If Congress succeeds in passing regulatory relief, consumers in rural areas could soon find it easier to open accounts at banks and credit unions.
Under a provision tucked in both the House and Senate versions of regulatory relief legislation, financial institutions would be able to use a scan of a customer’s driver’s license or other photo identification to verify that person’s identity when opening an account online. The Making Online Banking Initiation Legal and Easy, or MOBILE, Act, is intended to address a patchwork of state-level restrictions concerning how state-issued photo IDs may be copied or used.
The Credit Union National Association has come out in favor of the bill, with CUNA CEO Jim Nussle saying in a letter to members of the House Financial Services Committee, "This legislation is an important step toward helping credit unions and other financial institutions remain competitive in a market increasingly disrupted by financial-technology companies, who are often subject to fewer regulatory requirements. To the extent that this legislation makes it easier for consumers to join credit unions, we view this as a positive step."
The National Association of Federally-Insured Credit Unions has also come out in favor of the bill, with CEO Dan Berger noting in a letter to lawmakers that the "legislation would provide credit unions with clarity in establishing online and mobile banking accounts."
Smartphones should ostensibly level the playing field for people living in rural areas that are frequently underserved by the mainstream banking system. In areas where bank and credit union branches are scarce but that have broadband access, consumers should be able to open bank accounts online, at least in theory.
But would-be customers can hit a snag early in the enrollment process, when they want to use their state-issued photo ID to prove that they are who they say they are. Most states have laws restricting how those IDs can be copied or scanned, and while many also have specific exemptions for financial institutions, that’s not the case nationwide.
The technology already exists and it works in a similar way to remote-deposit capture, said Jason Kratovil, the Vice President of Government Affairs at the Financial Services Roundtable. Most state-issued photo IDs now contain some type of encoded image, similar to a quick response, or QR, code, which can be read through a mobile phone camera with the right software. A bank could read that information, connect with a state’s motor vehicle department to confirm it, and then prepopulate an application for a depository account, he explained.
“What it really came down to is, as folks were looking to build the software to make this possible, they came across the reality that most states have laws on their books that are [Department of Motor Vehicles]-specific laws — they’re not state banking laws — that put restrictions around the use or retention of an image of a consumer’s driver’s license,” Kratovil said.
The MOBILE Act would essentially create a federal-level carve-out for financial institutions to use a scan or image of a photo ID when authenticating a customer’s identity during the account opening process. It also stipulates that a bank or credit union must immediately destroy the image after it’s served its purpose. Its supporters say the federal provision would supersede state laws that don’t make exemptions for financial institutions and is therefore preferable to lobbying those states individually to change their laws.
The measure has drawn broad, bipartisan support, as many lawmakers are concerned that consumers in rural areas lack adequate access to mainstream financial services. Rep. Scott Tipton of Colorado, a Republican, introduced the provision in the House Financial Services Committee and it was included in the Financial Choice Act that passed the House this past summer. Colorado is one of six states that ban either the scanning of state-issued IDs or the scanning of encoded information on IDs. The others are Kansas, Tennessee, Mississippi, Oregon and Illinois.
More recently, the MOBILE Act was part of a manager’s amendment made to the regulatory relief bill that passed out of the Senate Banking Committee last week.
Industry groups, including the American Bankers Association, the Consumer Bankers Association and the Center for Financial Services Innovation, have also lauded the measure. In a letter to Tipton earlier this year, the American Bankers Association described it as “mutually beneficial” for both banks and consumers and touted its consumer privacy safeguards.
Jeanne Horgath, vice president of the Center for Financial Services Innovation, wrote that, “we have seen examples of how mobile account opening can improve inclusion and promote success and financial health for American consumers. We believe all Americans should be able [to] access and use these products and support legislative efforts to this end.”
A handful of big banks, including JPMorgan Chase and Wells Fargo, have recently launched digital banking apps with a personal financial management component designed to appeal to younger consumers. While their overt intent is to hook millennial consumers, those apps could also have the secondary benefit of reaching consumers outside their physical footprints, particularly if the MOBILE Act paves the way for remote account opening nationwide.
Some credit unions also offer account-opening functionalities through their own mobile banking apps or mobile-enhanced websites.