Banking the Unbanked in California

The proposed CalAccount Program would offer zero-fee, zero-penalty, federally insured banking services to residents of California. The primary goal is to facilitate basic financial transactions for unbanked and underbanked households. (Unbanked households are those in which no one has an account at a bank or credit union. Underbanked households are those in which one member does have such an account, but someone has recently used an alternative financial service, such as a payday loan.)

A new RAND study looks at the costs and benefits of the program and assesses its overall feasibility. The authors identify two main benefits. First, CalAccount may offer significant annual savings for participants—ranging from $41 to $185 per household—mainly from avoiding fees associated with traditional banking (e.g., overdraft fees), as well as the use of costly alternative financial services. Second, the program could significantly reduce disparities in access to banking by race and ethnicity.

The findings suggest that the CalAccount Program is generally feasible, with two important caveats. First, banks may have little incentive to participate in and promote the program. And second, lack of interest among the target populations may pose a significant challenge to achieving sufficient enrollment.

In fact, the authors emphasize that the success of CalAccount hinges most on enrollment. Ways to boost awareness and interest in the program include implementing instant payments for account holders; establishing low-cost options for in-person services, including enrollment; and partnering with community organizations on outreach and promotion.