California bill would create free banking services for state residents
California lawmakers are backing a bill to create BankCal, a government program that would provide a “no-fee, no-penalty” consumer banking option to residents of the state. The measure aims to “protect consumers who do not have access to traditional banking services against predatory, discriminatory and expensive alternatives”.
Assembly Bill 1177, which lawmakers and advocates unveiled last week, would create a Public Banking Options Commission, which would partner with financial institutions to offer free accounts. California employers with five or more employees would be required to facilitate direct deposit, on request, into the account.
The bill is expected to be heard on April 29 before the Assembly’s banking and finance committee.
Pressure among lawmakers and consumer groups for a toll-free banking service that would eliminate the need for the unbanked to turn to check tellers and payday lenders has increased in recent years.
“California families are losing hundreds of millions of dollars in fees a year to payday lenders and check-cashing stores that prey on the most vulnerable,” The member of the Democratic Assembly Miguel Santiago, main author of the bill, said in a press release. “With BankCal, more families will be able to keep the money they have earned, put food on the table and accumulate their savings.”
BankCal’s functionality would include a debit card, automatic bill payment capability, and free access to ATMs at participating banks.
“[The California Public Banking Option Act] reflects the concept that banking is a public service that should be in the hands of the people, ”Ellen Brown, president of the Public Banking Institute, a national think tank in Santa Clarita, told the Los Angeles Times.
Supporters of AB 1177 say the current economic difficulties caused by the coronavirus pandemic have increased the need for alternative banking options.
“During the pandemic, we have witnessed the need for rapid distribution of stimulus and unemployment payments and faulty systems unable to provide timely relief,” said Holden Weisman, a policy expert in Washington nonprofit Prosperity Now at the Los Angeles Times. “BankCal would dramatically improve access for vulnerable families.”
According to the California Reinvestment Coalition, which cited data from the Federal Deposit Insurance Corp. (FDIC), one in four California households and nearly half of black and Latin Californian households are either unbanked or underbanked.
The California Bankers Association (CBA) will oppose the bill, according to the Sacramento Business Journal. CBA spokeswoman Beth Mills told the publication banks already provide free or low-cost accounts.
California has used the legislation to try to establish alternative banking options for its residents in the past.
In 2019, it became the first state in the country to create a framework for municipalities to create public banks, after the adoption of Bill 857 of the Assembly. The passage of the law, however, has not yet resulted in the establishment of a public bank in the state.
The Bank of North Dakota is the only public public bank in the United States
Meanwhile, the FDIC announced a new effort to quell an expected growth in the country’s unbanked and underbanked numbers due to the pandemic.
The regulator launched on Tuesday #GetBanked, a campaign to raise awareness about the benefits of opening a bank account. The effort is initially focused on the Atlanta and Houston markets, where FDIC research reveals that black and Hispanic households are disproportionately unbanked.
“Having a basic checking account can be an important first step in becoming part of the financial fabric of this country”, Jelena McWilliams, President of the FDIC said in a press release. “I know from my personal experience that starting a banking relationship can provide a greater sense of belonging and broaden economic opportunities.”
Over the past year, some lawmakers have called for the re-establishment of the postal bank in an attempt to expand financial services to the unbanked and create an alternative revenue stream for the cash-strapped US Postal Service.