California capitol building in Sacramento. Photo by Mathieu Thouvenin, Flickr (CC BY-NC-ND 2.0)

By Mark Anderson, Sacramento Business Journal | March 29, 2021


Los Angeles Assemblymember Miguel Santiago has introduced legislation that would form a state panel to create a no-fee, no-penalty bank account supported by the state and managed by existing financial companies.

Unlike a previous attempt by Santiago to create public banks, this time around, the legislation, Assembly Bill 1177, would form a Public Banking Option Board, which would partner with existing financial institutions to offer the free accounts statewide through a “BankCal” program.

The Public Banking Option Act would offer “access to voluntary, zero-fee, zero-penalty, federally insured transaction account and debit card services at no cost to account holders,” according to the bill language.

The bill is meant to protect “consumers who lack access to traditional banking services from predatory, discriminatory and costly alternatives.”

The legislation is being offered as a way to bridge the racial wealth and financial services gap, especially among underserved communities.

In a news release, Santiago, a Democrat, said one in four California households — and nearly half of Black and Latino California households — are unbanked or underbanked. They often have to rely on more expensive check cashing outlets or payday lenders.

BankCal “creates a public financial services platform that will help level the playing field, particularly for low- and middle-income Californians and give them more opportunities to save their money and receive loans,” he said in a news release.

The California Bankers Association is still wading through the bill language, but the bankers’ group will oppose it, said spokeswoman Beth Mills. She said banks already reach out to these communities with free or low-cost accounts and also with second-chance accounts for people who have lost access to the banking system in the past.

The bill language says the “act would authorize the board to seek and accept voluntary contributions, in cash or in kind, from private donors solely for the purpose of paying for the costs of implementing the program.”

The BankCal board would issue a request for proposals for existing financial institutions to participate in the program.

In 2019, Santiago introduced Assembly Bill 857, which sought to create a public banking option to keep local money under local control. That effort failed.

California lawmakers have considered allowing public banks several times, starting in the depths of the financial crisis over a decade ago. Then, a state bank was seen as a potential lender for community development. In 2011, then-Assemblyman Ben Hueso, a Democrat from San Diego, sought to create a commission to examine the potential for a state bank similar to the Bank of North Dakota, the only state-run bank in the continental U.S.

The Bank of North Dakota offers some services like savings accounts to consumers, but it has very few retail customers. The Bank of North Dakota has only one location, in the state capital of Bismarck, and no ATM.

Then-Gov. Jerry Brown vetoed Hueso’s bill, stating that its mandate to create “yet another blue ribbon task force” was unnecessary because the question of whether to create a state bank could be considered by the Legislature’s banking committees.

Earlier this month, Santiago introduced legislation, AB 310, to tax the assets of the wealthiest Californians and also reintroduced legislation, AB 1253, to add an additional tax on top of the state’s highest-in-the-nation 13.3% rate on the incomes of Californians who earn more than $1.18 million a year.