Risky California public bank plan would duplicate services
This week, the Assembly Banking and Finance Committee will consider the state’s creating an unnecessary and unwieldy government-run banking system that carries enormous financial risk to Californians.
Proponents of Assembly Bill 1177, the California Public Banking Option Act, claim this measure is needed to address challenges faced by the state’s unbanked or “underbanked” population. There could be no stronger supporters of the goal of giving all Californians access to safe and affordable banking products than the members of our association.
However, proponents of AB 1177 are trying to sway public opinion with misleading data that claim the portion of some groups of Californians lacking access to banking services surpasses 40%. This is a completely inexplicable assertion in the face of credible data from the FDIC and Federal Reserve that show just over 5% of American households do not have a bank account and roughly 6% are unbanked. We strongly caution against creating sweeping new public policy based on highly questionable statistics contained in the legislation.
Californians do not lack access to banking services. They are served by more than 150 banks and nearly 300 credit unions, the overwhelmingly majority of which offer low or no-cost banking options specifically designed to serve the unbanked. Additionally, there is a network of more than 100 certified community depository institutions, supported by the U.S. Treasury and commercial banks, that are structured specifically to serve low-income communities.
If the true concern of policymakers is to discourage the use of alternative, high-cost non-traditional financial companies such as check-cashing services and payday lenders, they should focus on narrowly tailored solutions designed specifically to address this issue. And they should partner with financial institutions to educate these communities on the options already available.
One such option banks are proud to be a part of is the BankOn program, established in 2015 and run by the non-profit Cities for Financial Empowerment Fund. The program specifically works to ensure everyone has access to a safe, affordable transaction account.
BankOn-certified accounts meet robust national account standards, developed by consumer advocates and based on the FDIC’s Safe Account pilot conducted in 2011. These accounts must contain low or no monthly fees, no overdraft fees, robust transaction capabilities, such as a debit or prepaid card, online bill pay and unrestricted access to free customer service.
All major banks and credit unions with a California presence participate in the BankOn program, which offers a geographically diverse network of free ATMs. Building a strong and collaborative California BankOn coalition would be of significant consequence. We encourage legislators to help promote bank and consumer adoption of these accounts. This would be a much-more-effective, less-expensive and less-risky option than efforts to stand up a public-banking network.
The magnitude of the costs and risks in this proposed endeavor cannot be ignored. AB 1177 would put taxpayers on the hook for what would be exceedingly high start-up and operational costs.
California’s banking community remains unwaveringly committed to serving the needs of our communities and helping to support economic growth and vitality. We remain opposed to the concept of public banks. We hope that community leaders and elected officials will take note of the risks associated with establishing a public bank before opting to explore this unnecessary public option.