“Banking for the People: Lessons from California on the Failures of the Banking Status Quo,” Roosevelt Institute, Emily DeVito
The current banking system in the United States and its fine and fee-heavy profit model is a barrier to economic entry and financial security for millions of individuals and families. Especially a barrier for those who are Black, brown, and/or low-income. In addition to being grossly unfair, our status quo banking system creates a damaging, multitiered economy that locks out everyone who can’t afford to participate in it. At the same time, millions of prospective customers face obstacles to banking in person, which can be a crucial prerequisite to economic independence and security.
By no means is this AB presentation a complete recital of Emily DiVito’s paper.
In “Banking for the People,” Emily DiVito presents findings from a new and original field survey of California bank branches in order to underscore the shortcomings of the current banking industry.
The survey focused on access barriers to in-person banking, and in particular found:
- Race and language disparities in access to information and equal treatment while at bank branches;
- A prevalence of overdraft-fee-based accounts and a reticence on the part of bank staff to disclose cheaper alternatives when those options exist; and
- A near-total lack of no-fee, no-minimum balance account options at surveyed banks.
Our entire country suffers when some are excluded from full economic participation. Only through
an inclusive, fair, and accessible banking system meeting the needs of minorities, and the poor is it possible for the US to reach its full economic and social potential.
The article outlines the policy options available to fix these problems which AB presents in brevity.
More Disclosure at all levels is vital to mapping the path forward.
Even canvassers who were proactively seeking out accurate information about affordable bank accounts were given confusing and sometimes misleading information. Individuals without the same time or ability to advocate for their own bank access are at an even greater disadvantage. To create accountability and achieve transparency in our financial sector, policymakers must strengthen data disclosure requirements to include more banks and credit unions—too many have long been able to hide their fee revenue from their regulators—as well as require data disaggregation by race and other demographic indicators.
Federal Policies to Achieve Public Banking Options.
Inclusive banking requires access to both affordable accounts and the systems and staff helping consumers understand and navigate them. At the federal level, the way to simultaneously achieve both, as described below, is through a blend of FedAccounts for account provision and postal banking for in-person service and retail delivery.
FedAccounts would allow the Fed to offer and operate no-cost, no-fee, no-minimum balance bank
accounts, and make them available to all American citizens, residents, and domestically domiciled
businesses and institutions (Ricks et al. 2018). Such a policy would extend most of the privileges that private banks already receive by banking at the Fed directly to individuals and families, including unlimited secure balances, instant payments clearing, and the Fed’s “interest on reserves” (IOR) rate, which is often higher than that offered by private banks to their customers (Ricks et al. 2018).
State and Local Policies to Achieve Affordable Banking Options:
Postal banking and public banking programs similar in goal to FedAccounts have thus far made legislative headway (S.3891 2022; S.3571 2020). With federal policy unlikely in the near future, and to provide an initial proof-of-concept to better enable future federal policymaking, champions of more inclusive banking are actively campaigning for similar reforms at the state level—with notable successes.
California has made the most strides in establishing inclusive banking programs at both the state and local levels. Since 2019, the state’s cities and counties have had a legal pathway to creating local public banks, and many are actively advancing along that path (AB 857 2019; Wick 2021). The cities of Long Beach, Los Angeles, San Diego, and San Francisco are all at different stages of planning for instituting municipal public banks (Perry Abello 2022).
California’s recent momentum has proven contagious. Other jurisdictions considering inclusive banking legislation include Hawaii (HB 1103 2021), Massachusetts (H.1223 2021), New Jersey (Office of Governor Phil Murphy 2019), New Mexico (HB 236 2021), New York (S.1762 2021), Oregon (SB 339 2021), Washington (SB 5188 2021), and the city of Philadelphia (Allen 2022).
Money is a public good, and providing full and free access to the physical and civic infrastructure through which it is stored is a necessary public service. America’s current banking and payments system is exclusionary and expensive. It creates a tiered and dysfunctional economy. Millions of individuals and families are left out of the formal banking sector. Most end up using predatory non-bank alternatives that coerce them into paying exorbitant fees to access their own money.
Recent results from a field survey conducted in California shed light on the obstacles millions of Americans encounter when trying to bank. Though not representative of the universal experience when banking (if such a thing exists), this survey finds persistent and specific barriers to full financial inclusion facing prospective consumers. Especially with those customers who are Black, brown, Spanish speaking, and/or living in communities of color.
“RI_BankingForThePeople_202209.pdf,” (rooseveltinstitute.org), Emily DiVito