BILL ANALYSIS �
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THIRD READING
Bill No: AB 38
Author: Bradford (D)
Amended: 6/27/11 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INST. COMM. : 5-2, 7/6/11
AYES: Vargas, Evans, Kehoe, Liu, Padilla
NOES: Blakeslee, Walters
SENATE APPROPRIATIONS COMMITTEE : 6-2, 8/15/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson
NO VOTE RECORDED: Runner
ASSEMBLY FLOOR : 57-20, 6/1/11 - See last page for vote
SUBJECT : Banking: underserved communities
SOURCE : New America Foundation
DIGEST : This bill directs the Department of Financial
Institutions to work with local agencies to compile a list
of underserved communities or regions that lack a
concentration of depository institutions and financial
services, as specified.
ANALYSIS :
Existing federal law
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1. Provides for the Community Reinvestment Act (CRA), which
contains findings that banks have a continuing and
affirmative obligation to help meet local community
banking needs, and to do so in a safe and sound manner.
2. Provides a corporation tax credit for up to 50 percent
of qualified contributions made to selected community
development corporations. Five percent of the amount
contributed may be claimed as a credit for each tax
year, over a ten-year period.
Existing state law
1. Provides a Community Development Financial Institution
(CDFI) tax credit to businesses and insurers, which
sunsets on January 1, 2012.
2. Places authority for regulating state-chartered
depository institutions with the Commissioner of the
Department of Financial Institutions (DFI).
This bill:
1. Contains findings and declarations relating to the
challenges that unbanked individuals face as a result of
their unbanked status, the high percentage of
lower-income neighborhoods in California that lack a
bank or a credit union, the challenges that banks and
credit unions face when they choose to locate in an
underserved area, and the success of the New York State
Banking Development District Program in encouraging
financial institutions to open branches in underserved
areas of New York.
2. Directs DFI to work with local agencies to compile a
list of underserved communities or regions that lack a
concentration of depository institutions and services,
in order to provide depository institutions with a clear
demonstration of those areas that are in the most need,
and would require DFI to post its findings on the DFI's
Internet Web site.
3. Defines an underserved community as a remote location or
impoverished area that lacks banking services
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commensurate with the services provided to higher income
areas with populations of similar size.
Comments
Background and Discussion . This bill is sponsored by the
New America Foundation, as the first step toward
establishing a Banking Development District (BDD) program
in California. The New America Foundation sponsored two
prior bills to create a California BDD program, both of
which were vetoed (AB 1502 �Lieu], 2007-08 Session and AB
2581 �Bradford], 2009-10 Session). This year, New America
and Assemblymember Bradford are pursuing a more scaled-back
approach, which requires DFI to work with local agencies to
compile a list of areas in California that lack depository
institutions. By identifying areas in the state that lack
depository institutions, the author and sponsor hope to
shine light on areas in the greatest need, which, in turn,
will encourage agencies and groups to work with each other
to offer financial incentives geared toward banking the
unbanked. The author and sponsor also hope that the Bank
on California can be expanded into the areas identified by
DFI.
Bank on California . In January 2008, Governor
Schwarzenegger announced the formation of the Bank on
California program, run through his Office of Planning and
Research (the program has since been moved to 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 un- 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, and have established their
own "Bank on" programs, targeting the specific needs of
their residents. According to the author's office, the
Bank on California program has been replicated across the
United States and is supported by President Obama.
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Existing Programs, Laws, and Tax Credits Geared Toward
Offering Financial Services in Underserved Areas and to
Underserved Populations . Long before the state pioneered
its Bank on California program, the federal government and
California enacted laws intended to increase the financial
resources available in communities that are underserved by
financial institution branches.
California's Time Deposit Program . The Time Deposit
Program was first authorized in 1945, with the goal of
depositing funds held by the State Treasurer in depository
institutions throughout the state. Once deposited, these
funds can be used by the depository institutions to
reinvest in the California communities in which they are
located. All federally-insured banks and credit unions in
California that meet financial stability criteria
established by the Treasurer's Office are eligible to
receive deposits through the Time Deposit Program. Money
invested by the Treasurer through the program consists of
state and local government funds held in trust by the
Treasurer in the Pooled Money Investment Account (PMIA).
The program assures a yield to the PMIA which is higher
than the yield of comparable-length U.S. Treasury bills,
and makes money available to community banks and credit
unions at rates better than they can receive from other
sources. During the 2009-10 fiscal year, the Treasurer
invested in, and renewed in aggregate over $55 billion in
California depository institutions participating in its
Time Deposit Program. Deposits made through the Time
Deposit Program are not prioritized; the Treasurer gives
equal priority to all depository institutions that request
deposits through this program, and spreads out its
available funds to ensure that each qualifying depository
institution which requests a deposit receives one.
Community Reinvestment Act . The federal CRA arose out 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, and instead
awarding loans to people outside of 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,
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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, in a manner consistent with
safe and sound operation. Every year, the Federal
Financial Institutions Examinations Council, the agency
formed to prescribe uniform principles, standards, and
report forms for the federal examination of financial
institutions, publishes a list of distressed or underserved
tracts, together with the methodology used to select the
tracts.
The CRA is enforced through periodic examination by state
and local regulators. Regulators consider an institution's
CRA performance when evaluating an application for a
charter, deposit insurance, branch or other deposit
facility, relocation, or merger or acquisition. Banks are
not fined for low CRA scores, nor are they required to
cease operation. They may, however, have trouble expanding
their operations. The CRA does not cover credit unions or
other types of financial institutions, including the
insurance and investment subsidiaries that banks can
establish.
CDFI Tax Credit . California's CDFI tax credit was enacted
in 1997 in order to encourage businesses and insurance
companies to make community development investments. The
credit equals 20 percent 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
non-profit institutions organized to gather private capital
for community development lending or investing.
Some CDFIs focus on a particular community, while others
lend to certain groups (e.g., people of color, women,
low-income families, social service providers, etc.). All
CDFIs are financial intermediaries that have a common
mission of community development. For purposes of the
credit, a qualified investment is a deposit or loan that
does not earn interest, or an equity investment, that is at
least $50,000 and is made for a minimum duration of 60
months.
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Credits may be claimed by individuals against their
personal income taxes, by corporations against their
franchise taxes, and by insurance companies against their
gross premiums taxes. Through 2008, a total of 211
investments totaling $91 million have generated
approximately $18 million in tax credits. The majority of
businesses making tax credit-eligible investments have been
banks. Only a handful of insurance companies and private
individuals have participated in the credit to date. The
credit sunsets on January 1, 2012, though Speaker Perez is
carrying AB 624 of this year, to extend the sunset date of
the credit by five additional years.
Prior/Related Legislation:
AB 2581 (Bradford), 2009-10 Session, would have established
a BDD program within DFI, and directed DFI to share
specified information about the BDD program with the State
Treasurer, for the Treasurer's use in promoting his Time
Deposit Program. Vetoed by the Governor.
AB 1502 (Lieu), 2007-2008 Session, would have established a
BDD program, jointly administered by DFI and the State
Treasurer. Passed the Assembly, but was gutted and amended
into a financial literacy education bill, before being
heard by a Senate policy committee. Later vetoed by the
Governor.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
List compilation & posting $75 $0 $0
Special*
*Financial Institutions Fund
SUPPORT : (Verified 8/17/11)
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New America Foundation (source)
Alameda County Board of Supervisors
Burbank Housing Development Corporation
California and Nevada Credit Union Leagues
California Bankers Association
California Coalition for Rural Housing
Catholic Charities of the East Bay
City of Los Angeles
County Welfare Directors Association
Greenlining Institute
ASSEMBLY FLOOR : 57-20, 6/1/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Cook, Davis, Dickinson, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Galgiani,
Gatto, Gordon, Hall, Hayashi, Roger Hern�ndez, Hill,
Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Ma,
Mendoza, Mitchell, Monning, Nestande, Olsen, Pan, Perea,
Portantino, Skinner, Solorio, Swanson, Torres,
Wieckowski, Williams, Yamada, John A. P�rez
NOES: Conway, Donnelly, Beth Gaines, Garrick, Grove,
Hagman, Halderman, Harkey, Jones, Knight, Logue, Mansoor,
Miller, Morrell, Nielsen, Norby, Silva, Smyth, Valadao,
Wagner
NO VOTE RECORDED: Gorell, Jeffries, V. Manuel P�rez
JJA:do 8/17/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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