California banking bill to offer free services amid COVID-19

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Increase in overdraft fees. Minimum balances. High ATM, check cashing and debit card fees.

Banking services can be expensive, especially for low-wage workers.

About 20 California lawmakers have signed a new bill designed to provide Golden State households with free financial services, attacking the state’s powerful banks at a time when easier access to banking services could help families to deal with the economic fallout from the COVID-19 pandemic.

If passed, the California Public Banking Option Act would create BankCal, the country’s first state government program to provide universal banking services to consumers, according to financial policy experts. The program would provide free debit cards, direct deposits from employers and government agencies, electronic bill payment and access to ATMs, in direct competition with private banks.

“The bill creates a way for Californians to do banking transactions without paying exorbitant fees – money that could be used for food and rent or to rebuild themselves after the economic devastation caused by the pandemic.” , said MP Miguel Santiago (D-Los Angeles), a lead author of the measure, Assembly Bill 1177.

“If a rich person makes money, that money makes money. When a poor person earns money, that money is ripped off from all corners. Financial institutions are making huge profits on the backs of those who… they say they are helping.

People walk past an ATM at a closed US Bank branch in downtown Los Angeles in November 2020.

(Chris Pizzello / Associated press)

The plight of the ‘unbanked’ and ‘underbanked’ is receiving new attention as the nation seeks to address economic and racial inequalities that have increased during the COVID-19 pandemic.

Support for government banking initiatives, backed by groups such as the California Reinvestment Coalition and the California Public Banking Alliance, has increased since the 2007-08 financial crisis and the recent Wells Fargo scandal.

Bank of San Francisco valued at $ 3 billion to settle criminal charges and civil action after increasing profits with millions of fake checking, savings and credit card accounts opened without customer consent .

In Congress, the Postal Banking Act introduced last fall by Sens. Kirsten Gillibrand (DN.Y.) and Bernie Sanders (I-Vt.) Would allow the U.S. Postal Service to offer low-cost checking and savings accounts, ATMs, mobile banking and low-rate loans of interest.

Like federal legislation, BankCal would “break the mold of private bankers’ control over access to financial services for people who have been left behind,” said Ellen Brown, president of the Public Banking Institute, a national think tank at Santa Clarita. “It reflects the concept that banking is a public service that should be in the hands of the people. “

AB 1177 is due to be heard before the Assembly’s banking and finance committee on April 29. The California Bankers Assn. opposes the bill, saying many of the state’s 150 or so financial institutions already offer low-cost banking options.

Highlighting this year’s revelations of approximately $ 30 billion in pandemic-related unemployment fraud and “archaic technologies” at the California Department of Employment Development, the group released a statement asking, “In a way or some other, we should support the idea of ​​the state getting into the very complex banking business?

Individual institutions – including Banc of California, Bank of the West, Wells Fargo and Bank of America – declined to comment on the legislation.

While BankCal is available to any California resident, it would most likely be used by low-income families who struggle to open accounts or qualify for no-charge credit cards, the lenders said.

A 2019 investigation by the Federal Deposit Insurance Corp. found that 15% of black households and 13% of Latino households in California did not have a bank account, compared with less than 1.5% of white and Asian households. The survey showed similar disparities nationwide.

Personal belongings of a homeless man lie on the sidewalk next to a branch of Wells Fargo Bank in Los Angeles

The belongings of a homeless man lie on the sidewalk next to a branch of Wells Fargo Bank in Los Angeles in 2018.

(Andrew Lichtenstein / Corbis via Getty Images)

Race is also a factor for the underbanked: households that have bank accounts but often rely on money orders, check distributors and high interest payday loans due to the lack of affordable banking services and convenient branches. , or because of language and cultural barriers.

Federal officials found that in addition to those without bank accounts, about a quarter of Latino and black households in California were underbanked. In contrast, 13% of white households and 11.5% of Asian households fell into this category.

While BankCal is targeting basic consumer services, progressive activists are also pushing for cities to create public banks that would lend money at interest rates below commercial rates for businesses, infrastructure, housing. affordable and other municipal projects. Only one state, North Dakota, has a public bank, which has been operating successfully for over a century.

In 2018, Los Angeles voters rejected a public banking voting measure that was criticized as vague and susceptible to political influence. But in 2019, California became the first state in the country to create a legal framework for cities to open public banks under Assembly Bill 857. Officials in San Francisco and Los Angeles are now studying the possibility, and eight states are considering similar bills.

Trinity Tran, co-founder of the California Public Banking Alliance, said public banking was a little-known concept until recently, but has now catapulted itself into the political arena.

BankCal does not create a public bank, but it is part of the same “ecosystem … democratizing finance,” she said. “BankCal provides a passport to black, brown, immigrant and low-income workers who have been excluded from the financial system. “

A nine-member public council, with the office of the state treasurer, would oversee the program, contracting with financial institutions such as credit unions. The platform would not offer loans but could connect users to lenders it certifies as offering low cost terms.

The authors of the bill estimate that the program would cost the state up to $ 5 million per year for six years or until 100,000 Californians have signed up. At this point, they say, it would be self-sustaining thanks to merchant transfer fees on debit card purchases.

One of the goals would be to remove traditional barriers. In the 2019 FDIC survey, 49% of unbanked households cited the inability to meet minimum balance requirements as one of the reasons they don’t have a bank account. About a third said the fees were too high and unpredictable.

A 2018 study by academics from New York University and the University of Kansas found that minimum opening filing requirements were higher in predominantly black neighborhoods than in white areas, and the balance required to avoid charges was also higher.

AB 1177 would require California employers with five or more employees to organize direct deposits of paychecks into BankCal accounts, thereby eliminating the need for low-wage workers to use check tellers, who can legally charge checks. fees of up to 12%.

Public benefits could be deposited electronically into BankCal accounts. “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, policy expert at Prosperity Now, a Washington nonprofit. “BankCal would dramatically improve access for vulnerable families. ”

By offering electronic bill payment, BankCal would relieve low-wage workers of the need to travel, often by public transport, to pay their bills in person.

“I cash my paychecks in a store half an hour from my house, where I have to take a bus to get to me, with my 2 and 7 year old children,” said Sofia Lima, a fast food restaurant in San Francisco. worker who spoke in Spanish at an online press conference organized by BankCal’s donors.

She pays $ 12 to cash each paycheck and takes hour-long bus rides to pay her rent and half-hour rides to pay her phone bill by money order, she said. “Paying bills without a bank account is difficult. But banks don’t make it easy to open an account or maintain an account.

Sofia Lima with daughter Daniela, 2, left, and son Dennis, 7.

Sofia Lima, with her daughter Daniela, 2, and her son Dennis, 7, is an employee of Carl’s Jr. and McDonald’s in San Francisco who cannot afford a bank account.

(Sofia Lima)

According to a federal study, the use of such alternatives consumes up to 10% of the average income of under-banked households, or more than $ 2,400 per year.

Supporters of BankCal say the measure could also help undocumented immigrants who encountered citizenship issues when they tried to set up accounts. An estimated 1.7 million Californian workers, about 1 in 10, do not have legal status.

They also highlight the success of another state initiative to bolster the finances of low-wage workers, CalSavers. The program, which went into effect last year, requires companies without a retirement program to allow payroll deductions for employees to enroll in a state-sponsored IRA. So far, workers have saved $ 55 million.

California’s largest labor organization, the Service Employees International Union, with 700,000 members, has joined the public banking alliance and reinvestment coalition as a co-sponsor of BankCal, making its passage more likely.

“BankCal will change the lives of families who live paycheck to paycheck,” said Joseph Bryant, President of SEIU Local 2021.

“People turn to prepaid debit cards and pay monthly fees whether they use them or not, and transaction fees for every time they use them to pay basic bills, and sometimes they get charged. just to check their balance, ”he said. .

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