California will study feasibility of public banking option for consumers

California will establish a commission to analyze the feasibility of offering fee-free bank accounts to consumers — the latest salvo in a long-running statewide push for public banking.

Democratic Gov. Gavin Newsom signed legislation Monday to establish the commission, which will be required to finish its analysis by July 1, 2024. The panel will be charged with exploring the possibility of establishing a bank account — known as a CalAccount — that would be federally insured, charge no fees and offer free payment services.

Supporters say that the CalAccount program, which would still have to be authorized by the state legislature, would help protect Californians from overdraft fees and aid them in building wealth.

“California is leading the nation’s public banking movement and we must keep working to provide no-fee banking services to all Californians,” Assembly member Miguel Santiago, a Democrat from Los Angeles who is the law’s lead author, said in a press release.

The commission will be charged with analyzing the advantages and disadvantages that a state-administered program would have, compared with private-sector alternatives, in persuading unbanked Californians to enroll. It will also be asked to make recommendations related to the appropriate governance structure for a public-private partnership.

An earlier version of the legislation that did not become law would have created a state program that offered a bank account similar to the CalAccount.

Banking industry officials opposed both the earlier version and the final law, calling the concept of a public bank both unnecessary and unpopular.

“We remain opposed to the concept of public banks, and hope that elected officials will take note of the risks associated with establishing a public bank,” Beth Mills, a spokesperson for the Western Bankers Association, said Wednesday in an email.

In 2018, voters in Los Angeles rejected a ballot measure on whether to establish a municipal bank by a 56% to 44% margin. Since then, city officials have continued to work on the issue, and on Tuesday the L.A. City Council voted to hire a consultant to study the concept of establishing a municipal bank.

“This is an idea that has gone from maybe three people supported it a decade ago to now being a mainstream idea,” Councilman Mike Bonin said before the vote, according to the Los Angeles Times.

In 2019, Newsom signed legislation that allows municipalities in the nation’s most populous state to open their own public banks.