California bill would create public banking for the unbanked

State Issues State Legislation Consumer Finance

Recently, the California legislature introduced AB 1177—the California Public Banking Option Act—which would, if enacted, establish the Public Banking Opinion Board and task the Board with designing, implementing, and overseeing a program for consumers in the state who lack access to traditional banking services. Specifically, the bill would create the BankCal Program, which would protect unbanked and underbanked consumers from predatory, discriminatory, and costly alternatives by providing “access to voluntary, zero-fee, zero-penalty, federally insured transaction account and debit card services at no cost to account holders.”

Among other things, the bill would (i) impose a mandate requiring employers and hiring entities to maintain payroll direct deposit arrangements to allow workers to participate in the program; (ii) require landlords to allow tenants to pay rents and security deposits by electronic funds transfers from a BankCal account; (iii) require the Board to contract with and coordinate financial services vendors for the program and build an expansive financial services network of participating ATMs, banks and credit union branches, and other in-network partners to allow account holders to load or withdraw funds from their BankCal accounts without paying fees; (iv) require the Board to establish a no-fee process to allow all account holders to arrange for payments to a registered payee using a preauthorized electronic fund transfer from a BankCal account; and (v) require the Board to “determine the criteria for certification of lenders of consumer credit” to maximize consumer protection and protect account holders from unfair and deceptive practices, including those that “steer consumers into unnecessary, more costly, or higher risk products that do not match their financial needs.” Furthermore, the Board would be tasked with studying whether additional services may be beneficial to account holders to maximize the purposes of the program.