1. Facilitated Discussion of Advisory Committee on Economic Inclusion’s Strategic Plan Luke Brown, Associate Director, Compliance Policy Branch, Division of Supervision, FDIC Ellen Lazar, Senior Advisor to the Chairman for Consumer Policy, FDIC Roberta K. McInerney, Deputy General Counsel, FDIC Rae-Ann Miller, Special Advisor to the Director, Division of Insurance and Research, FDIC Luke Reynolds, Chief, Outreach & Program Development Section, Division of Supervision, FDIC Barbara Ryan, Deputy to the Vice Chairman, FDIC

2. Advisory Committee on Economic Inclusion Strategic Plan Work Group Objectives FDIC

3. TODAY’S GOAL: To discuss and evaluate work group objectives, proposed projects and next steps in building a strategic plan for the Committee’s Work BROAD OBJECTIVE: To decrease the number of unbanked and underbanked people in the United States and increase individuals’ participation in the mainstream financial system

4. OBJECTIVE Transactional Accounts Work Group Identify safe and innovative transaction accounts designed for LMI consumers and develop methods of stimulating bank offerings of such products Michael Barr, Chair; Ted Beck; Larry Fish; Manuel Orozco; Deborah Wright; Barbara Ryan, Staff

5. Potential Policies and Projects Summarize the LMI Transaction Product Landscape To the extent feasible, develop a prototype “suite” of LMI transactional products, including delivery platform options, account features and sustainable delivery strategies Convene a Transactional Services Forum that will: discuss innovation in LMI transactional products; gain external feedback about the suite of products and best practices; and develop an action plan to stimulate bank offerings of transactional accounts for LMI households Identify initiatives that the FDIC can take on its own or jointly, in collaboration with other agencies and partners, to encourage banks to offer the suite of transactional products and adopt best practices

6. OBJECTIVE Savings Work Group Provide consumers, particularly LMI and underserved, with convenient and safe ways to save that are also attractive to and feasible for mainstream financial institutions to offer. Peter Tufano, Chair; Kelvin Boston; Robert Steel; John Ryan; Floyd Flake; Rae-Ann Miller, Staff

7. Potential Policies and Projects Launch a research project to determine a “base level” of savings, particularly for LMI Households (Late 2010) Create national savings goals and promote goals (Mid 2011) Define and promote templates for desirable savings products and conduct a symposium to highlight results (Fall 2010) Develop benchmarks for the range of costs to banks offering savings products (Late 2010) Consider guidance to make CRA more meaningful to banks that offer appropriate savings products for LMI consumers

8. OBJECTIVE Financial Literacy Work Group Examine current financial education delivery and research efforts, and consider recommendations to improve the dissemination of existing financial education resources and strategies Larry Fish, Chair; Ted Beck; Ester Fuchs; Manuel Orozco; Michael Shepherd; Diana Taylor; Luke Reynolds, Staff

9. Potential Policies and Projects Determine whether it is possible to calculate the return on investment (ROI) for financial education activities, and, if so, recommend a strategy to do so Examine education efforts over the past 25 years and determine what has worked well and what has not Explore whether financial education best practices observed by regulators can be more broadly disseminated to practitioners Consider the development of a certification program for third-party organizations (or educators) that provide general financial education Explore whether increased weight should be given to financial education activities during the CRA examination process

10. OBJECTIVE Incentives Work Group Encourage banks to lend and invest in LMI communities, and to offer responsible loan and deposit products to low-income individuals and families by offering CRA incentives and visible demonstrations of support from the FDIC Chairman, to the extent permissible. Ron Grzywinski, Chair; Martin Eakes, Ester Fuchs, Wade Henderson; Luke Brown, Staff

11. Potential Policies And Projects More robust CRA incentives through strengthening CRA; making changes to CRA Tests; revisiting CRA Assessment Areas Support for CDFIs – including CRA credit and bank adoption of CDFIs FDIC Chairman’s support through a high profile Chairman’s Award Program (or other award)

12. OBJECTIVE Affordable Credit Work Group Stimulate the availability of affordable, responsible credit to LMI consumers in a way that is feasible and profitable for financial institutions Bruce Murphy, Chair; Robert Steel; Diana Taylor; John Ryan; Alden McDonald; Rae-Ann Miller, Staff

13. Advisory Committee on Economic Inclusion Taking it to the Next Level: How Can the Lessons Learned from the FDIC’s Small Dollar Loan Pilot and Other Models be Used to Encourage Small Dollar Lending Throughout the Financial Mainstream? December 2, 2009

14. October 22 nd Strategic Planning Subcommittee Meeting Objective: Small Dollar Loans Become a Staple Product for Mainstream Financial Institutions. Participants: Financial Institutions, State and Federal Agencies, Nonprofits, and Small-Dollar Loan Companies.

15. Discussion Focused on Two Broad Areas to Achieve Scale Encourage More Financial Institutions to Engage in the Predominant Existing Business Model That Focuses on Relationship-Building. Encourage Innovation in Business Models by Using Technology and Alternative Delivery Methods to Drive Down Costs.

16. The Small-Dollar Loan Pilot Program In February 2008, 31 banks were selected to participate in the Small-Dollar Loan (SDL) Pilot Program. The two-year case study investigates how banks can profitably offer small-dollar as an alternative to high cost financial products. Data will be collected quarterly from 1Q08 through 4Q09.

17. FDIC Small-Dollar Loan Guidelines Loan amounts up to $1,000 Payment periods that extend beyond a single paycheck APRs below 36 percent Low or no origination fees No prepayment penalties Streamlined underwriting Prompt loan application processing Automatic savings component Access to financial education

20. CreditPlus Product Summary Small short-term loan Financial alternative to payday lenders 3 hour financial literacy training required Loan amounts: $500 or $1000 –Based on Credit Score Interest rate: 5% fixed Loan terms: 12 or 24 months ½ of Proceeds go to pay down debt, ½ into a savings account.

21. $3,000,000 available pool Total loans originated since inception – 2,103 or $2,074,000 Total originated in the 3 rd Quarter of 2009 – 805 or $676,000 Current past due (30+ days) – 5.37% Total trained under CreditPlus Program – 4,079 (49% never requested a loan)

22. About Our Small Loan Program Our bank’s small loan program: –Simple consumer loan application form –Comfortable branch environment –A very nonjudgmental process –Fast approval – they can get their money in one trip to the bank –No fees or other charges –18% maximum interest rate – the rate is never an issue with the customer –Terms up to 2 years –We ask customer to complete a survey for the while we are processing their loan application

23. Credit Union Better Choice Pennsylvania Treasury Department deposited $20 million in Mid-Atlantic Corporate FCU. State gets market rate of return (no state funds used). Money earned beyond market rate funds loan loss pool. Credit unions eligible to apply for up to 50% of losses, after writing off loan using NCUA criteria. Pay-outs twice yearly – reimbursement from available funds.

24. Credit Union Better Choice Program Results as of June 30, 2009 Number of credit unions reporting 79 Total # of Loans 20,067 Total $ Value of Loans $9.37 million Savings to Consumer $6.7 million Amount in Savings (10%) $ 937,281

25. DFM Group, Inc. US Patent 7,386,507B2 Unsecured Secured By definition, 100% of existing $40B in Payday Loans are from employees. Thus, the ELBP creates a structural “ecosystem” for lenders, employers, and employees to interact. Making & administering loans is not brand new here (401K loans) ELBP Innovation #1 – The Employee Benefit Structure Summary Bank/CUEmployee Employer Employers Employers offer loan program as entity-wide benefit (i.e. like medical, dental, 401K, sup. insurance, etc.) Banks & CUs Banks & CUs provide the benefit service in contract with the employer (i.e. similar to 401K services today) Employees Employees request the loan program & repay the loan via payroll deductions (i.e. similar to 401K loans and other benefit withholdings today)

26. DFM Group, Inc. US Patent 7,386,507B2 Unsecured Secured Promotion OriginationAdministrationRepayment Typical Costs Bank web site – front end Advertising Other marketing promotion Authentication Underwriting Collateralization Signatures Typical Costs $ 90 - $115 ea Typical Costs Funding Tracking Statements, mailings EFT processing Check handling Follow-up, collections Charge off bad debt Typical Costs Cost Shift – New Model Employer portal (HR) Employer promotion (HR) Cost Shift – New Model Payroll sys. authentication Auto underwriting Auto collateral Auto signature (“I Agree”) Cost Shift – New Model Auto Funding…DD acct Auto reporting…status Online status…”My Loan” Cost Shift – New Model Auto deduction - payroll No checks Nearly zero charge off Front End Back End Stripping Cost - The Economics of Secured, Automated Lending The technology & programmatic “Walled Garden” of the ELBP allows for the majority of today’s consumer loan making costs to be eliminated. Consumers enjoy lower priced loans because lenders leverage existing Employer IT infrastructure to affordably re-enter small loan making Summary

27. A Partnership Virginia State Employee Assistance Fund Virginia Credit Union + = No state funds/tax dollars are used to make these loans. No CVC designated gifts to charities are used to make these loans.

28. Loan Guidelines Pilot program Loan –Borrow from $100 to $500 in $100 increments –Up to 6 months to repay –No more than 2 loans per calendar year –APR of 24.99% with no fees Eligibility –Must be a non-probationary, salaried state employee –Must be a VACU Member with no adverse VACU history –Must successfully complete the online financial education module Repayment –Employee authorizes direct deposit from payroll into VACU account –Employee sets up automatic debit from VACU account to repay loan

29. Borrower Demographics Borrower Demographics “Other” includes un-banded positions (including faculty) and those with no pay band listed. Borrower vs. Statewide Salaried Comparison 84% of borrowers are Black 26% of State workers are Black 75% of borrowers are Female 52% of State workers are Female 46% of borrowers are in Pay Band 3* 26% of State workers are in Pay Band 3* *The largest group of state workers by Pay band is pay band 3.

30. Pilot Benefits Realized 410 loans provided @ 18%, great for borrowers, demand is high high satisfaction among employers Internet interface works well Employers trusted as point of access Auto savings attracts repeat borrowers

31. 31 Cardmember Demographics ~50% between the ages of 25-50 Majority at current employer over 5 years 63% earn between $20k - $40k Cardmember Demographics Summary

32. 32 Forecasted Key Credit Metrics FICO Score Stratification FICO Scores # of Accounts Annualized Charge-offs Net Chargeoffs as a Percentage of Transaction Volume 1 Notes: 1 Reflects managed US card operations. Recent stabilization in delinquency rate Lower relative losses as a percentage of volume than top issuers Average portfolio FICO of 568 Credit Metrics Summary

33. Marketplace Changes Proprietary & Confidential – Prosper Marketplace, Inc. © 2009 33 Original Credit Grade System Credit GradeCredit Score AA760+ A720 – 759 B680 – 719 C640 – 679 D600 – 639 E560 – 599 HR520 – 559 New Prosper Rating System Prosper RatingEst. Avg. Annual Loss Rate AA 0.00 - 1.99% A2.00 – 3.99% B4.00 – 5.99% C6.00 – 8.99% D9.00 –11.99% E12.00 – 14.99% HR >15% New marketplace controls 640 credit score minimum – or have previous on-time loan Auction floor minimums – AA: 3%, HR: 17% New rating system based on expected annual loss Built from proprietary model of 29,000 Prosper loans Default estimates for each loan divided into 100 credit slices

34. Progreso “Store in a Store” Locations 34

35. Petra Rosales Owner, Porcelain Dolls By Petra and Jorge ACCIONTexas.Louisiana ACCION Texas-Louisiana has (*): – 1,975 active clients – $89,561,733 disbursed (since ’94) – 10,268 loans (since ‘94) – $24,540,357 active portfolio – $10,106 average loan balance – 54 employees (*) As of September 30, 2009

36. SUMMARY OF SMALL DOLLAR LOAN DISCUSSION Objective: Small Dollar Loans Become a Staple Product for Mainstream Financial Institutions.

37. SUMMARY OF SMALL DOLLAR LOAN DISCUSSION Potential Strategies to Scale Availability of Small Dollar Credit –Amplify the Facts About Existing Models –Embrace New Technologies and Delivery Channels –Encourage Partnerships –Create Guarantees –Streamline Regulatory Issues

38. Potential Policies and Projects Take the Small-Dollar Loan Pilot to the “Next Level: by Initiating Projects Designed to Increase the Scale of Small-Dollar” Loans  Establish a standard for acceptable small-dollar loan programs and a promotional campaign (Late 2010)  Consider creating pools of philanthropic funds or government operating funds to serve as “Guarantees” for acceptable small-dollar loan programs (Early 2011)  Conduct a close-out event for the Small-Dollar Loan Pilot (Summer 2010)  Work with other stakeholders to broaden the availability of Small-Dollar Loans across the financial mainstream (Early 2010) Consider conducting a pilot using federal workforces to test innovative small-dollar loan business models (mid 2011)

39. Potential Policies and Projects (cont’d) Perform research on issues related to affordable credit, particularly for LMI consumers – close-out article for the small-dollar loan pilot; small-dollar loan guarantees; small business lending; mortgage lending (could also conduct a symposium) Consider guidance to ensure that Affordable and Responsible Small-Dollar Loan Programs receive positive CRA consideration

40. NEXT STEPS Roll-up of Plan – How we will continue to work together