BILL ANALYSIS �
AB 38
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ASSEMBLY THIRD READING
AB 38 (Bradford)
As Amended May 27, 2011
Majority vote
BANKING & FINANCE 10-0 APPROPRIATIONS 12-5
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|Ayes:|Eng, Achadjian, Charles |Ayes:|Fuentes, Blumenfield, |
| |Calderon, Fuentes, Gatto, | |Bradford, Calderon, |
| |Roger Hern�ndez, Lara, | |Campos, Davis, Gatto, |
| |Morrell, Perea, Torres | |Hall, Hill, Lara, |
| | | |Mitchell, Solorio |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Harkey, Donnelly, |
| | | |Nielsen, Norby, Wagner |
| | | | |
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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.
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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)Allows DFI and local agencies to compile a 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.
6)Provides that DFI provide information on the BDD Program to
the State Treasurer. The Treasurer may utilize the BDD
Program when promoting the Treasurer's Time Deposit Program.
7)Allows DFI to work with local agencies and economic
development officials to identify 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.
8)Requires DFI to adopt rules and regulations for the
establishment of the program.
EXISTING LAW provides for the regulation of state banks and
credit unions by DFI.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, costs of, likely in the range of $100,000 annually to
the Department of Financial Institutions combined for
administration, marketing, performance reviews, and examination
costs related to the BDD program.
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
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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 $350,000 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 (Bradford) 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 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
seven cities in California participate: Fresno; Los Angeles;
Oakland; Sacramento; Santa Ana; San Francisco; and, San Jose.
Previous legislation:
AB 2581 (Bradford) of 2009 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. This bill was vetoed
by Governor.
AB 1502 (Lieu) of 2007 would have established a BDD program,
jointly administered by DFI and the State Treasurer's Office
This bill passed the Assembly, but was gutted and amended into a
financial literacy education bill.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0000905
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