A new California bill designed to create a public banking system with free debit cards for all citizens presents a balancing act for the state on the part of entities that know financial organizations like the back of their hand.
While viewed as well-intentioned, the California Public Banking Option Act (Assembly Bill 1177) receives a lukewarm response from banks, credit unions, and even state comptroller Betty Yee.
It was introduced in February by Assemblyman Miguel Santiago, (D-Los Angeles) as a way to give low-income communities a head start. It is now in the State Appropriations Committee.
The bill mentions that one of two black and Latino households is “unbanked” or “underbanked,” with the idea that most banking services are chargeable. A quarter of Californians do not have accounts, the bill summary says.
He adds, “Californians earning less than $ 15 an hour represent 80.7% of the unbanked in the state. Black and Hispanic Californians make up 78.4%. Almost half (45.9%) of all households identifying Black in California and 41.1% of all households identifying Hispanic are unbanked or underbanked, compared to 15.5% of households identifying white. “
The bill is as much about social equity as it is about finances.
“When we talk about the economic recovery from COVID, it is not necessary that we cannot close the racial wealth income gap. When you are rich, your money makes money. When you are poor, you are not, ”said Tom Steel, Santiago’s legislative assistant.
By removing restrictions such as minimum balance requirements and overdrafting, the poor have a better chance of getting ahead. A third-party Fintech administrator would help the government process transactions on the backend of the program.
After a million dollars, it is hoped that the program will have no cost in six years.
“We hope he has a chance with 17 co-authors,” Steel said.
Santiago may have discovered the idea in the city of Los Angeles, which offers its citizens the Angeleno Card, a free debit card offered to households with incomes below the federal poverty line before the onset of the crisis. COVID-19 and who had their income. reduced by at least an additional 50% due to the outbreak.
The state’s proposal would form the BankCal program, which creates a quasi-public bank run by the government.
This is part of the sticking point for financial institutions and their advocacy groups.
“We are very opposed to the principle of state entry into banking,” said Robert Wilson, vice president of government affairs for the Sacramento-based California Credit Union League. “We applaud the intention, but we really want them to consider other options.”
The League of Credit Unions wrote a letter dated March 31 to lawmakers urging them to rethink the proposal.
“While CCUL recognizes the laudable objective and appreciates the intent of the bill, we believe the bill duplicates what credit unions already offer in their communities,” the letter said.
Many of the approximately 290 credits in California already offer free checking accounts with no “second chance opportunity,” the policy document points out.
Within the credit union community, 22 are also community development financial institutions credit unions. These designations indicate that a majority of their members meet the low income cutoffs. CDFIs are developed to promote the economic vitality of communities in difficulty. In January, they were the first to participate in the latest round of Paycheck Protection Program funds, which gave small businesses in low-income and minority-based communities access to capital.
“Credit unions already see themselves as ‘the people’s bank’ because of their unique structure and their ability to meet the needs of their communities,” the letter said.
Opposition from the credit unions came with another great power support.
“Banks are not easy to manage,” Beth Mills, spokesperson for the California Bankers Association, told the Business Journal. “It’s something the private sector has a good handle on.”
Something for nothing may not be the answer.
For Mills and others in the banking and financial world, paid services are needed to keep the system afloat and function.
Why else would California residents pay taxes, she points out.
“We certainly share a certain concern and interest in giving people access to people who don’t have bank accounts,” she said.
But there are other ways to achieve the same goal. Mills suggested the state should help promote the programs banks already have to help those in need.
The state’s top financier has voiced objections to the bill as a senior officer and watchdog of California’s finances.
Yee also wrote a letter in March which shared concerns about the “unlimited general fund (access) for start-up and administration costs to be continued in the annual budget bill for at least the first six years of the program,” said he declared.
“As California’s CFO responsible for paying government bonds, I think it is fiscally unwise for the state to run a public bank as it would expose the state to undue unknown financial and legal liability. She said in the letter.