Lifeline Banking Regulations

Rationale

Holding a basic bank account provides households with access to financial services and the mainstream economy. Moreover, families with access to mainstream financial services are much more likely to accumulate savings. Gale and Carney find that ownership of a transaction account is associated with very large increases in the likelihood of owning other forms of wealth, and, controlling for other factors, households that do not have transaction accounts are 43 percentage points less likely to have positive holdings of net financial assets, 13 percentage points less likely to have a home, and 8 percentage points less likely to own a vehicle. Unfortunately, low-income and minority households are more than twice as likely as others to be among the 10-20% of the population that is unbanked. Research on the unbanked shows that bank fees and minimum balance requirements are among the main reasons that some households choose not to establish relationships with banks. Indeed, recent reports both the Public Interest Research Group and the Federal Reserve Board have documented that bank fees are rising and are higher at bigger banks. In response, several states require banks to offer customers low-cost, so-called lifeline accounts to permit a small number of monthly transactions (checks or debits) for a small monthly fee, often just $3/month.

About Measure

States that have enacted legislation creating lifeline banking accounts (as of 1998).

Source

Doyle, J., Lopez, J., & Saidenberg, M. (1998). How effective is lifeline banking in assisting the unbanked? Current Issues in Economics and Finance , 4 (6), pp. 1-6.