California Banker Issue 2 2025

an interchange fee by prohibiting the fee being assessed against sales tax. These retailers forget about the con venience and certainty credit card payments have provided to them and that the underlying infrastruc ture that facilitates these transac tions has a cost, not to mention that interchange fees support low and no-cost bank accounts and credit card reward points programs that customers appreciate. The bill will be preempted for federally chartered banks, leaving its application to state-chartered banks. Another measure establishes a state level Community Reinvestment Act (CRA) applicable to certain state licensed entities, including Califor nia-chartered banks. This effort is duplicative and potentially contra dictory to the federal CRA for which all banks, irrespective of charter, are already subject to. Rather than lay ering on top of state banks, the mea sure should be amended to apply solely to California-chartered credit unions who have escaped a federal CRA requirement even though they are depository institutions and op erate more similarly these days to banks than not. As we have fiercely advocated for our member banks, we commonly hear legislators express apprecia tion for community banks. But with measures advancing like the ones described above, we are increasingly convinced that those are just words

and that their actions prove other wise. Banks are highly-regulated entities and miraculously excel at finding a path to compliance on what seems to be a never-ending list of new laws and regulations. But there is a break ing point. Consolidation within the industry has been driven, in part, by over-regulation. Smaller community banks, just like small businesses, are struggling to keep up with overregu lation and are finding that they must get to scale to survive the regulatory avalanche. We are gravely concerned that con tinuing down what appears to be the routine path of serially adding new

laws and regulations will accelerate consolidation and may leave com munities who need access to bank ing services in financial deserts. This unfortunate result will push the door more widely open to the less-regulat ed shadow banking industry where there is often less consumer protec tion. And because of the dual-bank ing system, banks can exercise their choice and operate under a national charter which leaves the state with less oversight. If policymakers really care about the important role of community banks, as they have suggested, it’s time they put a stop to efforts that make the state charter less valuable.

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CaliforniaBanker | Issue 2 2025