Many Californians lack access to financial services. A public banking option could help them

Account minimums, overdraft fees, and showing ID are all common requirements for opening a bank account. But they're hurdles many Californians can't jump over.

That's why the state is considering establishing its own public banking option. CalAccount would be a no-cost banking platform without fees and penalties, managed by the state and run privately by another financial entity. It would also make it easier for unhoused people and those without state or federal ID to enroll.

What the program would address

One recent report conducted by HR&A Advisors and commissioned by labor union SEIU found that 1 in 5 households in California lacks at least some access to financial services. Many of those people are Black, Latino, non-citizens and members of single parent, women-led households.

California Assemblymember Miguel Santiago (D-Los Angeles) authored the law requiring the state to look into public banking. He said one reason so many people can't maintain a bank account is because it costs money to keep them open.

"[If you] get a fine for not having a minimum amount of dollars in the bank, or you get an overdraft fee … that really starts to add up more than most people think," Santiago said. "If $20 could make the difference between you putting groceries on the table or not, it's worth taking a look at CalAccount."

It's not just fines and fees — many in California don't use a bank because there's no nearby branch to go to. One count finds that 70% of census tracts in the state have no physical banking locations.

A recent state commission report found that the most successful state public banking option would be online and available in physical locations that already house government services, like post offices.

What could the savings look like?

The study from HR&A Advisors said CalAccount could save California households without banking access an average of $1,300 a year. It could also keep some people from using costly cash checkers and payday lenders, which typically charge high interest.

Deysi Gomez works at a McDonald's in San Jose where she makes $20 an hour. She recently got a bank account with Bank of America, but said that she spent years without a bank because she only had an ID from her home country Guatemala. She also said that she was never given information about accessing a bank account.

For these reasons, Gomez said she used to cash her checks at a fragrance store.

"I would walk up to four hours just to get to that location to change my check," she said through a translator.

Gomez added that she eventually started going to another location closer to home to cash her checks, but it charged her 6% for every $100 .

What would it take to come online?

The proposal to create a public banking platform recently crossed a significant landmark when a California commission issued a report on the program's feasibility.

That report said creating a public banking option hinges on the participation of at least one federally insured bank.

"However, offering no-fee accounts, at scale, may not be profitable (or even cover the basic costs of account maintenance) and may not, on its own, provide ample incentive to banks to participate in CalAccount," the report states.

The plan could also face pushback once it goes back to the legislature.

In 2021, when Santiago's proposal to look into public banking was being debated, a group representing businesses, banks, credit unions and the California Chamber of Commerce wrote a letter opposing it. They said a public banking option misdiagnosed the problem, and that people without adequate banking services needed more money, not a new bank.

"Individuals who utilize payday lenders and other high-cost loan products do so because they have inadequate cash flow, not because they lack access to banking services," the letter states.

In a recent brief, Nari Rhee, who directs the Retirement Security Program at the UC Berkeley Labor Center, wrote that CalAccount could build on other state-managed financial services like CalSavers, a retirement savings program, to fill a gap for low income Californians.

"For families on the edge, when you're just really living on a tight margin and then you get hit with a surprise fee, things can wind up cascading really, really quickly," she said. "Putting a stop to that with access to these accounts I think can make a real difference."