By Kevin Gould – President and CEO, California Bankers Association

June 1, 2025

The United States has one of the most diverse and robust banking sectors in the world and is represented by banks of all sizes that serve every segment of the American economy. The nation’s approximately 4,500 banks include community banks, midsize banks, regional banks, and large banks. Banks of every size add unique value and are critically important to our financial system and our economy. While banks may have different business models and strengths, institutions succeed when they meet the needs of their communities.

Part of what makes the U.S. banking system special is the dual banking system which provides bankers with a choice of operating under a national charter or a state charter. Unfortunately, the California state charter is under attack and its value proposition is diminishing. Just this year, several California legislative measures target state-chartered banks or will be preempted limiting the measure’s application.

One such measure allows the commissioner of the Department of Financial Protection and Innovation to enforce violations of the federal Dodd-Frank Act (DFA) through unfair, deceptive, abusive acts or practices claims. Proponents claim that this measure is necessary because the Consumer Financial Protection Bureau (CFPB) under President Donald Trump’s administration will not enforce DFA.

The reality is that the commissioner already possesses this authority; however, to deploy it, the commissioner must provide notice to the CFPB, which may become a party to the action and/or can seek to remove the action to federal court. The rationale behind this potential intervention is to avoid duplicative and uncoordinated enforcement actions.

Large big box retailers are pushing a measure to limit the charging of an interchange fee by prohibiting the fee being assessed against sales tax. These retailers need to remember the convenience and certainty credit card payments have provided them, and that the underlying infrastructure that facilitates these transactions has a cost. Additionally, interchange fees support low and no-cost bank accounts and credit card reward points programs that customers appreciate. The bill will be preempted for federally chartered banks, leaving its application to state-chartered banks.

Another measure establishes a state-level Community Reinvestment Act (CRA) applicable to certain state-licensed entities, including California-chartered banks. This effort is duplicative and potentially contradictory to the federal CRA, which all banks are subject to. Rather than layering on top of state banks, the measure should be amended to apply solely to California-chartered credit unions, which do not have a federal CRA requirement, though they are depository institutions and may operate similarly to banks.

As we have fiercely advocated for our member banks, we commonly hear legislators express appreciation for community banks. But with measures advancing like those described above, we are increasingly convinced that those are just words and that their actions prove otherwise.

Banks are highly regulated entities and miraculously excel at finding a path to compliance on what seems to be a never-ending list of new laws and regulations. But there is a breaking point. Consolidation within the industry has been driven, in part, by over-regulation. Smaller community banks, just like small businesses, are struggling to keep up with overregulation and are finding that they must get to scale to survive the regulatory avalanche.

We are gravely concerned that new laws and regulations will accelerate consolidation and may leave communities who need access to banking services in financial deserts. This unfortunate result could push the door more widely open to the less-regulated shadow banking industry where there is often less consumer protection. And because of the dual-banking system, banks can exercise their choice and operate under a national charter, which leaves the state with less oversight.

If policymakers really care about the important role of community banks, as they have suggested, it’s time they put a stop to efforts that could make the state charter less valuable.

For more information, please email us at communications@calbankers.com.