HB3560 104TH GENERAL ASSEMBLY

LRB104 10432 BAB 20507 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
HB3560

Introduced 2/18/2025, by Rep. Kevin John Olickal

SYNOPSIS AS INTRODUCED:

New Act

Creates the Public Banking Option Act. Establishes the Illinois Bank Account Board 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. Sets forth provisions concerning the actions required by the Board to create the Illinois Bank Account Program, including establishing a process by which an individual may open an Illinois Bank Account, which shall be designed to maximize Program participation; the mechanisms by which an account holder may deposit funds into an Illinois Bank Account for no fee; a 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; a 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; and mechanisms by which an account holder can withdraw funds from an Illinois Bank Account using an Illinois Bank Account debit card for no fee; 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; a process and terms and conditions for becoming a registered payee; 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; and other specified actions. Establishes duties concerning the Program for employers with more than 25 employees, hiring entities with more than 25 independent contractors performing the same or similar labor or service, and landlords or a landlord's agent. Grants the Department rulemaking authority to implement the provisions of the Act. Effective immediately.

A BILL FOR

AN ACT concerning regulation.

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 Public Banking Option Act.

Section 2. Findings. The General Assembly finds that:

(1) Due to 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 has 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. 1/5 of 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 5-year estimate from 2017 through 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 Illinosians 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 5. Definitions. As used in this Act:

"Board" means the Illinois Bank Account Board created under this Act.

"Department" means the Department of Financial and Professional Regulation.

"Electronic fund transfer" means a transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic device for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit an account.

"Financial institution" means any bank subject to the Illinois Banking Act, including a branch of an out-of-state bank as defined in Section 2 of the Illinois Banking Act, any savings bank subject to the Savings Bank Act, and any federally chartered commercial bank, savings bank, or savings and loan association organized and operated in this State under the laws of the United States.

"Illinois Bank Account" means a bank account opened through a process established by the Illinois Bank Account Board.

"Program" means the Illinois Bank Account Program created under this Act.

Section 10. The Illinois Bank Account Board.

(a) The Illinois Bank Account Board is established by the Department for the purpose of protecting consumers who lack access to traditional banking services from predatory, discriminatory, and costly alternatives and to administer the Illinois Bank Account Program.

(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 President of the Senate.

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

(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)(1) Except as provided in paragraph (2), members of the Board shall serve without compensation.

(2) Subject to appropriation, members of the Board shall be reimbursed for necessary travel expenses incurred in connection with their Board duties.

(e)(1) Except for the members described in paragraphs (3) and (9) of subsection (a), 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.

(2) The restrictions in paragraph (1) 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 institution.

(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 15. The Illinois Bank Account Program. The Illinois Bank Account Program is hereby created to offer Illinoisans access to a voluntary, zero-fee, zero-penalty, federally insured transaction 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. To administer the Program, the Board shall establish within 12 months of seating:

(1) A process by which an individual may open an Illinois Bank Account, which shall be designed to maximize Program participation.

(2) 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.

(3) A 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.

(4) A 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.

(5) 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.

(6) 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.

(7) A 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 the account holders' Illinois Bank Accounts.

(8) 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.

(9) The following enrollment processes: (i) facilitating 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 law; (ii) designing and establishing rules governing the enrollment and participation in the Program of individuals who do not have permanent housing; and (iii) optionally designing and establishing 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.

(10) Select a Program administrator, which may consist of one or more contractors or Program staff or a combination, whose duties shall include, but not be limited to, all of the following:

(A) 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 the account holders' Illinois Bank Accounts, including direct deposits, preauthorized electronic fund transfers to registered payees, and automatic disbursement rule elections.

(B) 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.

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

(D) 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.

(E) 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.

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

(A) Contracting with, managing, and coordinating the financial services vendors for the Program that 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.

(B) 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.

(C) 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 use current security and anti-fraud technology consistent with industry standards.

(D) 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.

(12) 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.

Section 20. Duties of employers. 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, shall:

(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 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 the 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 Program.

Section 25. Duties of landlords.

(a) A landlord or a landlord's agent must allow a tenant to pay rent and deposits of security by an electronic funds transfer from an Illinois Bank Account.

(b) A landlord's, or a landlord's agent's, receipt of payment from an Illinois Bank Account pursuant to the requirements of the 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 30. Rulemaking. The Department may adopt rules to implement the provisions of this Act.

Section 99. Effective date. This Act takes effect upon becoming law.