June 30, 1998


How Effective Is Lifeline Banking in Assisting the 'Unbanked'?-- in the latest edition of the New York Fed's Current Issues in Economics and Finance.

Authors Marc R. Saidenberg, Jose A. Lopez, and Joseph J. Doyle explain that many consumers who lack checking accounts are paying relatively high costs to access the nation's payments system--the system that makes the transfer of funds between individuals and firms possible. Moreover, many of these 'unbanked' consumers have low-incomes: 40 percent of families with incomes below $10,000 do not have a checking account.

Legislative reforms aimed at giving the unbanked inexpensive access to the payments system, explain the authors, involve requiring commercial banks to offer low-cost "lifeline" accounts. Such reforms have been implemented in a few states and are under consideration at the federal level. Access to the payments system will take on even greater meaning after 1999, when all federal government transfer payments, such as social security and welfare payments, are scheduled to be made electronically.

Saidenberg, Lopez, and Doyle examine the effectiveness of lifeline legislation in reducing costs and drawing the unbanked into the payments system. They conclude that:

Marc R. Saidenberg and Jose A. Lopez are economists and Joseph J. Doyle is a former assistant economist at the New York Fed.

Contact: Douglas Tillett