In a recent report, the Consumer Federation of America analyzed how consumers save their money and surveyed the savings products banks offer. While most consumers have savings in some form, the Federation's research revealed that roughly three out of five low- and moderate-income consumers do not have a traditional savings account. What's worse, for many savers, the interest rates currently available to them mean that even if they keep $1,000 in savings for 5 years they would earn no more than $25 in interest. In reality, when one adds in minimum deposit requirements, minimum balance requirements, limits on the number of no fee transactions permitted, and fees often associated with such accounts, in the end, saving money is likely to cost consumers. Even though some banks and credit unions may offer better options and fewer fees associated with savings accounts, getting clear information on account requirements can be difficult, as the Consumer Federation found. But there is an easy-to-apply approach that communities can deploy to arm consumers with the information they need to comparison shop between banks and get the best deal possible. Such consumer power can, in turn, be harnessed to improve behavior in the financial industry, making saving options more attractive across the board.
This approach, the Community Impact Report Card (CIRC), offers localities, educational institutions and community groups the opportunity to come together to assess local bank products and services, disseminate their findings, and give consumers the ability to comparison shop between financial institutions to ensure that local consumers are bringing their business to a bank or credit union that offers them products and services that suit their needs. By publicizing the best deal available for consumers, it makes it is easier and less expensive for consumers to save, and may just incentivize banks to improve the options they offer.
As launched in New Haven, CT, the CIRC process offers community groups, local government officials and area students the opportunity to work together to gather information about banks that serve their local community in a number of different areas, including data about the fees associated with savings and checking accounts as well as banks' home lending practices. Much of this information is available on bank web-sites or through publicly available means. Even so, it is still time-consuming for an individual to gather such information about all the banks that serve his or her community. By gathering this information for the consumer, communities applying the CIRC system can bring it together in one easy-to-access place, making comparison shopping much easier. While an individual may find it hard to gather information about all the banks that serve his or her community, and national organizations and regulators may find it difficult to gather this information on a national scale, local advocates and government entities can serve as the fulcrum in gathering and disseminating information about banks that serve individual communities, generating a localized picture of bank performance that will be meaningful and relevant to local consumers.
The CIRC system also grades banks based on the array of products and services they offer, generating an overall score for the banks serving a particular community. In its first year, New Haven's CIRC issued scores for eleven banks that serve that community, from large, national institutions, like Bank of America, to small, regional ones, like Webster. On a scale of 1 to 100, First Niagara earned the highest score, a 74. And the lowest? Wells Fargo at just 53. Using the CIRC system, other communities could generate similar scores for the banks that serve their communities, giving consumers a community-wide picture of how those banks stack up against one another. (For an overview of the CIRC system and to learn how your community can implement one, read here.)
Communities across the country can easily utilize a CIRC system for assessing the banks that serve them. Volunteers can collect the information and calculate the overall score. The information then can be disseminated through the web and/or through local news outlets, giving consumers the knowledge they need to comparison shop between the banks that serve the community.
Interested groups and local governments can also modify the system as they see fit, placing greater emphasis on certain data or gathering data different from that which New Haven uses in its CIRC. For example, a community could assess banks' foreclosure practices and their willingness to modify underwater mortgages; it can also determine if any bank sold that community's local government worthless mortgage-backed securities and take such conduct into account when assessing that bank's score.
Several years ago, Bank Transfer Day and the Move Your Money Project sparked the imagination of millions of consumers eager to ensure that they are utilizing banks that meet local needs. The approach of the CIRC places an easy-to-use tool in the hands of local advocates to enhance transparency in the financial system, allow consumers to make informed choices, and maybe incentivize banks to improve their products and services.