BILL NUMBER: AB 2581 AMENDED
BILL TEXT
AMENDED IN SENATE AUGUST 17, 2010
AMENDED IN SENATE JULY 15, 2010
AMENDED IN ASSEMBLY MAY 28, 2010
AMENDED IN ASSEMBLY APRIL 26, 2010
INTRODUCED BY Assembly Member Bradford
FEBRUARY 19, 2010
An act to add Division 18 (commencing with Section 40000) to the
Financial Code, relating to banking development districts.
LEGISLATIVE COUNSEL'S DIGEST
AB 2581, as amended, Bradford. Banking development districts.
Existing law provides for various programs and activities in the
development of economic opportunities for businesses in the state.
The California Small Business Financial Development Corporation Law
establishes small business financial development corporations and
provides for their regulation by the Business, Transportation and
Housing Agency. Existing law, the Banking Law, provides for the
regulation of banks by the Department of Financial Institutions.
This bill would create a Banking Development District Program,
within the Treasurer's office department
, that would encourage the establishment of banking branches in
designated geographic locations where there is an underserved
community, as defined. The bill would require the department to
provide information on the Banking Development District Program to
the Treasurer and would authorize the Treasurer to utilize the
Banking Development District Program when promoting the Treasurer's
Time Deposit Program. The bill would require the
Treasurer department to adopt rules and
regulations for the establishment and maintenance of banking
development districts and to evaluate and approve applications for
designation of banking development districts. The bill would require
the Treasurer department to develop and
provide certain incentives to banks, as defined, located in a
banking development district. The bill would also require
the Treasurer the department to establish
and post on its Internet Web site a performance review process
for the program, as specified.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) Too many Californians are disconnected from the financial
mainstream. National estimates show that 10 percent of households,
including nearly one-quarter of the minority population, are
"unbanked," meaning they lack a basic checking or savings account. In
California, 12 percent of adults do not have a checking or savings
account, according to the United States Census. Recent market
research indicates that Fresno and Los Angeles have the second and
third highest percentages of unbanked residents in the country. In
San Francisco, the Brookings Institution found that one in five
adults, and half the city's African Americans and Latinos, do not
have bank accounts. The unbanked are most likely to be people who are
less educated and have lower incomes.
(b) The unbanked poor pay more to conduct their financial lives.
Utilizing check cashing outlets and money order services to pay bills
and expenses can have costly side effects as the result of fees and
service charges.
(c) Families without accounts often do not have a safe place to
keep their money. They may walk around with large amounts of cash in
their pockets, or keep it at home in a coffee can. Robberies can be
more prevalent around check cashing outlets. A burglary, or a fire,
could cost them their life's savings in a matter of moments.
(d) Lower income households often pay more for financial services.
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. As a result without a
checking account or lower cost checking account, lower income
families have added difficulty saving for and investing in
wealth-building assets, the investments they do make are too often
not in their best financial interest, and business opportunities in
lower income markets are unduly depressed.
(e) A bank account is also the first step to financial security
and asset building for many families. A bank account helps people
take the first step onto this path. Without an account, it is much
more difficult to get well-priced car loans, credit cards, or
mortgages, which are the exact financial tools needed to climb up the
economic ladder. Many families stay stuck on a different and more
expensive path, going to pawn shops, payday lenders, and rent-to-own
stores.
(f) While financial institutions may see the long-term business
potential of underserved areas, they may have a short-term concern
that it would take a number of years before they can attract enough
retail deposits to become viable. Those concerns are magnified by the
fact that lower income workers often need to use banking services in
off-business hours because they work in multiple jobs, making it
more difficult for banks to attract customers with standard business
practices.
(g) In 1999, the State of New York established a Banking
Development District Program and made available a range of state and
city incentives to participating financial institutions. The
incentives provided through the program aim to help banks get over
short-term obstacles to profitability, enabling them to branch into
neighborhoods with long-term business potential, and better serve
low-income consumers with existing bank branches.
(h) It is the intent of the Legislature in enacting this act to
create a Banking Development District Program to spur increased and
enhanced banking services in underserved communities that will spur
greater financial inclusion and promote local economic development.
The desired outcome is that more Californians will enter the
financial mainstream and build savings and wealth through
participating banks' offerings and marketing of reasonably priced
transactional, loan, and credit products.
SEC. 2. Division 18 (commencing with Section 40000) is added to
the Financial Code, to read:
DIVISION 18. BANKING DEVELOPMENT DISTRICT PROGRAM
40000. The Banking Development District Program is hereby created
in order to encourage the establishment of banking branches that
provide needed products and services in specifically designated
geographic locations where there is an underserved community. These
designated locations shall be known as banking development districts.
Financial institutions may seek to participate in the program to do
either of the following:
(a) Open a new outlet in an area designated as a banking
development district.
(b) Develop and market a new product line or group of services in
an existing outlet in an area that is designated as a banking
development district.
40001. For purposes of this division, the following definitions
shall apply:
(a) "Bank" refers to any commercial bank, savings bank, savings
association, or credit union.
(b) "Unbanked" refers to a person who lacks both a basic checking
account and a savings account.
(c) "Underbanked" refers to a person who has a bank account but is
not fully integrated in the financial mainstream.
(d) "Underserved community" is 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.
(e) "Banking development district" is a specifically designated
geographic location comprising an underserved community that has been
designated as such by the Treasurer
department pursuant to this division.
(f) "Local agency" means a city, county, whether general law or
chartered, city and county, or town.
(g) "Department" means the Department of Financial Institutions.
40002. (a) The Banking Development District Program shall be
established within the Treasurer's office
department .
(b) The Treasurer department and
local agencies may 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
the most need.
(c) The department shall provide information on the Banking
Development District Program to the Treasurer and the Treasurer may
utilize the Banking Development District Program when promoting the
Treasurer's Time Deposit Program. The Treasurer may take into
consideration banking development district areas as a criterion when
authorizing participation by financial institutions in the Time
Deposit Program.
(c)
(d) In order to participate in the Banking Development
District Program, a local agency, in conjunction with a bank, shall
submit an application to the Treasurer
department for the designation of an underserved community as a
banking development district.
(d)
(e) The application shall include, but not be limited
to, all of the following components:
(1) Clearly define the current and anticipated bank product and
service needs of the community.
(2) Demonstrate that these needs are not currently being met by
existing institutions, including, in particular, their branches in
the community.
(3) Demonstrate that by coming into the community, or introducing
and effectively marketing additional product lines or services suited
for lower income consumers in an existing branch, the bank in
question is prepared to specifically meet the community needs.
40003. The Treasurer department
shall set forth the selection criteria to evaluate a local agency's
application. The selection criteria shall aim to satisfy the
following:
(a) Result in needed and responsible bank products and marketing
of those products to local consumers.
(b) Be flexible and allow for differences in local markets.
(c) Encourage safety and soundness.
40004. The Treasurer department
shall evaluate and approve applications and designate banking
development districts with an emphasis on evaluating the extent to
which the bank is prepared to offer and to market products suited for
lower income consumers, including those products that accomplish the
following:
(a) Help unbanked Californians open starter accounts. These
accounts shall have features to help people overcome barriers that
prevent them from opening accounts that may include the following:
(1) "Second Chance" type features for clients who are listed on
Chex Systems or similar databases.
(2) No monthly balance requirements.
(3) Limited low-cost overdraft protection plans.
(b) Build financial literacy of community members.
(c) Provide effective ways to help low-income consumers build
savings.
(d) Provide effective ways to help low-income consumers build or
improve a credit record.
(e) Provide competitively priced mortgages and auto loans.
(f) Offer microloans and microlending products and services.
(g) Provide a range of well-priced loans and other products for
small businesses.
(h) Provide specialized marketing to inform community members
about the products.
(i) Provide specialized training of staff, including both
frontline and customer service staff, to meet the needs of community
members.
40005. The Treasurer department
shall develop and provide a range of incentives to help banks
overcome short-term costs that prevent them from offering products
and services that have long-term business potential. The incentives
shall be all of the following:
(a) Valuable to banks.
(b) Significant enough to encourage banks to locate in an
underserved community or develop new products and services within
existing branches but small enough that a branch's financial success
requires services to the community.
(c) Require reauthorization every two years.
40006. Upon designation of a banking development district by the
Treasurer department , the bank located
within the banking development district shall be eligible for a
range of incentives. The range of incentives may include, but shall
not be limited to, the following:
(a) Access to interest-bearing time deposits of public
funds, as deemed appropriate and approved by the Treasurer
department .
(b) Incentives offered by local agencies as deemed appropriate by
the local agency and the Treasurer.
40007. The Treasurer department may
work with local agencies and economic development officials to
develop additional local incentives for participating banks. These
local incentives may include, but shall not be limited to, the
following:
(a) Local agency deposits.
(b) Local agencies may help banks locate suitable commercial space
for branches and may provide real estate assistance.
(c) Local tax incentives. Banks may be eligible for additional
incentives if a banking development district overlaps with an
enterprise zone.
(d) Workforce development. Customized training may be developed
for tellers, back-office or administrative staff, information
technology, security, and other select job categories.
40008. The Treasurer department
shall adopt rules and regulations for the establishment and
maintenance of banking development districts, as provided for in this
division.
40009. The Treasurer shall establish
department shall establish and post on its Internet Web site a
performance review process to ensure that banks taking part in the
Banking Development District Program are meeting their goals and
initiatives and that their services are having a recognizable impact
on underserved communities.