California Banker Issue 4 2024

CalAccount Feasibility Study Released By Jason Lane, Senior Vice President, Director of Government Relations, California Bankers Association

I

n 2019, Assembly Bill 1177 (San tiago) was enacted, which created CalAccount within the State Trea surer’s Office, to provide financial services to California residents. The purported need for this program was to help unbanked residents who lack access to traditional banks. If enact ed, CalAccount was to become the state’s preeminent payment system by offering access to voluntary, zero fee, zero-penalty federally insured transaction accounts and debit card services at no cost to account hold ers. Deposits into CalAccount would be participated out to public banks, credit unions and local commercial banks. As introduced, the governance of Ca lAccount was to come from the Pub lic Banking Options Board, which the measure created. The primary mission of the Public Banks Option Board was to ensure deposits are fair ly participated out to public banks. The board was required to structure and design the CalAccount program in a manner that encourages partner ship with, rather than competition with credit unions, other local finan cial institutions, and public banks. Through strong opposition by CBA, the measure was significantly

amended throughout the legislative process to become a study bill to examine the unbanked. The mea sure required an analysis of exist ing private sector solutions, and the risk and cost of those private sec tor solutions in comparison to the proposed program. The Legislature must review the study and pass leg islation to implement the program if deemed feasible. The study was to be performed by a neutral third party, and not by public bank advocates. The measure also required the cre ation of the CalAccount Blue Rib bon Commission to select a vendor to perform the feasibility study. The contract was eventually awarded to RAND Corporation and the feasi bility study was completed in July of this year. RAND gathered data from 418 banking institutions, of which 153 are commercial banks (5,629 branches) and 265 are credit unions (1,567 branches). RAND found that most California residents who live in densely populated ar eas have adequate access to bank ing services with only small dif ferences among racial and ethnic groups in cities. Where population density decreases, so too does bank

branch availability. In their analy sis, RAND refers to the 2021 FDIC survey that shows the overall rate of Californians who are unbanked is 5.1 percent and the underbanked population is 13.9 percent, but the study notes disparity in unbanked and underbanked rates by race and ethnicity. The number of unbanked households is nearly double for non-white households. They also note significant disparities based on household income and between married and unmarried households. RAND’s survey included an analy sis of existing marketplace solutions to serve unbanked populations and while they note that many banks participate in the BankOn program, low-cost checking accounts are not widely marketed by financial institu tions because they are not profitable. Ultimately, RAND concludes that CalAccount could have a positive effect on Californian’s if it’s imple mented correctly, and if there’s ro bust participation in the program by California’s unbanked popula tion. Therein lies the rub. According to RAND’s own analysis, “storing one’s financial resources with a pub lic or private external entity requires a substantial degree of trust on the

10 www.CalBankers.com | CaliforniaBanker