BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 38 (Bradford)
Hearing Date: 8/15/2011 Amended: 6/27/2011
Consultant: Maureen Ortiz Policy Vote: BFI 5-2
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BILL SUMMARY: AB 38 requires the Department of Financial
Institutions (DFI) to work with local agencies to compile a list
of underserved communities, and to post that list on the DFI
Internet Website.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
List compilation and posting $75 $0
$0 Special*
*Financial Institutions Fund
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STAFF COMMENTS:
The Department of Financial Institutions indicates one-time
costs of about $75,000 to work with local agencies to compile a
list of underserved communities and post the list on its
Internet Website. AB 38 does not specify any timeframe for the
department to complete the data compilation.
AB 38 defines "underserved communities" 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.
AB 38 contains findings and declarations as follows:
a) In California, 12% of adults do not have a checking or
savings account, and that Fresno and Los Angeles have the second
and third highest percentages of unbanked residents in the
country.
b) The unbanked pay more for services such as check cashing and
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money orders.
c) Families without accounts are more subject to home robberies
which are prevalent around check cashing outlets.
d) According to a recent Brookings Institution study, a
full-time worker without a checking account could potentially
save as much as $40,000 during his or her career by relying on a
lower cost checking account instead of check cashing services.
e) A bank account is the first step to financial security and
makes it easier to obtain car loans, credit cards and mortgages.
f) Financial institutions have concerns about locating in
underserved communities because of the lack of sufficient
deposits to make the institution viable.
g) In 1999, the state of New York established a Banking
Development District Program and provided incentives to
participating financial institutions.
AB 38 is intended to be the first step toward establishing a
Banking Development District program in California. AB 2581
(Bradford, from the 2009-10 legislative Session), would have
established a Banking Development District, however, that bill
was vetoed by the Governor.
In 2008, the Bank on California program was formed, which now
operates within the State and Consumer Services Agency. The
Bank on California effort, which involves a partnership between
certain financial institutions and cities, is intended to
increase the supply of starter account products offered by
participating financial institutions, raise awareness among
unbanked individuals about the benefits of account ownership,
and make quality money management education more easily
available to unbanked and underbanked individuals. To date,
seven cities (Los Angeles, Oakland, San Jose, Fresno, San
Francisco, Santa Ana, and Sacramento) are participating in the
Bank on California program.
The federal Community Reinvestment Act (CRA) was developed out
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of concern that banks were accepting deposits from households
and businesses in their local communities, while at the same
time failing to award loans to qualified local loan applicants
from within these communities. The CRA does not mandate any
action by a bank. Instead, it calls on federal supervisory
agencies, including the Office of the Comptroller of the
Currency, Federal Reserve Board, Federal Deposit Insurance
Corporation, and Office of Thrift Supervision, to encourage each
bank to help meet local credit needs, particularly the needs
felt by low and moderate-income communities. Each year, the
Federal Financial Institutions Examinations Council publishes a
list of distressed or underserved tracts.
In 1997, a CDFI tax credit was enacted to encourage businesses
and insurance companies to make community development
investments. The credit equals 20% of the amount of each
qualified investment in a CDFI. CDFIs are community development
banks, loan funds, credit unions, micro-enterprise funds,
corporate-based lenders, or venture funds or non-regulated
nonprofit institutions organized to gather private capital for
community development lending or investing.