Californians need state public banking options; here’s why

Banking is prohibitively costly for low-to-moderate income people. It’s one of the main culprits in the state’s widening financial wealth gap.

So, when Wall Street banks released quarterly reports last week, we were stunned – though not surprised – to see a report from The American Prospect that showed 12 of the 15 largest American banks raked in billions in overdraft fees largely from the pockets of vulnerable people already hit hard by the COVID-19 pandemic. 

These banks made billions of dollars over the last year, and are already on the road to recovery. Unfortunately, people who need financial support the most are not.

There’s never been a more critical time for California to prioritize inclusive financial growth and long-term wealth-building initiatives such as Assembly Bill 1177, the California Public Banking Option Act. 

AB 1177 establishes BankCal, a program that provides universal access to essential financial services such as direct deposit, a debit card account and an infrastructure to build credit. The program would “eliminate extractive and predatory high-cost financial services and narrow the widening racial wealth gap” while also addressing the “historical exclusion of low-income communities and communities of color from a financial system that’s motivated by profits,” says Assemblymember Miguel Santiago, a Democrat from Los Angeles, the bill’s author. 

More importantly, the BankCal program would allow Californians to bank without fear of overdraft fees and penalties. This is critical in breaking low-income Californians free from harmful debt cycles that transfer wealth directly from working families to Wall Street banks. 

In 2020 alone, Bank of America and Wells Fargo both made more than $1 billion in profits, according to The American Prospect. In that same time period, 59% of Latinx and 53% of Black households reported income losses, according to a report from the Harvard Joint Center on Housing Studies. 

This is where AB 1177 comes in. 

Like California’s government-sponsored retirement savings program, CalSavers, BankCal would allow the state to provide financial services and benefits to anyone who needs them, especially those from communities that have historically been excluded from the mainstream financial system. BankCal would also address the barriers homeless populations face in attempting to open bank accounts, while also adhering to federal requirements. 

For far too long, low-income communities and people of color have borne the brunt of systemic racism in our financial institutions.

Who has been the most penalized by exorbitant banking fees? Low-income communities and people of color. 

Which groups are less likely to recover from the devastation wrought by the COVID-19 pandemic? Low-income communities and people of color. 

What demographics are most likely to be unbanked and unable to build wealth? Low-income communities and people of color.

And who is opposing AB 1177? The very Wall Street Banks and credit unions that stand to gain from charging banking fees and that have enabled a system where access to no-fee, mainstream bank accounts are out of reach for 1 out of every 4 Californians.

Should AB 1177 be passed into law, Gov. Gavin Newsom can signal to not only Californians, but to the nation at large, his commitment to building racial equity in the economy by knocking down the barriers created by systemic racism. 

That’s not to say increasing access to financial tools through initiatives like AB 1177 wouldn’t also benefit banks. A recent McKinsey study found that financial institutions could realize roughly $2 billion in additional annual revenue if Black Americans had the same access to financial products as white Americans, and $60 billion more per year if Black Americans reached full parity with white Americans in terms of wealth.

Wall Street banks have accrued enough fees and interest on the backs of vulnerable people. As a state, we can be leaders in ensuring an economic recovery that pays dividends for all. AB 1177 is one way to make this happen.