Boston joined a growing list of cities nationwide Wednesday in requiring banks to prove that they are investing in local neighborhoods and small businesses if they want to handle city accounts and deposits.
The law goes into effect immediately after the City Council, by a 10-3 vote, overrode an earlier veto by Mayor Thomas M. Menino. The vote, one of the last before the Nov. 5 elections, means that banks wanting to provide payroll services, process payments, and hold Boston’s deposits will have to show they are helping low and moderate income neighborhoods throughout the city.
“We’re going to invest with a bank that invests most in our neighborhoods,” said Councilor at Large Felix G. Arroyo, a sponsor of the ordinance.
Cities including Los Angeles and New York City passed similar laws following the financial crisis and questionable mortgage loan and foreclosure practices by banks.
Still, it’s unclear whether the new rules are more symbolic than substantive, since they are unlikely to affect the city’s primary contract for banking services. This summer, Boston signed a three-year contract with Providence-based RBS Citizens Bank, which holds as much as $700 million of the city’s deposits at any one time, said Meredith Weenick, Boston’s chief financial officer.
Under the contract, the city foregoes interest payments on deposits for services such as payroll, credit card payment processing, and bill payments.
The city occasionally receives requests from smaller banks for less than $5 million of Boston’s deposits on a short-term basis as capital to make loans, Weenick said. Those banks would have to provide community investment data, she said.
Citizens Bank has provided such information in other cities where it does business, said Jim Hughes, a spokesman for the bank. The bank funds community development projects throughout its service territory, he said.