The Big Idea: Andrew Yang Is Betting On A People’s Bank To Help Struggling Low-Income New Yorkers

How to rev up New York City’s economy post-pandemic is a cornerstone theme in the race for mayor, with Democratic candidates touting plans for existing small business owners to stay afloat. Ray McGuire, the former Wall Street executive, seeks to keep mom-and-pop businesses open by subsidizing paychecks for half a million existing small business employees. Kathryn Garcia, the former sanitation commissioner, wants to make grants available to them. And while preserving small businesses is on his agenda, Andrew Yang also wants to help generate their growth through the creation of a “People’s Bank of New York.”

His plan would provide loans to prospective mom-and-pop shopkeepers specifically in communities of color and unable to secure a loan from a commercial bank. The People’s Bank would also make basic bank services accessible to New Yorkers in low-income neighborhoods, releasing them from the grip of check-cashing services that charge exorbitant fees. Those fees are often charged to the poorest of New Yorkers.

When it comes to minorities owning a small business the numbers are low. According to a study by the city Department of Small Business Services found only 2% of small businesses are Black-owned. The U.S. Small Business Administration found in 2019 that 3% of Black-owned small businesses received bank loans. For Hispanics, that figure is 7%.

Across the city, 350,000 New York City households are considered unbanked, meaning they lack a bank account. Some of this is attributed to New Yorkers not having enough documentation to open an account or residing in a neighborhood with no traditional bank. New Yorkers instead rely on check-cashing services that charge state-approved fees as high as 2.3%. Unbanked New Yorkers typically cannot build any credit history to secure a loan or credit card.

Yang’s plan is similar to a public bank, a city-run financial institution whose formation is explicitly supported by candidate Dianne Morales. While city comptroller Scott Stringer and former sanitation commissioner Kathryn Garcia have proposed aiding small businesses through one-shot grants and loans on their mayoral platform, Yang’s plan would remain a fixture for the city. He also provides the most details. In an interview with Gothamist/WNYC, Yang said the People’s Bank will reduce economic disparity across the five boroughs.

“It’s too expensive to be poor,” Yang said. “We have to make it less expensive to be poor.”

What is Yang’s plan?

Through an executive order, Yang would establish a nonprofit corporation that partners with 50 of the city’s community development financial institutions–existing credit unions, community banks, and minority banks–to form the People’s Bank.

The People’s Bank would use a $100 million loan it receives from the city to issue low-interest, small business loans ranging from $5,000 to $50,000 or more. With more capital on hand, these financial institutions can expand, with interests generated from these loans allowing them to expand further. The partner firms would be allowed to set their own loan terms with a client, including what happens if they default. Yang said the city will cover a portion of the losses incurred from a default loan. Yang, however, does not have a set percentage well.

To reduce the use of check-cashing services, the People’s Bank would develop a list of banks that offer no-interest and no-fee accounts to New Yorkers. Eligible recipients of Yang’s so-called “universal basic income” program–where $2,000 checks are sent annually to 500,000 low-income New Yorkers–would receive a list of those approved banks so they can do business there. The list would come with a pre-filled form that can be taken to a People’s Bank branch to open an account. Yang said traditional banks would also be encouraged to open accounts for low income New Yorkers, specifically those who only have IDNYC as their only form of documentation. Yang would do this by threatening to take out the city’s deposits at banks they do business with.

As a nonprofit entity, the People’s Bank would also form a Board of Directors that would set standards at partner institutions, including which neighborhoods to lend money and to whom.

Yang said he would also create a startup “Innovation Lab,” where financial tech (“fintech”) companies, similar to Zelle or Venmo, would be specifically created for these CDFIs. This would allow customers to do their banking by phone without having to go to a physical location. This would also reduce the use of check-cashing services, Yang said.

Where would the city get the money?

Yang plans to obtain the money through the $6 billion in federal relief aid the city received in March, with Yang hoping some will be left over should he get into office.

He called the $100 million loan amount a “starting point,” adding if there’s high demand for the People’s Bank, the city could possibly invest billions of dollars.

“This is the kind of thing we should be spending the federal relief money on, something that’s going to kickstart a recovery,” Yang said. “The danger is that we spend the money on other things that don’t kickstart the recovery, and then we’re looking at two years from now, and thinking we missed an opportunity.”

Is this a public bank?

No. Yang’s plan is not quite like a public bank since it does not involve divesting the city’s deposits in corporate banks, such as Chase and Bank of America, and forming its own state-approved bank. Advocates for a public bank, including the Public Bank NYC Coalition, say that divesting in corporate banks is a matter of principle. They argue its creation will enable the city to cut business ties with banks that invest in fossil fuels or provide loans to bad landlords. By creating a public bank, the city can take its deposits and the fees charged by these banks and reinvest them in existing financial institutions in low-income neighborhoods.

Yang, however, is an advocate for a public bank. Its formation requires state approval.

Currently, there is a bill in the State Legislature that would make it easier for municipalities to form a public bank. The Assembly version of the bill is being sponsored by Assembly Member Ron Kim, who has endorsed Yang.

North Dakota is the only state in the country to have a public bank system, operating since 1919. Because of this, it encouraged the opening of more community banks across the country and helped the state rake in the most Pandemic Protection Program loans.

What do experts say?

Responses to Yang’s plan are mixed.

Sewin Chan, professor at NYU Wagner School of Public Service, said the plan “has the potential of having a lasting impact” since it would provide more bank options to low-income New Yorkers over check-cashing services.

“Bringing them all together and supporting them is a really good way to sort of start. It’s a way to start quickly and provide these basic banking services to low-income New Yorkers,” Chan said. “These local institutions know their audience. They know their constituency.”

She added, “whoever wins the election should probably take a look at this.”

Michael Kink, the executive director of the Strong Economy for All Coalition, composed of groups promoting economic equality, said the devils in the details. He “fintech” a “potential Trojan Horse” that would hurt communities in the long run by instituting higher fees for its product down the road.

“It looks like Andrew Yang is choosing the fintech bros over the communities,” Kink said. “The way it’s been proposed by Andrew Yang could be, ‘Hey credit union, we will give you money in city loans if you open your doors to my Bradley Tusk consultant friend fintech companies and they’re going to be the ones .”

Kink said the true solution would be the formation of a real public bank.

This story is the latest installment of “The Big Idea,” an explainer series on bold and interesting ideas pitched by candidates in the mayor’s race. Listen to WNYC’s All Things Considered next week for an interview with the reporter about the plan and more news from the campaign trail.