I learned about public banks by accident, because of the pandemic. One curious consequence has been the availability of zoom town hall meetings, where one can learn about local issues from the comfort of home. This was how I learned about efforts in Claremont, La Verne and Pomona to bring about a public bank.
What is a public bank? Aren’t all banks open to the public, safe places to keep your money, better than hiding your hard earned cash in your mattress? Or in a shoebox in your closet??
Uh, no. First, no commercial bank provides services without fees and charges. And many Amerians cannot afford to have banking or checking accounts. Take the case of Rosa Espinosa, who is a fast food worker at MacDonalds. A savings account would be a safe place to deposit her hard earned paychecks and to withdraw money as she needs. But because it requires a $5000 minimum balance for these services, she cannot afford to use a bank and she has to go elsewhere where she has to pay to use her own money. Why does she have to pay to use her own money? When she uses a check cashing store, the charges range from 1% of the check to 12%. That would be $10 to $120 to cash a check of $1000. And on a fast food worker’s pay, that is unaffordable.
Is this an extreme example? Perhaps not. She was able to get a free checking account for her son, but like many young people just learning how to manage finances, one of his checks for $60 bounced. The bank did not stop payment on the check, just levied $300.00 in overdraft fees.
Is this due to laziness or carelessness? Maybe not, here’s another example. Raffa Sonnenfeld is an SEIU community organizer who once managed a public shelter in Santa Cruz County for the homeless. One of his clients did have a bank account and when Sonnenfeld helped him look over his bank statements, they discovered the bank had taken out $600 in overdraft fees. Because he was homeless, the client only found out after the fact, too late to do anything about it. Banks make billions in overdraft fees. And the burden seems to fall on those who are least able to afford it.
Banks are not the only institutions profiting from the poor. Elba Shilcrout of the East LA investment Coalition observes that the streets of East LA are filled with payday lenders, cashiers and money service stores where money orders, transfers and payments can be made for a fee. Shilcrout works to coach those who cannot afford the minimum balance bank accounts that would have made these services available. This includes mariachi musicians who line the street in Boyle Heights hoping for paying gigs, ”micro-entrepreneurs” like street vendors. When they and those who were undocumented were unqualified for PPE funds during the pandemic, efforts to create a relief fund ensued…but again, the commercial banks were expensive places to hold the money.
People work hard for their money and have few choices to help. Ana Santamaria, for example, is a farm worker with four children. In her case, she is sometimes offered the opportunity to pick 500 pieces of broccoli in an 8 or 9 hour time frame. For this, she must arrange and pay for child care, especially if the work order comes at 10am. Then when she wishes to cash her check, she goes to a supermarket where they will charge her $1 for every $100…and to add insult to injury, if there is change involved,the supermarket will keep the change.
Are these sensational examples of poor judgement and lack of discipline? Well no. It seems that one in four households in California is either “unbanked” or “underbanked,” that is unable to access the services they need because of high fees or the demand for a high account balance. They cannot cash their paychecks, pay their bills or get any other service, including money transfers, without paying for them. So some 8 million Californians have to pay up to 10% of their paychecks for these services. That would be $100 on a paycheck of $1000…an effective 10% pay cut.
There has been a movement in California to establish a public banking system to provide those services free of charge, as a public service like a utility. As with the post office, a public bank would provide a social service rather than have to answer to shareholders demanding a profit. In the California legislature, AB1177 has been moving through the system and as of this writing has moved out of the Assembly to the California State Senate. Meanwhile, cities like Los Angeles are passing legislation to make possible the creation of a public bank to serve their local needs. Even Claremont, La Verne and Pomona, in eastern Los Angeles County, have formed a committee looking into the possibility of a public bank for our area.
In 2019, just before the pandemic hit, banks earned some $11.6 billion in fees, and took it from just 9% of their customers. Those customers were overwhelmingly small account holders, 84% of them averaged account balances of $350.
In 2020, unemployment following the onset of the pandemic made things worse.
That year, overdraft fees collected by banks amounted to some $30 billion.
One of the proponents of public banks is Andrew Winnick, an emeritus professor in the field of money and banking (from Cal State LA, Berkeley and Schiller International University in Germany,) argues that we have an obligation to provide financial services to those who now rely on the predatory practices of the financial industry.