CA can improve access to banking for women of color

OPINION – The American Dream shouldn’t come with a hidden agenda or unexpected fees. Yet, millions of Americans are charged banking fees that drain their wallets instead of building wealth.

A new report from the Roosevelt Institute illustrates how banks have profited by attaching fees to products for low-income families for decades. These financial costs of banking lock out millions of Americans from full economic participation.

California is exploring how to tackle this problem through a bold public banking option – CalAccount. By ensuring that all Californians have access to fee- and penalty-free debit accounts, CalAccount can close the state’s growing racial wealth gap and reign in the banking industry’s unchecked, often discriminatory, profiteering.

Five percent of US households lack bank accounts entirely while another 14 percent rely on predatory nonbank alternatives like check cashers and payday lenders. Altogether, 15 million families – predominantly Black, brown and immigrant – find themselves trapped in debt, making it nearly impossible for them to save for emergencies or build a secure future.

Estella Mora, a caregiver for the elderly and disabled in Oxnard, CA, cannot afford a savings account. Like many banks, Mora’s requires her to have a minimum balance or else face a charge of $50. “That makes it impossible for me to save money,” she says. She also estimates paying up to $400 in overdraft fees last year.

Research shows that banks offer worse terms to customers of color. A Citibank report said that banks in predominantly Black neighborhoods tend to require higher initial opening deposits and minimum balances. Bankrate.com reported that Black, Latina, and Latino consumers pay significantly higher checking account fees—such as overdraft and insufficient fund fees—than white customers—if they can access banking services at all.

The same fees that exclude households like Mora’s from fair access to banking provide billions of dollars in revenue to some of the largest U.S. banks, including Wells Fargo, Bank of America, and JPMorgan Chase. In the fourth quarter of 2023 alone, the banking industry reported $1.41 billion in overdraft fees, up more than 3% from the previous quarter in 2022.

Anneisha Williams, a fast-food worker from Inglewood, CA struggles to keep up with the ever-rising cost of living.  “It’s infuriating that the money I work hard to earn to support my family ends up in the pockets of executives who don’t have to think twice about the groceries to put in the fridge or whether all the bills will be paid on time,” Williams said. “CalAccount would go a long way in improving my family’s financial stability.”

Earlier this month, a report commissioned by the State Treasurer’s Office and conducted by the RAND Corporation found that the benefits of CalAccount far outweigh the costs of establishing the voluntary, zero-fee, zero-penalty banking program.  Specifically, the report noted that CalAccount “could significantly reduce disparities in access to banking” for Black and Latina/Latino and low-income Californians. CalAccount could cut those disparities by 25% to 300 – or more under some scenarios.

Creative solutions like CalAccount are essential to lifting up working families – especially those in underbanked Black, brown and immigrant communities. In fact, implementing CalAccount could put up to $3.1 billion back into the pockets of Californians annually and has the potential to generate a total of $5 billion in activity in the state’s economy.

Tackling generational poverty and closing the state’s widening wealth disparities will take bold, creative action. By implementing CalAccount, California can give working families access to their own hard-earned money without fees or penalties – infrastructure that is sorely needed to build an equitable, just, and inclusive California economy.

April Verrett is the President of the Service Employees International Union (SEIU). Felicia Wong is the President and CEO of the Roosevelt Institute.