Washington State

House of Representatives

Office of Program Research

BILL

ANALYSIS

Financial Institutions & Insurance Committee

HB 1829

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Brief Description: Establishing the financial services intermediary.

Sponsors: Representatives Santos and Nelson.

Brief Summary of Bill

  • Establishes the Financial Services Intermediary to improve the ability of low-income individuals to access and use mainstream financial products offered by financial institutions.

Hearing Date: 2/3/09

Staff: Alison Hellberg (786-7152)

Background:

Various state and local nonprofit and governmental agencies are involved in activities related to financial literacy and asset accumulation.

The Department of Financial Institutions (DFI) regulates and examines various state-chartered financial services. The DFI also educates and provides outreach to protect consumers from financial fraud.

The Department of Community, Trade and Economic Development (DCTED) provides assistance to Washington's communities, businesses, and families. The DCTED is organized into several different divisions, one of which is the Community Services Division. Asset development is one of the programs within the Community Services Division. While asset development includes many different approaches, programs within the DCTED include Individual Development Accounts (IDAs) and the Earned Income Tax Credit (EITC).

The IDAs are dedicated savings accounts that help low-income families save money to pay for job training or education, buy a home, or start their own business. Saving is encouraged through a match by government or nonprofit organizations. The Savings, Earning and Enabling Dreams (SEED) Act, enacted in 2005, authorized the DCTED to create an IDA program to facilitate the creation by sponsoring organizations of IDAs for low-income individuals.

The EITC is a refundable federal income tax credit for low-income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of Social Security taxes and to provide an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

In 2004 the Financial Literacy Public-Private Partnership (FLPP) was created consisting of 12 members, including legislators, financial services representatives, educators and representatives from the Office of the Superintendent of Public Instruction (OSPI) and the DFI. The partnership was charged with developing a working definition of "financial literacy," identifying strategies to promote the use of financial literacy curricula in schools, serving as a resource, and seeking outcome measures to determine the effectiveness of educational efforts.

The Washington Housing Finance Commission (HFC) was created by the Legislature in 1983, but is not a state agency. It does not receive state funds, it does not lend state funds, and the state is not liable for any of the HFC's debt. The HFC acts as a financial conduit of federal funds and has the authority to issue bonds for the development of affordable housing and non-profit facilities.

Summary of Bill:

The Financial Services Intermediary (Intermediary) is established jointly by the Director of the DFI and the Director of the DCTED to improve the ability of low-income individuals to access and use mainstream financial products offered by financial institutions. The members, or their designees, of the Intermediary are:

The Intermediary's responsibilities include:

The Intermediary may contract with either a person a nonprofit entity with experience working in nonprofit programs related to asset accumulation and relationships with the financial services sector to administer the program. The Intermediary is required to report to the Legislature on its programs by November 15 each year.

Financial institutions and community organizations who choose to participate in the programs are required to enter into memoranda of agreement with the Intermediary. While the Intermediary may establish other requirements, the memoranda must also contain certain provisions.

For the memoranda of agreement between the Intermediary and financial institutions, the financial institutions are required to:

For the memoranda of agreement between the Intermediary and community organizations, the community organizations are required to:

Low-income individuals involved in the programs of the Intermediary must follow policies and procedures related to IDAs in the SEED Act and participate in approved financial literacy programs.

The DFI is responsible for tracking and monitoring the participation of financial institutions in the programs of the Intermediary. The Director of the DFI is directed to consider a bank's involvement in the programs when assessing the bank's performance record in meeting community credit needs.

Appropriation: None.

Fiscal Note: Requested on January 30, 2009.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.