BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2581 (Bradford)
Hearing Date: 08/02/2010 Amended: 07/15/2010
Consultant: Maureen Ortiz Policy Vote: BF&I 8-2
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BILL SUMMARY: AB 2581 creates a Banking Development District
Program within the State Treasurer's Office in order to
encourage the development of banking branches in underserved
communities.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Admin expenses $255
$460 $460 General
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense file.
The Treasurer's Office indicates the need for 3 PYs to develop a
list of underserved communities, promulgate regulations, and
develop a performance review process. Cost estimates shown
above include $380,684 annually for staffing (1/2 costs are
shown in FY 2010-11), annual operating expenses of $80,000 (1/2
first year) and one-time first year equipment costs of $25,000.
There will be added expenditures for incidental costs that have
not yet been determined. Additionally, there will be unknown
state and local costs for providing valuable incentives to banks
in return for participating in the Banking Development District
Program.
AB 2581 requires the Treasurer to adopt rules and regulations
for the establishment and maintenance of banking development
districts and to evaluate and approve applications for
designation of banking development districts. Under the Banking
Development District Program, the Treasurer would be required to
develop and provide certain incentives to banks that locate in
an underserved community.
Specifically, AB 2581 does the following:
1)Contains Legislative findings and declarations that cite
numerous studies, which in part indicate that 10% of
households, including nearly one-quarter of the minority
population, are unbanked. These individuals pay more for
financial services including the use of check cashing outlets
and money order services.
2)Creates the Banking Development District Program to encourage
financial institutions to either: a) open a new outlet in an
area designated as a banking development district, or b)
develop and market a new product line or group of services in
an existing outlet in an area that is designated as a banking
development district.
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AB 2581 (Bradford)
3)Authorizes the Treasurer and local agencies to compile a list
of underserved communities or regions that lack a
concentration of banks and services.
4)Requires a local agency that wishes to participate to submit
an application to the Treasurer in conjunction with a bank.
5)Requires the Treasurer to develop the selection criteria to
evaluate a local agency's application.
6)Requires the Treasurer to approve applications, that in part,
help unbanked Californians open starter accounts with features
such as: "second chance"; no monthly balance requirements;
limited low-cost overdraft protection plans; assist in
building financial literacy; provide ways to help consumer
build savings; help consumers build or improve a credit
record; provide well-priced loans; and train staff to meet the
needs of the community.
7)Requires the Treasurer to develop a range of incentives to
help banks overcome short-term costs. The incentives must be
valuable to the banks, and significant enough to encourage
banks to locate in an underserved community.
8)Requires a bank that is approved to participate in the program
to have access to deposits of public funds, and to be offered
incentives by local agencies.
9)Authorizes the Treasurer to work with local agencies and
economic development officials to develop additional local
incentives such as the following: a) local agency deposits,
b) help finding suitable commercial space, c) local tax
incentives, and d) workforce development such as customized
training for tellers and others.
10) Requires the Treasurer to establish a performance
review process to ensure that banks taking part in the Program
are meeting their goals and initiatives and that their
services are having a recognizable impact on the community.
An "unbanked" person is an individual who lacks both a basic
checking account and a savings account, and an "underbanked"
person is defined as one who has a bank account but is not fully
integrated in the financial mainstream.
AB 2581 is based on a program pioneered in New York State in
1998 which now includes a total of 31 Banking Development
Districts. The program gives banks a range of state and local
incentives to get them over short-term obstacles to
profitability, enabling them to branch into neighborhoods with
long-term business potential, and better serve low-income
consumers with these new bank branches. Under New York's
program, each participating financial institution is eligible to
receive $10 million in state deposits, on which they are allowed
to pay below-market rates of return. The institutions may
retain this money at below market rates for up to two years,
which can be renewed upon approval by the New York State Banking
Department. Participating
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AB 2581 (Bradford)
institutions are also eligible to receive state deposits of up
to $25 million at market rates, which they may retain for five
years, and may also renew. To date, no funding source for the
program proposed in AB 2581 has been identified.
Staff recommends an amendment to alleviate concerns by the
Treasurer's Office to narrow the language "access to deposits of
public funds" in order to eliminate an inadvertent
interpretation that would allow access to demand bank accounts
administered by the Cash Management Division of the State
Treasurer's Office. Specifically, the amendment would be: Page
6, delete lines 28-29 and replace with: "Access to interest
bearing time deposits of public funds, as deemed appropriate and
approved by the Treasurer."
Staff notes that the Department of Financial Institutions (DFI)
is responsible for licensing, chartering, examining and
supervising the daily operations of state-regulated financial
institutions which includes: banks, credit unions, industrial
banks, savings associations, trust companies, office of foreign
banks, issuers of travelers' checks and payment instruments, and
transmitters of money abroad. The DFI regulates the banking
industry in California while the State Treasurer's Office
invests in banks, buys bank debt products, makes public deposits
in these institutions and maintains demand accounts with these
banks.