California has approximately 1 million households that do not have a bank account, the majority of which are Black and latino, according to federal government data.
But they may soon have access to state-guaranteed, toll-free checking accounts after Governor Gavin Newsom signs off AB 1177 Last week. The law will set up a commission to study the feasibility of creating “CalAccounts”.
Assembly Member Miguel Santiago (D-Los Angeles) drafted the new law, along with Assembly Member Lorena Gonzalez (D-San Diego), in an attempt to limit people’s reliance on payday lenders and check-cashing businesses and instead provide them with safe and reliable banking services. .
“I grew up in a household where they kept money at home because the financial institutions were foreign,” he said. “What I know from my experience, it makes sense that we tackle one of the biggest obstacles in this fight against income inequality.”
According to a National FDIC study 2019, the main reason people say they don’t have a bank account is because they don’t have enough money to meet minimum balance requirements. The second most cited reason is that they just don’t trust banks to manage their money.
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Santiago believes CalAccounts would address those concerns. The state-backed bank would not have a minimum, and he believes people will be more likely to trust him.
“This will allow consumers in the state of California to get a zero fee, zero cost, zero penalty savings account, checking account, bank account that is not currently available,” he said. . “And one that they can trust is not after creating the highest profit.”
So what does public banking really mean?
It includes public banks that individuals can use for normal banking activities, and could also be public banks that cities or state agencies could use to deposit their funds and then finance public projects such as cycling grounds, housing or other public goods.
AB 1177 will not create a state-run public bank, but instead will examine how the state might be able to offer regulated bank accounts that the state will ensure they remain accessible and free of charge. This is a public option because the state acts as a mediator and guarantor for people who currently do not have a bank account.
California is moving towards new ways of doing banking, including the creation of local public banks. Since 2019, cities in California have had a legal way to charter a public bank.
But these banks cannot compete with private banks or credit unions for individual customers. A public bank serving individuals should partner with another financial institution. Cities also have the option of creating a public bank that does not provide services such as checking accounts and loans to individual consumers, but instead holds a city’s finances, which can then be used to fund projects such as housing or cycle paths.
San Diego County Supervisor Terra Lawson-Remer still has many questions about how public banks work in practice, but she is encouraged by the passage of AB 1177.
“We know it’s easier to access capital, if you already have capital,” she said. “So we’re really stuck in a vicious cycle of inequality, and I think we need to look at all the tools in the toolbox to break that cycle.”
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She is interested in seeing how a public bank could be used instead of a private bank to finance things like affordable housing.
“I think there is also a real need to consider creating access to capital to make those kinds of investments and to make those kinds of investments that we need on a larger scale to serve our community,” said she declared.
This month, the Los Angeles City Council passed a motion to start writing a business plan for a public bank that would be owned by the city and held government deposits. San Francisco is also working on a plan.
Jeff Olson, an advocate for local public banks, fears San Diego is missing out on this opportunity.
“San Diego has procrastinated for so long on some things that we’ve wasted a lot of time,” he said. “I mean, I don’t have to remind anyone that we’ve waited so long to build a stadium that we don’t have a football team anymore.”
In the latest round of budget proposals, six San Diego council members said they wanted to explore a public banking option, but it is not currently in the city or county budget.
Joel Day, a candidate for District 6 city council, has included the public bank in his housing platform.
“We need all hands on the bridge to deal with infrastructure, the crisis and housing,” he said. “We can do this by putting public money in a public bank and then working with those public assets to deal with the big crises of our time, like building affordable housing. A public bank allows us to do this much more efficiently than asking Wall Street to keep our money. “
But not everyone in San Diego likes the idea. In a 2020 San Diego Union Tribune article, SANDAG economists and several professors at major local universities spoke out against the idea.
California is studying public banking, could it come to San Diego?
Private sector leaders like Michael Lea, director of Cardiff Consulting Services and former chief economist at Freddie Mac, share their concerns.
“I think one of the reasons many advocates like the idea of a bank like this is that they are going to lend to businesses and to individuals and entities that the private sector is not currently lending to,” did he declare. “Well, there’s a reason the private sector doesn’t lend out there, and it’s often that there’s more risk associated with it. “
As local leaders debate establishing a public bank in San Diego, California is moving forward. The statewide study is to be completed by 2024.