of Financial Services exposes the age and limitations of current technologies and processes. .
“Unless we take action, this next wave of innovation will put enormous strain on our aging financial systems,” Giancarlo said.