Cutting red tape is key to financial inclusion, Treasury says

Getting rid of administrative red tape in government benefits and services should be part of a broader push for financial inclusion, the Treasury Department said in a new strategy it released Tuesday. 

The report and its recommendations aim to remedy disparities in how different people interact with and receive financial benefits and services. Those disparities feed economic inequality.

For example, a section on the racial wealth gap in the report notes that in 2022, the median wealth among white families was six times that of the median Black family and five times that of the median Hispanic family. Among the causes are historical redlining practices meant to keep people of color from mortgages.

There are also disparities among people with lower incomes and wealth and those in rural parts of the country, the report notes.

The new strategy, requested by Congress, “provides a roadmap for the public, private and non-profit sectors to promote the ability of all communities to fully participate in our robust economy and financial system,” Treasury Secretary Janet Yellen said in prepared remarks for an annual American Bankers Association convention Tuesday. 

“It importantly focuses not just on increasing access to the financial system, but also on leveraging that access to drive better consumer outcomes like increased financial resilience, wellbeing and wealth,” she continued.

Among the recommendations are that financial institutions improve the accessibility of their transaction accounts, policymakers help reach communities that rely heavily on cash and employers offer inclusive retirement savings plans.  

But the government also has a role to play, not only as a regulator, but also as a direct service provider that can streamline access to government services, Treasury says. The agency itself disburses almost 90% of federal payments, runs the tax system that issues refunds and credits and administers capital access programs.

“There are tens of billions of dollars left on the table in the form of tax credits that people don't apply for, public benefits that people don't get access to or don't apply for,” Tim Shaw, the policy director for the Aspen Institute’s Financial Security Program, told Nextgov/FCW. Aspen has previously pushed for the creation of such a strategy alongside other advocacy and community organizations, as have certain Democrats in the Senate.

The design of government services and benefits affects whether people access them, said Shaw. 

Government officials can make applying for and re-enrolling in government programs easier, the report recommends. 

“Government agencies may be missing opportunities to more effectively and inclusively foster financial well-being for underserved Americans through innovations in program and product design and delivery,” the report states. 

“Key access challenges for consumers include the time, effort, and costs associated with completing complex forms, gathering necessary documentation, and navigating administrative processes. Often, these administrative burdens are not one-time hurdles but ongoing challenges,” it continues. 

As an example of current work to reduce burdens, Treasury pointed to cross-agency pilots to improve how governments verify peoples’ incomes for programs like Medicaid. Jointly verifying this type information once across many programs could mean that applicants wouldn’t have to submit the same information over and over again, the report states. 

Treasury also points to the IRS Direct File program as an example of inclusive delivery of government benefits. 

Piloted this year, the tool gave people a way to file their taxes online with the government for free. Its over 140,000 users saved an estimated $5.9 million in tax prep costs.

Government agencies can also refer people to programs they qualify for when they are getting one benefit and use government payments as a way to help people get free or low-cost transaction accounts, the report states.

Bank account ownership went up during the pandemic, Treasury says, in part due efforts by the Federal Deposit Insurance Corporation with the banking industry and other partners to help consumers get free and low-cost transaction accounts so that they didn’t have to wait for paper checks to get their Economic Impact Payments.

“To build on these successes, Treasury is committed to collaborating with federal, state, local, and Tribal governments… to identify where government can leverage government payments as opportunities to help consumers open accounts,” the report states. “Improving inclusion in the financial system is critical to fostering financial resilience and well-being and addressing wealth inequality.”