BILL ANALYSIS
AB 2581
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2581 (Bradford)
As Amended August 17, 2010
Majority vote
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|ASSEMBLY: |48-27|(June 2, 2010) |SENATE: |23-12|(August 19, |
| | | | | |2010) |
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Original Committee Reference: B. & F.
SUMMARY : Establishes a Banking Development District (BDD)
program within the Department of Financial Institutions (DFI),
which would encourage the establishment of bank or credit union
branches and/or new bank services in specially designated
geographic locations where there is a need for banking services.
Specifically, this bill :
1)Makes findings and declarations regarding the status of
unbanked and underbanked consumers, as well as, the need for
baking services in underserved communities.
2)Provides that financial institutions, as defined, may seek to
participate in the BDD program if they do either of the
following:
a) Open a new outlet in a lower income, underserved area:
or,
b) Develop and market a new product line or group of
services in an existing outlet in an underserved community.
3)Defines "underserved community" as a remote location or
impoverished area that lacks banking services commensurate
with the services provided to higher income areas with a
population of similar size.
4)Defines "Banking Development District" as a specifically
designated geographic location where there is a demonstrated
need for banking servicers that has been designated as such by
DFI.
5)Provides that a local agency in conjunction with a bank shall
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submit an application to the State Treasurer (Treasurer) in
order to participate in the BDD program. This application
shall request that specific underserved community be named as
a BDD.
6)Allows for DFI, and local agencies to compile list of
underserved communities or regions that lack a concentration
of banks and services in order to provide banks with a clear
demonstration of those areas that are in most need.
7)Specifies that the application for participation in the BDD
program shall include the following components:
a) Clearly defined current and anticipated bank product and
service needs of the community;
b) Demonstrate that those needs are not currently being met
by existing institutions; and,
c) Demonstrate that the bank applying for acceptance can
meet the needs of the community as identified.
8)Requires DFI to set forth selection criteria to evaluate a
bank's application. The criteria shall meet the following:
a) Result in needed and responsible bank products and
marketing of those products to local consumers;
b) Be flexible and allow for differences in local markets;
and,
c) Encourage viable business practices.
9)Provides that DFI shall evaluate and approve applications and
designate BDDs to the extent that participating banks can
accomplish the following:
a) Help unbanked Californians open starter accounts that
include no monthly balance requirements, low cost overdraft
protection plans and second chance accounts;
b) Build the financial literacy of low income customers;
c) Provide effective ways for low income customers to build
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savings and a credit record;
d) Provide competitively priced mortgage and auto loans;
e) Offer microloans and micro lending products and
services;
f) Provide products to assist small businesses; and,
g) Provide specialized marketing, and specialized training
for staff.
10)Requires DFI to develop and provide a range of incentives to
encourage banks to participate in the BDD Program that shall
be valuable to banks and significant enough to encourage banks
to locate in underserved communities.
11)Provides that a bank that is located in a BDD and that has
been designated as such, shall be eligible for a range of
incentives including, but not limited, to:
a) Access to priority of deposits of public funds and
access market-rate public funds as deemed appropriate and
approved by the Treasurer; and,
b) Incentives offered by local agencies as deemed
appropriate.
12)Allows DFI to work with local agencies and economic
development officials to develop additional local incentives
for participating banks including, but not limited to, the
following:
a) Local agency deposits;
b) Assistance in locating suitable commercial real estate
space for branches;
c) Local tax incentives; and,
d) Workforce development.
13)Requires DFI to adopt rules and regulations for the
establishment of the program, as well as, post online a
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performance review process.
14)Provides that DFI shall provide information on the BDD
Program to the Treasurer and the Treasurer may utilize the
Banking Development District Program when promoting the
Treasurer's Time Deposit Program.
15)Allows the Treasurer to take into considerations BDD areas as
a criterion when authorizing participation by financial
institutions in the Time Deposit Program.
The Senate amendments eliminate much of the role envisioned for
the Treasurer for operating and implementing the BDD program,
and instead placed full responsibility for the program with DFI.
Additional amendments were technical and non-substantive.
EXISTING LAW provides for the regulation of state banks and
credit unions by DFI.
AS PASSED BY THE ASSEMBLY , this bill stated that the Treasurer
was the primary office responsible for implementing and
developing the BDD program.
FISCAL EFFECT : According to Senate Appropriations Committee,
estimated total one-time costs of at least $111,600 and ongoing
annual costs of at least $132,000 to DFI.
COMMENTS : In 1998, the state of New York, under Governor George
Pataki, created the first BDD program in the nation. BDDs were
designed to provide communities with a resource to assist in
providing economic development opportunities and incentives to
financial institutions to locate in underserved communities.
According to a 2006 Wall Street Journal Article, Citibank
executives acknowledged that without the below-market-rate
deposits from the state and city, the bank would continue to
lose more than $350,00 a year operating a three story branch in
a neighborhood where 38% of the residents live below the poverty
line. The goal of AB 2581 is to spur increased and enhanced
banking services in under-served communities that will spur
greater financial inclusion. The desired outcome is that more
Californians will enter the financial mainstream and build
savings and wealth through participating banks' offerings and
marketing of appropriate transactional, loan, and credit
products that can lead to long-term wealth building
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opportunities.
In the modern financial arena consumers are faced with a
confusing myriad of choices and options. This confusion is
amplified by the financial illiteracy of most consumers, and
what has been a traditional lack of outreach by financial
institutions to certain communities. Recently, the untapped
market of those without a banking relationship has become an
intriguing opportunity for those offering financial services.
However, as many studies have shown, the unbanked and
underbanked often do not feel comfortable dealing with financial
institutions that are not located in their neighborhoods. In
October of 2009, the Los Angeles City Council approved a motion
to establish a local BDD program by requiring the City Attorney
and City Treasurer to draft an ordinance establishing the
program. Additionally, the City Treasurer must set up a task
force with department heads and council members to determine
what modifications may be needed to adapt the New York BDD model
program to Los Angeles.
On January 24, 2008, Governor Schwarzenegger announced an effort
to assist unbanked and underbanked Californians. This program,
called Bank on California, is built off of a pilot project in
the City of San Francisco, known as Bank on San Francisco. The
idea behind the Bank on California program is too increase the
availability of starter checking accounts through partnerships
with financial institutions. Additionally, this program creates
partnerships between local officials, banks and community groups
to raise awareness on the importance and benefit of entering the
financial mainstream.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0006141