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The Unbanked: Offering Small Fees, Banks Cater to Low-Income Customers

One woman kept her savings — a $100 bill — in the freezer. Another, a single mother in Texas, said she had only enough extra cash each week to buy one wooden letter, for $3, to spell out her daughter's name on her bedroom wall. A third, a housekeeper in Brooklyn, lives in a homeless shelter.

These are not the customers a big bank would normally covet, let alone cater to. But an increasing number of the nation's biggest lenders are doing just that, devising low-fee banking especially for customers with troubled finances. The products, including bare-bones bank accounts and prepaid debit cards, are hardly big money makers — in some cases, the banks barely break even.

But for the banks working to overhaul their public images in the aftermath of the financial crisis, the products offer a different and potentially far bigger payout: good will from regulators and a chance to woo more customers who might just become profitable in the long run.

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"Banking still ranks among the worst industries in the public's opinion," said Mike Mayo, a banking analyst at the brokerage firm CLSA. "This is good for the customers and good for the banks' images."

Bank of America, for example, which faces a multibillion-dollar penalty for its crisis-era mortgage practices and is trying to shake a reputation for dubious home foreclosures, has introduced a banking account intended to prevent troubled customers from running up fees for overdrawing their balances.

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As part of those efforts, Bank of America executives shadowed low-income families in four cities and asked them to create collages that showed how they felt about money. JPMorgan Chase, which has had its share of legal and regulatory woes, has developed a low-cost prepaid card that comes with many features of a traditional bank account. And American Express, known for catering to affluent customers, sponsored a 40-minute documentary, narrated by the actor Tyler Perry, that bank executives said was created to expose the costs of living without a bank account.

Still, it is hard not to be skeptical, particularly because the banks, most recently in the subprime housing crisis, have traditionally wrung vast profits from some of these same customers, who paid steep rates for loans and high fees on basic checking accounts. And the new accounts still have their share of fees — JPMorgan's prepaid card, for example, costs $4.95 a month — although they tend to be smaller than in the past.

The latest round of banking products also highlights some banks' longer-term strategies. While the customers might not be profitable right now, they could become much more valuable once they start taking out auto loans, credit cards and other types of higher-margin credit. An influx of borrowers would also help banks as they grapple with tepid economic growth and a financial landscape upended by regulations that erode traditional profit centers like risky trading.

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KeyBank, a lender based in Cleveland, for example, hopes to sell products like a line of credit and auto loans to customers who use its basic low-fee bank account.

"Being the right thing to do has a short shelf life," said Bruce Murphy, the bank's head of corporate responsibility. "Unless you really have an underpinning of the economics, it will not survive."

For now, the banks are winning rare praise from regulators who are concerned about the ranks of people — roughly 10 million households in the United States — who are pushed onto the financial margins, where they are forced to turn to expensive payday lenders.

The products, some regulators say, might help coax back into the banking system people like Esther Guzman, the housekeeper living in a Brooklyn homeless shelter, who said she had to abandon her bank account after running up nearly $700 in overdraft fees.

Today, Ms. Guzman, 47, pays roughly $13 to cash a check. She brings any money left over to her aunt's house for safekeeping.

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The Federal Deposit Insurance Corporation has taken up the issue, forming an advisory committee on economic inclusion made up of bank executives, consumer advocates and government officials to encourage initiatives that expand access to the banking system. At a hearing in April, bank executives, used to testifying about their various misdeeds, found themselves in an unusual position: recipients of high praise.

"I think what you have done is remarkable for the country," Martin Eakes, chief executive of the Center for Responsible Lending, told an executive at Bank of America, referring to its new account.

The idea for that account came after Brian T. Moynihan, the bank's chief executive, expressed concerns about growing customer complaints over high overdraft fees. Executives fanned out across the country, interviewing low-income people like the woman who kept $100 in her freezer. While the money thawed, the woman said, she had time to consider whether she really wanted to spend it. Throughout the interviews, the people complained about overdraft fees.

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One of the collages Bank of America asked people to assemble, which hangs in its offices in Charlotte, N.C., features a glamorous woman with the words "want," "desire" and "resistance" written on her shoulder.

The result of the research is the SafeBalance account, which comes with a $4.95 monthly fee. It allows customers to make direct deposits and pay bills online, but not write paper checks.

There is one catch: The product is not expected to make the bank any profit. But bank executives say it will help reduce the number of calls from exasperated customers complaining about high fees.

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It is not just the biggest banks. American Express sponsored a documentary called "Spent: Looking for Change" to show the costs for those who live without one of the centerpieces of American financial life — a bank account. "It's truly expensive to be poor," said Daniel H. Schulman, a group president for enterprise growth at American Express.

The documentary comes as the bank looks to broaden its customer base, specifically catering to lower-income customers. The development of prepaid cards traces, in part, from research gathered by Mr. Schulman and other American Express executives.

In February 2013, Mr. Schulman tried to navigate basic transactions like cashing a check without a bank account or credit card. Simply to cash a check — a privilege that cost him a 5 percent fee — he had to wait in line for hours. The wait alone cannibalized nearly half his day, amounting to what he called "a part-time job."

The Bluebird card, one of the American Express offerings sold at Walmart stores, has some of the same features that would come with a traditional checking account, allowing customers to write checks and receive direct deposits.

Bank of America considered creating a prepaid card like Chase, but decided to offer a traditional bank account instead.

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After testing the account in Washington, D.C., and five states, including Michigan and Rhode Island, the bank has started offering it nationwide but has no illusions about its potential.

"It is not going to be something that we are going to be actively marketing as a profitable product to grow the company," Thong Nguyen, the head of retail banking at Bank of America, told the F.D.I.C advisory panel in April.

By Michael Corkery and Jessica Silver-Greenberg, The New York Times

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