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.


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A BILL FOR

 

HB5503LRB103 37143 RTM 67262 b

1    AN ACT concerning State government.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 1. Short title. This Act may be cited as the
5Illinois Public Banking Option Act.
 
6    Section 3. Findings. The General Assembly finds the
7following:
8        (1) With high unemployment rates, homelessness rising,
9    and an unprecedented wave of evictions looming as a result
10    of the COVID-19 pandemic, the financial stability of the
11    State's most vulnerable residents have become a matter of
12    particularly urgent concern, not only to those individuals
13    themselves but to the economic health of the State as a
14    whole.
15        (2) Access to basic financial services, including
16    demand deposit (checking) and savings accounts, is a
17    critical component of financial stability. One in 5
18    Illinois households are unbanked or underbanked.
19    Underbanked households are defined as those that have a
20    bank account but have used alternative financial services
21    (AFS) for transactions, including check cashing and money
22    orders, and for credit, including payday loans. Among
23    underbanked households, AFS transaction use is 3 times

 

 

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1    more prevalent than the use of AFS for credit. Around 17%
2    of United States households use AFS transactions. These
3    transaction services can be a significant expense for
4    low-income Illinoisans. For example, check cashers charge
5    as much as 10% of the cost of the check being cashed. In
6    2018, AFS costs for unbanked and underbanked Americans
7    totaled $189,000,000,000 in fees and interest, which means
8    the average annual cost per person for using AFS was
9    $3,000.
10        (3) Predatory banking practices, including expensive
11    overdraft fees, create a vicious cycle leading to the
12    lasting exclusion of Illinois residents from traditional
13    and affordable financial services and disproportionately
14    harm low-income people and people of color. Banking
15    options that target the poor generate significant revenue
16    through these exploitative practices. In 2019, 84% of
17    those fees were paid by 9% of account holders, and those
18    customers typically carried low balances averaging less
19    than $350.
20        (4) Unbanked households pay proportionally more for
21    their financial services, lack secure means of saving,
22    have fewer opportunities to build credit, and are rejected
23    for loans at far higher rates. Basic financial
24    transactions, including the payment of rent, utilities,
25    and other recurring bills or charitable contributions, are
26    a particularly formidable challenge for households lacking

 

 

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1    access to important tools, including automated bill pay,
2    or whose monthly income fluctuates too much to make
3    automated processes viable. Because they have fewer
4    options when their money runs short, unbanked households
5    face a far more destructive cycle of punitive action when
6    they default on their recurring bills, which leads to
7    compounding interest and further debt. For all these
8    reasons, exclusion from traditional financial services
9    significantly increases the risk of poverty and
10    homelessness and places an unnecessary burden on the
11    entire economy.
12        (5) Limited access to affordable financial services is
13    a problem that disproportionately impacts low-income
14    communities and communities of color. The racial disparity
15    in banking access in Illinois is stark: the most recent
16    five-year estimate from 2017-2021 shows 2.4% of white
17    households were unbanked, whereas 20.4% of black
18    households were unbanked. Hispanic households face similar
19    disparities, with 10.9% of Hispanic households unbanked.
20    Despite improvements as Illinoisans recover from the
21    pandemic, the racial gap remains pronounced, with black
22    households having a significantly higher unbanked rate
23    than their white counterparts. In Chicago, where the
24    disparities are amplified, the number of unbanked white
25    households held evenly with the rate across the State at
26    2.5% while black households maintained a persistently high

 

 

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1    23.7% unbanked rate.
2        (6) Providing Illinois residents with a zero-fee,
3    zero-penalty, zero-minimum-balance requirement public
4    option for basic financial services would empower
5    Illinoisans by providing a stable, affordable financial
6    platform for all Illinois residents, especially the
7    unbanked and underbanked who currently rely on expensive
8    AFS transactions. The Illinois Bank Account Program would
9    mitigate the demand for exploitative alternatives to
10    banking services with respect to which upselling and
11    cross-selling into expensive accounts and products is the
12    norm. A market analysis of the proposed Illinois Bank
13    Account Program and any modifications that may be
14    necessary for its successful and cost-effective
15    implementation will enhance the State's ability to serve
16    the financial services needs of unbanked and underbanked
17    Illinois residents.
 
18    Section 4. Definitions. In this Act:
19    "Board" means the Illinois Bank Account Board.
20    "Illinois Bank Account Program" means the program
21described in Section 10.
 
22    Section 5. The Illinois Bank Account Board.
23    (a) The Illinois Bank Account Board is established by the
24State under the Department of Financial and Professional

 

 

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1Regulation for the purpose of protecting consumers who lack
2access to traditional banking services from predatory,
3discriminatory, and costly alternatives, which offers
4Illinoisans access to a voluntary, zero-fee, zero-penalty,
5federally insured transaction account, known as an Illinois
6Bank Account, and related payment services at no cost to
7account holders, including robust and geographically diverse
8mechanisms for accessing account funds and account management
9tools that facilitate the automation of basic financial
10transactions designed to serve the needs of individuals with
11low or fluctuating income.
12    (b) The Board shall consist of all the following members:
13        (1) The State Treasurer or the State Treasurer's
14    designee.
15        (2) The Secretary of Financial and Professional
16    Regulation or the Secretary's designee.
17        (3) An individual with banking expertise, particularly
18    expertise in transaction accounts and debit cards,
19    appointed by the Senate President.
20        (4) An individual with expertise in economic and
21    racial justice and cultural competence appointed by the
22    Speaker of the House.
23        (5) An employee representative appointed by the
24    Governor.
25        (6) An individual with expertise in banking or
26    consumer financial services affiliated with an academic

 

 

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1    institution appointed by the Governor.
2        (7) An individual with banking expertise appointed by
3    the Governor.
4        (8) A public banking advocate appointed by the Senate
5    President.
6        (9) A consumer representative or advocate with
7    expertise in banking access and financial empowerment,
8    including within historically unbanked and underbanked
9    communities, appointed by the Speaker of the House.
10    (c) In making appointments to the Board, the appointing
11authorities shall take into consideration the cultural,
12ethnic, and geographic diversity of the State so that the
13Board's composition reflects the communities of Illinois.
14    (d) Members of the Board shall serve without compensation;
15however, members of the Board shall be reimbursed for
16necessary travel expenses incurred in connection with their
17Board duties.
18    (e) Except for the members described in paragraphs (3) and
19(9) of subsection (b), a Board member, or State Treasurer's
20staff working with the Board, while serving in that capacity
21shall not have a direct or indirect investment or ownership
22interest in or be employed by, a consultant to, a member of the
23board of directors of, affiliated with, or otherwise a
24representative of, a private bank or financial services
25institution unless that position is an unpaid volunteer
26position. The restrictions in this subsection do not include

 

 

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1ownership of a share of a diversified mutual fund or
2exchange-traded fund that holds shares of a private bank or
3financial services.
4    (f) To the extent the State, to successfully implement the
5Illinois Bank Account Program, contracts with entities to
6provide administrative and financial services, the State has a
7proprietary interest in ensuring that the entities with which
8it contracts have not engaged in conduct that would undermine
9the goals, efficiency, and reputation of the Illinois Bank
10Account Program, including, but not limited to, by violating
11banking, consumer protection, fair lending, or fair housing
12laws.
 
13    Section 10. Duties of the Board. Within 12 months after
14receiving a market analysis as described in Section 15, the
15Board:
16    (a) Shall establish a process by which an individual may
17open an Illinois Bank Account, which shall be designed to
18maximize program participation.
19    (b) Shall establish the mechanisms by which an account
20holder may deposit funds into an Illinois Bank Account for no
21fee, which mechanisms shall include, but not be limited to,
22electronic fund transfers arranged through an employer's or
23hiring entity's payroll direct deposit arrangement and cash
24loading through in-network partners.
25    (c) Shall establish the process through which an account

 

 

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1holder may elect to have a portion, up to the entirety, of the
2account holder's paycheck or earnings due for labor or
3services performed directly deposited by electronic fund
4transfer into the account holder's Illinois Bank Account.
5    (d) Shall establish the process through which employers
6and hiring entities shall be required to remit through a
7payroll direct deposit arrangement each worker's elected
8payroll contribution to the worker's Illinois Bank Account in
9accordance with the worker's election.
10    (e) Shall establish mechanisms by which an account holder
11can withdraw funds from an Illinois Bank Account using an
12Illinois Bank Account debit card for no fee, which mechanisms
13shall include, but not be limited to, withdrawals through
14point-of-sale purchases using an Illinois Bank Account debit
15card and through cash withdrawals at a robust and
16geographically expansive network of participating ATMs, bank
17or credit union branches, and other in-network partners of
18designated financial institution partners.
19    (f) Shall establish a process, available to all account
20holders for no fee, through which an account holder may
21arrange for payment to a registered payee using a
22preauthorized electronic fund transfer from an Illinois Bank
23Account.
24    (g) Shall establish the process and terms and conditions
25for becoming a registered payee, which shall at a minimum
26require the payee's agreement to specified terms and

 

 

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1conditions to be established by the board in exchange for the
2benefits of transparency and accountability afforded by
3participation in an automated payment system and which shall
4be designed to incentivize account holders' preauthorized
5electronic fund transfers to registered payees and application
6of voluntary automatic disbursement rules by limiting the late
7payment fees and penalties that registered payees can impose
8on account holders who pay them using preauthorized electronic
9fund transfers from their Illinois Bank Accounts.
10    (h) Shall establish voluntary automatic disbursement rules
11to assist an account holder in managing automated payments to
12registered payees based on the availability of funds in the
13account holder's account, which an account holder may
14voluntarily elect to apply or to stop applying to the account
15holder's Illinois Bank Account at any time, and which shall be
16designed to maximize consumer protection and may include, but
17not be limited to, rules governing the prioritization and
18timing of payments, rules limiting payments to a percentage of
19funds available in the Illinois Bank Account, and rules
20limiting disbursement to designated registered payees only
21upon satisfaction of specified conditions of the Illinois Bank
22Account.
23    (i) Shall facilitate the opening of an Illinois Bank
24Account by individuals who may not have federal or state
25government-issued photo identification while taking all
26reasonable steps to maintain the confidentiality of personal

 

 

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1information consistent with all applicable laws.
2    (j) Shall design and establish rules governing the
3enrollment and participation in the program of individuals who
4do not have permanent housing.
5    (k) May design and establish rules governing the
6enrollment and participation in the program of individuals who
7are under 18 years of age, including rules governing the
8opening of an Illinois Bank Account by a person who is at least
914 years of age without a co-signer or guarantor on the account
10consistent with all applicable law.
11    (l) Shall select a program administrator, which may
12consist of one or more contractors or program staff or a
13combination thereof, whose duties shall include, but not be
14limited to, all of the following:
15        (1) Providing a secure internet web-based portal and
16    mobile application through which individuals can enroll in
17    the program and entities can become registered payees and
18    through which account holders can access and manage their
19    Illinois Bank Accounts, including their direct deposits,
20    preauthorized electronic fund transfers to registered
21    payees, and automatic disbursement rule elections.
22        (2) Providing a method that enables employers and
23    hiring entities to remit each worker participant's elected
24    direct deposit payroll contribution to the worker's
25    Illinois Bank Account in accordance with the worker's
26    election.

 

 

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1        (3) Facilitating enrollment of account holders in the
2    program through coordination with government, employers
3    and hiring entities, and nonprofit partners.
4        (4) Facilitating and managing connectivity with other
5    state and local government programs providing individuals
6    with financial accounts to enable program account holders
7    to transfer funds between their Illinois Bank Accounts and
8    their other state-managed or locally managed accounts, as
9    authorized by the Board and in accordance with all
10    applicable laws and regulations.
11        (5) Facilitating and managing connectivity with other
12    State and local government agencies and entities to enable
13    and streamline remittance of local, State, and federal
14    benefit and public assistance payments and other
15    disbursements to account holders who are entitled to those
16    payments and who authorize those payments to be directly
17    deposited by electronic fund transfer into an Illinois
18    Bank Account, as authorized by the board and in accordance
19    with all applicable laws and regulations.
20    (m) Shall contract with a financial services network
21administrator whose duties may include, but not be limited to,
22all of the following:
23        (1) Contracting with, managing, and coordinating the
24    financial services vendors for the program, which shall
25    provide account holders access to their Illinois Bank
26    Accounts and services provided in concert with at least

 

 

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1    one qualifying participating depository financial
2    institution that meets the requirements established by the
3    board.
4        (2) Adding additional participating depository
5    financial institutions meeting the requirements
6    established by the Board, especially including qualifying
7    credit unions and other local financial institutions, as
8    program scope and scale permits, in accordance with the
9    board's specifications as set forth in the contract
10    between the board and the financial services network
11    administrator.
12        (3) Issuing to each account holder a secure debit
13    card, or other secure means of access to the account
14    holder's Illinois Bank Account, which shall utilize
15    current security and antifraud technology consistent with
16    industry standards.
17        (4) Providing a robust and geographically expansive
18    financial services network of partners through which an
19    account holder can load or withdraw funds from an Illinois
20    Bank Account using an Illinois Bank Account debit card, or
21    other secure means of access to an Illinois Bank Account,
22    for no fee, including ATMs, bank or credit union branches,
23    and other in-network partners, minimize or eliminate
24    out-of-network fees for account holders, and ensure that
25    account holders are not charged out-of-network fees that
26    are not reasonable and actually incurred by the program

 

 

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1    vendor.
2    (n) Shall develop and negotiate a fair and equitable
3program fee and program revenue sharing structure between the
4State and the financial services network administrator in
5furtherance of attaining a financially self-sustaining
6program, which agreement shall be reevaluated annually and
7renegotiated as appropriate based on program scope and scale.
8    (o) Shall require an employer with more than 25 employees
9and a hiring entity with more than 25 independent contractors
10performing the same or similar labor or service, excluding the
11federal government, to do all of the following:
12        (1) Have and maintain a payroll direct deposit
13    arrangement that enables voluntary worker participation in
14    the program.
15        (2) Deposit all wages and other payments due to a
16    worker that the worker has authorized to be directly
17    deposited by electronic fund transfer into the worker's
18    Illinois Bank Account in accordance with the worker's
19    authorization.
20        (3) Coordinate its payroll process with the program
21    administrator's application program interface to
22    facilitate accurate and seamless payment by direct deposit
23    in accordance with the authorization of each worker
24    participant.
25        (4) Cooperate with the program administrator in
26    providing all requested information available to the

 

 

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1    employer or hiring entity necessary for the opening and
2    administration of a worker's Illinois Bank Account.
3        (5) Upon request of the administrator, provide
4    additional forms or notifications to a worker.
5        (6) Refrain from discharging, disciplining,
6    threatening to discharge or discipline, or in any other
7    manner retaliating or taking an adverse action against a
8    worker or applicant because of the individual's
9    participation or manner of participation in the Illinois
10    Bank Account Program.
11    (p) Shall require a landlord or a landlord's agent to
12allow a tenant to pay rent and deposit of security by an
13electronic funds transfer from an Illinois Bank Account and
14provide that a landlord's, or a landlord's agent's, receipt of
15payment from an Illinois Bank Account pursuant to the
16requirements of the Illinois Bank Account Program shall not be
17considered a waiver of any right the landlord or landlord's
18agent may otherwise have to establish the base rent on, or to
19raise rent for, the rental unit.
 
20    Section 15. Market analysis.
21    (a) The market analysis required by this Section shall
22include whether or not Illinois Bank Account Program revenue
23is more likely than not to be sufficient to pay for Illinois
24Bank Account Program costs within 6 years of the Illinois Bank
25Account Program's implementation.

 

 

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1    (b) The analysis required by this Section shall include
2detailed financial projections and key assumptions upon which
3the determination required by this paragraph relies.
4    (c) The market analysis required by this Section shall
5also include an analysis of the population of Illinois
6residents who are unbanked and the reasons they are unbanked.
7    (d) The market analysis required by this Section shall
8also include an analysis of the low-cost or no-cost options of
9federally insured transaction accounts that are available or
10marketed to unbanked Illinois residents.
11    (e) The market analysis required by this Section shall
12also include an evaluation of all of the following:
13        (1) Alternatives to the Illinois Bank Account Program
14    that the State could implement or enact that would
15    accomplish the essential policy objectives.
16        (2) The estimated risks and costs of alternatives.
17        (3) The expected effectiveness and scalability of
18    alternatives.
19    (f) The market analysis required by this Section shall
20also include recommendations for how the State can maximize
21the number of unbanked Illinois residents who become banked at
22the lowest cost and risk to the State.
23    (g) The market analysis required by this Section shall
24also include an analysis of relative advantages and
25disadvantages, compared to private sector alternatives, that
26the State may have in identifying, reaching, or persuading

 

 

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1unbanked Illinois residents to enroll in a State-administered
2banking program.
3    (h) The market analysis required by this Section shall
4also include recommendations related to the appropriate
5governance structure for a public-private partnership such as
6the Illinois Bank Account Program.
7    (i) The market analysis required by this Section shall
8also include an analysis of costs, benefits, and impacts on
9all affected parties, including, but not limited to,
10landlords, employers, State government, low-wage workers, and
11consumers.
12        (1) The Board shall contract with one or more
13    independent entities with the appropriate expertise to
14    conduct the market analysis required by this Section.
15        (2) A contract entered into pursuant to this Section
16    shall require any entity conducting the market analysis to
17    provide progress reports to, and receive feedback from,
18    the Board at regular intervals or by request and be
19    available to provide testimony and answer questions at any
20    legislative hearings held within 12 months of the delivery
21    of the market analysis to the General Assembly.
22            (A) The market analysis required by this Section
23        shall consider all of the following:
24                (i) The number of potential account holders.
25                (ii) The availability of qualified
26            participating depository financial institutions.

 

 

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1                (iii) Potential account holders' comfort with
2            various banking products.
3                (iv) How individuals without federal or state
4            photo identification can participate.
5                (v) Potential Illinois Bank Account Program
6            revenue streams.
7                (vi) The presence and effectiveness of private
8            sector or nonprofit competitors to the Illinois
9            Bank Account Program.
10                (vii) State fiscal risk from the Illinois Bank
11            Account Program during economic downturns or
12            economic shocks.
13                (viii) Any other factor the Board deems
14            relevant to implementing the Illinois Bank Account
15            program.
16                (ix) The risks and costs of the Illinois Bank
17            Account Program.
18                (x) The expected effectiveness and scalability
19            of the Illinois Bank Account Program.
20                (xi) The likely impact of the Illinois Bank
21            Account Program on existing Illinois depository
22            institutions.
23                (xii) The existence of possible financial
24            services network administrators. If any
25            possibilities include an out-of-state entity, the
26            anticipated impact on Illinois consumers,

 

 

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1            businesses, and financial institutions and how an
2            out-of-state financial services network
3            administrator could or should be regulated.
4            (B) Within 12 months after entering into a
5        contract for the market analysis required by Section
6        15, the Board shall hold at least one public hearing to
7        solicit input from members of the public. A hearing,
8        including input from members of the public, held
9        pursuant to this Section shall be recorded and made
10        available on the State Treasurer's website consistent
11        with the Freedom of Information Act.
12            (C) The Board shall hold a public hearing to
13        review the market analysis. After the public hearing
14        required by this paragraph, the Board may issue a
15        report to accompany the market analysis. The report
16        may include the Board's assessment of the market
17        analysis, feedback from the public hearing held
18        pursuant to this paragraph, and recommendations
19        related to the implementation of the Illinois Bank
20        Account Program.
21    (j) The Board shall make a determination as to whether the
22Illinois Bank Account Program can be implemented as described
23in Section 10 and, if not, what modifications to the Illinois
24Bank Account Program could be made to implement it.
25    (k) The Board shall make a determination as to whether
26Illinois Bank Account Program revenue is more likely than not

 

 

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1to be sufficient to pay for Illinois Bank Account Program
2costs within 6 years of the Illinois Bank Account Program's
3implementation and what the State's investment will need to be
4in order to cover the costs.
5    (l) The Board shall deliver and, upon request present, the
6market analysis and any report issued to the Chair of the
7Senate Committee on Financial Institutions and the Chair of
8the House Committee on Financial Institutions and Licensing.