BILL ANALYSIS �
AB 38
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Date of Hearing: April 11, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 38 (Bradford) - As Amended: March 21, 2011
SUBJECT : Banking development districts.
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
banking 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 services that has been designated as such by
DFI.
5)Provides that DFI provide information on the BDD Program to
the Treasurer. The Treasurer may utilize the BDD Program when
promoting the Treasurer's Time Deposit Program.
6)Allows for DFI and local agencies to compile list of
underserved communities or regions that lack a concentration
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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.
1)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.
2)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 savings and a credit record;
d) Provide competitively priced mortgage and auto
loans;
e) Offer microloans and micro lending products and
services;
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f) Provide products to assist small businesses; and,
g) Provide specialized marketing, and specialized
training for staff.
3)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.
4)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.
5)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.
6)Requires DFI to adopt rules and regulations for the
establishment of the program, as well as, post online a
performance review process.
EXISTING LAW provides for the regulation of state banks and
credit unions by DFI.
FISCAL EFFECT : Unknown
COMMENTS : In 1998, the state of New York, under Governor George
Pataki, created the first BDD program in the nation. BDDs were
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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 38 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
opportunities.
In May, 2010 a report was released titled, "10 Years in: A
review of the Banking Development District Program." The report
concluded that overall, the BDD Program plays an important role
in reducing the number of unbanked and underbanked populations
in New York State. Despite its successes, the BDD Program could
be dramatically improved by mandating that BDD branches provide
financial education, encouraging the development of more
affordable products and services and encouraging more
collaboration between the BDD branches and local community
groups.
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.
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Californians, now more than ever, may have more of a distrust
towards financial institutions due to the mortgage meltdown.
Recent statistics show, nationally, as many as 28 million people
are unbanked, One in five low-income Californians does not have
a checking account and nearly half of Californians do not have a
savings account. This measure attempts to incentivize financial
institutions to bank in less desirable areas and get those
unbanked, banked. "Banked" consumers leads to more financially
literate consumers.
On January 24, 2008, Former 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. Currently, only 7
cities in California participate: Fresno, Los Angeles, Oakland,
Sacramento, Santa Ana, San Francisco, and San Jose.
PREVIOUS LEGISLATION:
AB 2581 (Bradford), 2009-2010 Legislative Session. Would have
established a BDD program administered by DFI to encourage the
establishment of banking branches in and the provision of
additional product lines or services to, specified underserved
areas. Vetoed by Governor.
AB 1502 (Lieu), 2007-2008 Legislative Session: Would have
established a BDD program, jointly administered by DFI and the
STO. Passed the Assembly, but was gutted and amended into a
financial literacy education bill.
Questions to Consider:
1)Does DFI have the expertise and resources to be able to
accomplish the goals of this measure?
2)Should DFI, who regulates state chartered financial
institutions, have the authority provided in this measure to
provide incentives to those they regulate?
3)What incentives could DFI offer to financial institutions?
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REGISTERED SUPPORT / OPPOSITION :
Support
New America Foundation - Sponsor
California Credit Union League
Opportunity Fund
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081