HB5503 103RD GENERAL ASSEMBLY

LRB103 37143 RTM 67262 b

103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
HB5503

Introduced 2/9/2024, by Rep. Kevin John Olickal

SYNOPSIS AS INTRODUCED:

New Act

Creates the Illinois Public Banking Option Act. Establishes the Illinois Bank Account Board. Sets forth provisions concerning the membership and duties of the Board. Provides that the Board shall establish the Illinois Bank Account Program, including establishing the mechanisms by which an account holder may deposit funds into an Illinois Bank Account for no fee, establishing mechanism for direct deposits, selecting a program administrator, and establishing other terms, policies, and rules. Requires the Board to contract with an independent entity to conduct a market analysis. Sets forth the requirements of the market analysis. Requires the Board to make a determination as to whether the Illinois Bank Account Program can be implemented as described in the Act and to make a determination as to whether Illinois Bank Account Program revenue is more likely than not to be sufficient to pay for Illinois Bank Account Program costs within 6 years of the Illinois Bank Account Program's implementation and what the State's investment will need to be in order to cover the costs.

A BILL FOR

AN ACT concerning State government.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Illinois Public Banking Option Act.

Section 3. Findings. The General Assembly finds the following:

(1) With high unemployment rates, homelessness rising, and an unprecedented wave of evictions looming as a result of the COVID-19 pandemic, the financial stability of the State's most vulnerable residents have become a matter of particularly urgent concern, not only to those individuals themselves but to the economic health of the State as a whole.

(2) Access to basic financial services, including demand deposit (checking) and savings accounts, is a critical component of financial stability. One in 5 Illinois households are unbanked or underbanked. Underbanked households are defined as those that have a bank account but have used alternative financial services (AFS) for transactions, including check cashing and money orders, and for credit, including payday loans. Among underbanked households, AFS transaction use is 3 times more prevalent than the use of AFS for credit. Around 17% of United States households use AFS transactions. These transaction services can be a significant expense for low-income Illinoisans. For example, check cashers charge as much as 10% of the cost of the check being cashed. In 2018, AFS costs for unbanked and underbanked Americans totaled $189,000,000,000 in fees and interest, which means the average annual cost per person for using AFS was $3,000.

(3) Predatory banking practices, including expensive overdraft fees, create a vicious cycle leading to the lasting exclusion of Illinois residents from traditional and affordable financial services and disproportionately harm low-income people and people of color. Banking options that target the poor generate significant revenue through these exploitative practices. In 2019, 84% of those fees were paid by 9% of account holders, and those customers typically carried low balances averaging less than $350.

(4) Unbanked households pay proportionally more for their financial services, lack secure means of saving, have fewer opportunities to build credit, and are rejected for loans at far higher rates. Basic financial transactions, including the payment of rent, utilities, and other recurring bills or charitable contributions, are a particularly formidable challenge for households lacking access to important tools, including automated bill pay, or whose monthly income fluctuates too much to make automated processes viable. Because they have fewer options when their money runs short, unbanked households face a far more destructive cycle of punitive action when they default on their recurring bills, which leads to compounding interest and further debt. For all these reasons, exclusion from traditional financial services significantly increases the risk of poverty and homelessness and places an unnecessary burden on the entire economy.

(5) Limited access to affordable financial services is a problem that disproportionately impacts low-income communities and communities of color. The racial disparity in banking access in Illinois is stark: the most recent five-year estimate from 2017-2021 shows 2.4% of white households were unbanked, whereas 20.4% of black households were unbanked. Hispanic households face similar disparities, with 10.9% of Hispanic households unbanked. Despite improvements as Illinoisans recover from the pandemic, the racial gap remains pronounced, with black households having a significantly higher unbanked rate than their white counterparts. In Chicago, where the disparities are amplified, the number of unbanked white households held evenly with the rate across the State at 2.5% while black households maintained a persistently high 23.7% unbanked rate.

(6) Providing Illinois residents with a zero-fee, zero-penalty, zero-minimum-balance requirement public option for basic financial services would empower Illinoisans by providing a stable, affordable financial platform for all Illinois residents, especially the unbanked and underbanked who currently rely on expensive AFS transactions. The Illinois Bank Account Program would mitigate the demand for exploitative alternatives to banking services with respect to which upselling and cross-selling into expensive accounts and products is the norm. A market analysis of the proposed Illinois Bank Account Program and any modifications that may be necessary for its successful and cost-effective implementation will enhance the State's ability to serve the financial services needs of unbanked and underbanked Illinois residents.

Section 4. Definitions. In this Act:

"Board" means the Illinois Bank Account Board.

"Illinois Bank Account Program" means the program described in Section 10.

Section 5. The Illinois Bank Account Board.

(a) The Illinois Bank Account Board is established by the State under the Department of Financial and Professional Regulation for the purpose of protecting consumers who lack access to traditional banking services from predatory, discriminatory, and costly alternatives, which offers Illinoisans access to a voluntary, zero-fee, zero-penalty, federally insured transaction account, known as an Illinois Bank Account, and related payment services at no cost to account holders, including robust and geographically diverse mechanisms for accessing account funds and account management tools that facilitate the automation of basic financial transactions designed to serve the needs of individuals with low or fluctuating income.

(b) The Board shall consist of all the following members:

(1) The State Treasurer or the State Treasurer's designee.

(2) The Secretary of Financial and Professional Regulation or the Secretary's designee.

(3) An individual with banking expertise, particularly expertise in transaction accounts and debit cards, appointed by the Senate President.

(4) An individual with expertise in economic and racial justice and cultural competence appointed by the Speaker of the House.

(5) An employee representative appointed by the Governor.

(6) An individual with expertise in banking or consumer financial services affiliated with an academic institution appointed by the Governor.

(7) An individual with banking expertise appointed by the Governor.

(8) A public banking advocate appointed by the Senate President.

(9) A consumer representative or advocate with expertise in banking access and financial empowerment, including within historically unbanked and underbanked communities, appointed by the Speaker of the House.

(c) In making appointments to the Board, the appointing authorities shall take into consideration the cultural, ethnic, and geographic diversity of the State so that the Board's composition reflects the communities of Illinois.

(d) Members of the Board shall serve without compensation; however, members of the Board shall be reimbursed for necessary travel expenses incurred in connection with their Board duties.

(e) Except for the members described in paragraphs (3) and (9) of subsection (b), a Board member, or State Treasurer's staff working with the Board, while serving in that capacity shall not have a direct or indirect investment or ownership interest in or be employed by, a consultant to, a member of the board of directors of, affiliated with, or otherwise a representative of, a private bank or financial services institution unless that position is an unpaid volunteer position. The restrictions in this subsection do not include ownership of a share of a diversified mutual fund or exchange-traded fund that holds shares of a private bank or financial services.

(f) To the extent the State, to successfully implement the Illinois Bank Account Program, contracts with entities to provide administrative and financial services, the State has a proprietary interest in ensuring that the entities with which it contracts have not engaged in conduct that would undermine the goals, efficiency, and reputation of the Illinois Bank Account Program, including, but not limited to, by violating banking, consumer protection, fair lending, or fair housing laws.

Section 10. Duties of the Board. Within 12 months after receiving a market analysis as described in Section 15, the Board:

(a) Shall establish a process by which an individual may open an Illinois Bank Account, which shall be designed to maximize program participation.

(b) Shall establish the mechanisms by which an account holder may deposit funds into an Illinois Bank Account for no fee, which mechanisms shall include, but not be limited to, electronic fund transfers arranged through an employer's or hiring entity's payroll direct deposit arrangement and cash loading through in-network partners.

(c) Shall establish the process through which an account holder may elect to have a portion, up to the entirety, of the account holder's paycheck or earnings due for labor or services performed directly deposited by electronic fund transfer into the account holder's Illinois Bank Account.

(d) Shall establish the process through which employers and hiring entities shall be required to remit through a payroll direct deposit arrangement each worker's elected payroll contribution to the worker's Illinois Bank Account in accordance with the worker's election.

(e) Shall establish mechanisms by which an account holder can withdraw funds from an Illinois Bank Account using an Illinois Bank Account debit card for no fee, which mechanisms shall include, but not be limited to, withdrawals through point-of-sale purchases using an Illinois Bank Account debit card and through cash withdrawals at a robust and geographically expansive network of participating ATMs, bank or credit union branches, and other in-network partners of designated financial institution partners.

(f) Shall establish a process, available to all account holders for no fee, through which an account holder may arrange for payment to a registered payee using a preauthorized electronic fund transfer from an Illinois Bank Account.

(g) Shall establish the process and terms and conditions for becoming a registered payee, which shall at a minimum require the payee's agreement to specified terms and conditions to be established by the board in exchange for the benefits of transparency and accountability afforded by participation in an automated payment system and which shall be designed to incentivize account holders' preauthorized electronic fund transfers to registered payees and application of voluntary automatic disbursement rules by limiting the late payment fees and penalties that registered payees can impose on account holders who pay them using preauthorized electronic fund transfers from their Illinois Bank Accounts.

(h) Shall establish voluntary automatic disbursement rules to assist an account holder in managing automated payments to registered payees based on the availability of funds in the account holder's account, which an account holder may voluntarily elect to apply or to stop applying to the account holder's Illinois Bank Account at any time, and which shall be designed to maximize consumer protection and may include, but not be limited to, rules governing the prioritization and timing of payments, rules limiting payments to a percentage of funds available in the Illinois Bank Account, and rules limiting disbursement to designated registered payees only upon satisfaction of specified conditions of the Illinois Bank Account.

(i) Shall facilitate the opening of an Illinois Bank Account by individuals who may not have federal or state government-issued photo identification while taking all reasonable steps to maintain the confidentiality of personal information consistent with all applicable laws.

(j) Shall design and establish rules governing the enrollment and participation in the program of individuals who do not have permanent housing.

(k) May design and establish rules governing the enrollment and participation in the program of individuals who are under 18 years of age, including rules governing the opening of an Illinois Bank Account by a person who is at least 14 years of age without a co-signer or guarantor on the account consistent with all applicable law.

(l) Shall select a program administrator, which may consist of one or more contractors or program staff or a combination thereof, whose duties shall include, but not be limited to, all of the following:

(1) Providing a secure internet web-based portal and mobile application through which individuals can enroll in the program and entities can become registered payees and through which account holders can access and manage their Illinois Bank Accounts, including their direct deposits, preauthorized electronic fund transfers to registered payees, and automatic disbursement rule elections.

(2) Providing a method that enables employers and hiring entities to remit each worker participant's elected direct deposit payroll contribution to the worker's Illinois Bank Account in accordance with the worker's election.

(3) Facilitating enrollment of account holders in the program through coordination with government, employers and hiring entities, and nonprofit partners.

(4) Facilitating and managing connectivity with other state and local government programs providing individuals with financial accounts to enable program account holders to transfer funds between their Illinois Bank Accounts and their other state-managed or locally managed accounts, as authorized by the Board and in accordance with all applicable laws and regulations.

(5) Facilitating and managing connectivity with other State and local government agencies and entities to enable and streamline remittance of local, State, and federal benefit and public assistance payments and other disbursements to account holders who are entitled to those payments and who authorize those payments to be directly deposited by electronic fund transfer into an Illinois Bank Account, as authorized by the board and in accordance with all applicable laws and regulations.

(m) Shall contract with a financial services network administrator whose duties may include, but not be limited to, all of the following:

(1) Contracting with, managing, and coordinating the financial services vendors for the program, which shall provide account holders access to their Illinois Bank Accounts and services provided in concert with at least one qualifying participating depository financial institution that meets the requirements established by the board.

(2) Adding additional participating depository financial institutions meeting the requirements established by the Board, especially including qualifying credit unions and other local financial institutions, as program scope and scale permits, in accordance with the board's specifications as set forth in the contract between the board and the financial services network administrator.

(3) Issuing to each account holder a secure debit card, or other secure means of access to the account holder's Illinois Bank Account, which shall utilize current security and antifraud technology consistent with industry standards.

(4) Providing a robust and geographically expansive financial services network of partners through which an account holder can load or withdraw funds from an Illinois Bank Account using an Illinois Bank Account debit card, or other secure means of access to an Illinois Bank Account, for no fee, including ATMs, bank or credit union branches, and other in-network partners, minimize or eliminate out-of-network fees for account holders, and ensure that account holders are not charged out-of-network fees that are not reasonable and actually incurred by the program vendor.

(n) Shall develop and negotiate a fair and equitable program fee and program revenue sharing structure between the State and the financial services network administrator in furtherance of attaining a financially self-sustaining program, which agreement shall be reevaluated annually and renegotiated as appropriate based on program scope and scale.

(o) Shall require an employer with more than 25 employees and a hiring entity with more than 25 independent contractors performing the same or similar labor or service, excluding the federal government, to do all of the following:

(1) Have and maintain a payroll direct deposit arrangement that enables voluntary worker participation in the program.

(2) Deposit all wages and other payments due to a worker that the worker has authorized to be directly deposited by electronic fund transfer into the worker's Illinois Bank Account in accordance with the worker's authorization.

(3) Coordinate its payroll process with the program administrator's application program interface to facilitate accurate and seamless payment by direct deposit in accordance with the authorization of each worker participant.

(4) Cooperate with the program administrator in providing all requested information available to the employer or hiring entity necessary for the opening and administration of a worker's Illinois Bank Account.

(5) Upon request of the administrator, provide additional forms or notifications to a worker.

(6) Refrain from discharging, disciplining, threatening to discharge or discipline, or in any other manner retaliating or taking an adverse action against a worker or applicant because of the individual's participation or manner of participation in the Illinois Bank Account Program.

(p) Shall require a landlord or a landlord's agent to allow a tenant to pay rent and deposit of security by an electronic funds transfer from an Illinois Bank Account and provide that a landlord's, or a landlord's agent's, receipt of payment from an Illinois Bank Account pursuant to the requirements of the Illinois Bank Account Program shall not be considered a waiver of any right the landlord or landlord's agent may otherwise have to establish the base rent on, or to raise rent for, the rental unit.

Section 15. Market analysis.

(a) The market analysis required by this Section shall include whether or not Illinois Bank Account Program revenue is more likely than not to be sufficient to pay for Illinois Bank Account Program costs within 6 years of the Illinois Bank Account Program's implementation.

(b) The analysis required by this Section shall include detailed financial projections and key assumptions upon which the determination required by this paragraph relies.

(c) The market analysis required by this Section shall also include an analysis of the population of Illinois residents who are unbanked and the reasons they are unbanked.

(d) The market analysis required by this Section shall also include an analysis of the low-cost or no-cost options of federally insured transaction accounts that are available or marketed to unbanked Illinois residents.

(e) The market analysis required by this Section shall also include an evaluation of all of the following:

(1) Alternatives to the Illinois Bank Account Program that the State could implement or enact that would accomplish the essential policy objectives.

(2) The estimated risks and costs of alternatives.

(3) The expected effectiveness and scalability of alternatives.

(f) The market analysis required by this Section shall also include recommendations for how the State can maximize the number of unbanked Illinois residents who become banked at the lowest cost and risk to the State.

(g) The market analysis required by this Section shall also include an analysis of relative advantages and disadvantages, compared to private sector alternatives, that the State may have in identifying, reaching, or persuading unbanked Illinois residents to enroll in a State-administered banking program.

(h) The market analysis required by this Section shall also include recommendations related to the appropriate governance structure for a public-private partnership such as the Illinois Bank Account Program.

(i) The market analysis required by this Section shall also include an analysis of costs, benefits, and impacts on all affected parties, including, but not limited to, landlords, employers, State government, low-wage workers, and consumers.

(1) The Board shall contract with one or more independent entities with the appropriate expertise to conduct the market analysis required by this Section.

(2) A contract entered into pursuant to this Section shall require any entity conducting the market analysis to provide progress reports to, and receive feedback from, the Board at regular intervals or by request and be available to provide testimony and answer questions at any legislative hearings held within 12 months of the delivery of the market analysis to the General Assembly.

(A) The market analysis required by this Section shall consider all of the following:

(i) The number of potential account holders.

(ii) The availability of qualified participating depository financial institutions.

(iii) Potential account holders' comfort with various banking products.

(iv) How individuals without federal or state photo identification can participate.

(v) Potential Illinois Bank Account Program revenue streams.

(vi) The presence and effectiveness of private sector or nonprofit competitors to the Illinois Bank Account Program.

(vii) State fiscal risk from the Illinois Bank Account Program during economic downturns or economic shocks.

(viii) Any other factor the Board deems relevant to implementing the Illinois Bank Account program.

(ix) The risks and costs of the Illinois Bank Account Program.

(x) The expected effectiveness and scalability of the Illinois Bank Account Program.

(xi) The likely impact of the Illinois Bank Account Program on existing Illinois depository institutions.

(xii) The existence of possible financial services network administrators. If any possibilities include an out-of-state entity, the anticipated impact on Illinois consumers, businesses, and financial institutions and how an out-of-state financial services network administrator could or should be regulated.

(B) Within 12 months after entering into a contract for the market analysis required by Section 15, the Board shall hold at least one public hearing to solicit input from members of the public. A hearing, including input from members of the public, held pursuant to this Section shall be recorded and made available on the State Treasurer's website consistent with the Freedom of Information Act.

(C) The Board shall hold a public hearing to review the market analysis. After the public hearing required by this paragraph, the Board may issue a report to accompany the market analysis. The report may include the Board's assessment of the market analysis, feedback from the public hearing held pursuant to this paragraph, and recommendations related to the implementation of the Illinois Bank Account Program.

(j) The Board shall make a determination as to whether the Illinois Bank Account Program can be implemented as described in Section 10 and, if not, what modifications to the Illinois Bank Account Program could be made to implement it.

(k) The Board shall make a determination as to whether Illinois Bank Account Program revenue is more likely than not to be sufficient to pay for Illinois Bank Account Program costs within 6 years of the Illinois Bank Account Program's implementation and what the State's investment will need to be in order to cover the costs.

(l) The Board shall deliver and, upon request present, the market analysis and any report issued to the Chair of the Senate Committee on Financial Institutions and the Chair of the House Committee on Financial Institutions and Licensing.