CHICAGO –Governor Pritzker on Friday signed into law HB 5194, the Illinois Banking Development Districts Act. Sponsored by State Sen. Doris Turner (D-Springfield) and State Rep. La Shawn Ford (D-Chicago), the legislation creates a new incentive program for establishing bank branches in underserved communities. The program uses public-linked deposits and Community Reinvestment Act (CRA) review standards to attract bank branches to underserved communities, similar to a program in New York.
Like the New York program, banks and local governments in Illinois will jointly create a plan for a new banking development district in an area that needs it. The Illinois Department of Financial and Professional Regulation will evaluate these plans in consultation with the Illinois State Treasurer and approve plans that create consumer-friendly banking options in underserved areas.
The number of bank branch closures has increased significantly since the start of the COVID-19 pandemic. In 2021, 2,927 bank branches closed nationwide, a 38% increase from 2020. One hundred and fifty-three of these branch closures occurred in Illinois, primarily from large commercial banks.
“There are millions of people across the country and in Illinois who, due to account balance barriers and minimum deposit requirements, do not have a reliable bank,” said State Sen. Doris Turner (D-Springfield). “This law will allow communities to take a stand and create the conditions for a fairer banking experience.”
“When residents do not have adequate access to banking services, they often turn to payday loans, pawnbrokers and predatory lenders which can harm their financial stability,” State Rep. La Shawn Ford (D-Chicago) said. “That is why this measure is an important step to encourage the establishment of bank branches and necessary financial services in areas that have large underbanked populations.”
“We have seen what happens when households do not have access to basic safe banking products,” said Chasse Rehwinkel, director of the banking division. “Unbanked people who don’t use a prepaid card that offers direct deposit are paying around $180 a year just to access their own money, an unacceptable cost for people living paycheck to paycheck. Creating banking development districts in Illinois will provide policymakers with another tool to improve financial equity in underserved communities across the state.”
The New York Banking Development Districts program has been active since 1997 and has led to more than 30 new banking development districts, more than 60,000 new bank accounts, and generated more than $500 million in new credit to underserved households.