San Jose on Tuesday will grapple with waiving its wage theft policy to award a major banking contract to Chase — which has disclosed prior wage theft violations — or to create its own public bank.
The city’s current banking agreement with Wells Fargo is set to expire on June 30. City officials put the city contract out to bid, and Chase won the bidding process. The city’s banking needs include electronic banking services, wire settlements, lockbox services, debt payments, vendor payments and payroll transactions.
JPMorgan Chase Bank, which is the second largest private bank in the U.S., was chosen by an evaluation team to take over the lucrative city contract. Chase employs more than 191,000 employees and operates approximately 5,100 branches.
But the bank disclosed at least 20 wage and hour judgments, stemming from disagreements with employees about the distribution of commissions for mortgage loans and accusations that employees did not receive final paychecks.
The award amounts, which ranged from $253 to $38,254, have been paid to employees, according to city documents.
But the disclosure raises a new dilemma: Should the city waive its wage theft policy — which prohibits contracts with employers accused of wage theft — to do business with Chase?
Councilmembers Raul Peralez, Sergio Jimenez and Magdalena Carrasco say no.
“It is frustrating that as a city we have policies to uphold strong wage theft protections but yet would consider doing business with institutions that have committed such violations,” the councilors wrote in a joint memo. “The justification for doing so is troubling — should the policy only be enforced when it is convenient to do so? The policy is an essential tool to ensure fair and just treatment of workers.”
The city policy, adopted in 2016, prohibits San Jose from entering into contracts with companies guilty of wage theft and to deny, suspend or revoke licenses to businesses with unpaid wage theft judgments.
The trio of lawmakers instead propose San Jose explore the possibility of creating its own public bank.
A public bank is owned by the government and must serve “a public mission that reflects the values and needs of the public it represents,” city officials said. The concept is not unique and a handful of states, including North Dakota and Oklahoma, have created state-owned financial institutions as an alternative to private banking.
The creation of public banks in California is spurred by the recent introduction of Assembly Bill 857 from Assembly members Miguel Santiago (D-Los Angeles) and David Chiu (D-San Francisco).
Peralez, Jimenez and Carrasco likened it to San Jose creating its Community Choice Energy program after frustrations with utilities owned by powerful corporate interests.
“Why wouldn’t we be able to do the same with where we place the public’s money?” they asked.
But Councilmember Johnny Khamis, who worked in private banking, said the idea is “very risky.”
“Starting a bank is not easy,” Khamis said. “In good times, it’s great. In bad times, taxpayers will be on the hook.”
It’s different from the city’s energy choice program, he added, because all San Jose residents were added into the plan at once and could opt out. That’s not the case with a public bank.
Khamis also worried that the City Council would debate bank investments at every council meeting.
He plans to ask San Jose officials on Tuesday whether the city has had any wage theft violations.
But attorney Ruth Silver Taube pushed back against the city awarding the contract to Chase — or continuing its relationship with Wells Fargo, which has also been accused of employee abuses.
“If we allow an exemption, then the policy will be toothless,” Silver Taube posted on Facebook. “Chase and Wells Fargo should not be rewarded for violating the wage theft policy.”
But if San Jose doesn’t create its own public bank, some city officials fear they’ll be hard pressed to find an institution that can handle its massive portfolio.
“It is highly unlikely that the city will find a bank with the institutional resources needed to provide the level of banking services required by the city and not have similar levels of wage theft challenges,” said Julia Cooper, the city’s director of finance, in a memo.
The City Council will debate the issue at its meeting 1:30 p.m. Tuesday inside the council chamber at City Hall, 200 East Santa Clara Street in San Jose.