Should state care for the ‘unbanked’?
Too many Californians lack access to basic banking services. Chased away by the cost of an account, the associated fees such as overdrafts or distrust of banks, an estimated one-fourth of California households don’t use basic financial services.
They often rely on costly check-cashing services to gain access to their earnings and face substantial fees for money orders to pay their bills. And they’re usually the people who can least afford it.
That’s why a coalition of left-leaning lawmakers, labor unions and public banking advocates on Tuesday unveiled a plan for state-administered bank services that would offer free accounts to any California resident.
But before the state jumps into the banking business, lawmakers should look at why similar programs in the private sector aren’t enough — and see if there’s an opportunity to partner to quickly improve banking access for those who need it.
Banking is a basic service to which all Californians should have access so they can easily and efficiently pay their bills. The lack of banking services disproportionately affects people of color. The coalition estimates that 46% of Black households and 41% of Latino households are “unbanked” or “underbanked.”
The coalition’s new legislation, Assembly Bill 1177, would establish a system to provide no-fee, penaltyfree, federally insured accounts and debit card services. BankCal would be run by a nine-member board appointed by the state treasurer, governor and state legislators.
The state would partner with an existing financial institution to run the program. It would offer basic services such as direct deposit, debit cards and electronic bill-pay. To guard against overdrafts, BankCal would not offer a traditional paper-check option.
Backers estimate that, with sufficient volume, the service would become self-sustaining, supported primarily by swipe fees from debit card purchases. Those sorts of estimates should be carefully reviewed.
Meanwhile, Wells Fargo and Bank of America, for example, already offer essentially the same services for $5 a month. The question lawmakers need to answer before starting their own bank is why more people aren’t enrolling in the existing private-sector programs.The private banks’ $5 monthly fee might be the deterrent. But that might be overcome with a state subsidy for low-income residents.
There’s also a question of whether the banks will continue to offer such similar services, without adding on hidden fees. Perhaps a deal can be struck to maintain the services in exchange for the state subsidies.
There might be issues of trust in the big banks, especially among undocumented workers. Certainly, Wells
Fargo has earned distrust with its abusive practices over the past two decades that included opening accounts in customers’ names without their knowledge.
AB 1177 would also mandate that landlords accept electronic fund transfers and that employers offer direct deposit. Those are legitimate legislative objectives, but they aren’t cause for setting up an entirely new bank.
In sum, the goals of the legislation are laudable. But, at least so far, we remain unconvinced that BankCal is the answer.
Ganking is a basic service to which all Palifornians should have access so they can easily and efficiently pay their bills. The lack of banking services disproportionately affects people of color.