RushCard and United Kingdom Lending to Lower Income Families

rushcardLondon   The Community Reinvestment Act (CRA) in the USA is pushing 40 years old, and even in its relatively weakened state, there is no question that joined with the Home Mortgage Disclosure Act (HMDA) it has been for most of its history a huge tool for opening increased financial opportunity to lower income families and reducing discrimination in lending. It is surprising that this kind of financial supervision and protection for low-and-moderate income families has not been widely duplicated elsewhere around the world. I recently talked to Kent Hudson in France who has made this is personal crusade for many years and now more recently Jennifer Tankard and Daniel Pearmain in London with the Community Development Foundation that maintains a robust advocacy program trying to increase transparency for financial institutions in the United Kingdom particularly around lending products to lower income families.

Tankard, just back from a meeting in Brussels where she had been pushing for more European Union action in this area, told me a huge recent stumbling block in expansion of these kinds of lending reforms had come from the right wing arguments trying to blame the 2008 financial crisis, claiming that the subprime collapse was triggered by CRA lending standards to the poor in the United States. This limp argument in the US has been widely discredited and tens of billions of dollars of fines paid by a wide array of banks for sloppy procedures, unsupervised broker networks, and fraudulent practices have made it clear that it was pure and simple greed and lack of regulation that were to blame not the fact that home ownership rates increased among lower waged families especially in African-American and Latino communities.

It was fun comparing notes with an organization involved in dealing with payday lending and other financial justice issues. Tankard was easily as angry about the cost of remittances as we have been, partially from her own personal experience with some of the transfer channels. At the same time it was disconcerting that many of the handles we have had at the state and local level to win reforms in location and practices seem largely unavailable in the UK given the national control of banking processes in Westminster and the iron grip that the City of London financial barons seem to have on the process and the politics.

Reading about the meltdown of the RushCard in the United States, a popular prepaid card touted by Russell Simmons, the hip-hop entrepreneur, where suddenly thousands in recent days have not been able to access money on their cards, that obviously was there, because it was prepaid, was yet another example of the woeful alternatives offered to lower income families as banks have almost totally deserted the low income market leaving millions unbanked in a credit card world. A decade ago Simmons had stalked our New York office trying to get ACORN to endorse and partner with him on the RushCard, but any analysis of the card made it clear it was way beneath ACORN standards as a non-predatory financial product. Simmons is silky and persuasive, and always promised, and in fact did make, some improvements, but we fortunately stayed away from it. Watching the current problems, I should add, thankfully!

But, since financial institutions are clear that they are willing to exploit lower income families rather than serve them like others, these problems are unavoidable given the lack of choices. According to the Times:

In 2012, the most recent year available, prepaid cards held $65 billion, more than double the amount from just three years earlier, according to a survey by the Pew Charitable Trusts. Nearly a quarter of these cardholders earn less than $15,000 a year.

Another recent report found that families without access to banks are forced to spend between $500 and $1000 per year in order to transact their daily lives in money orders, transportation, payday loans and the like because they don’t have ready, secure access to their money through banking.

Looking the other way is not a plan for reform, but globally and domestically, it seems to be all that is offered for lower income families and the odds of reform are currently disappointing.

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The Return of Lending Discrimination by Banks

Ohio Savings BankNew Orleans Finally there is some small notice of the fact that banks are abandoning the poor and their neighborhoods.  A report from the FDIC (Federal Deposit Insurance Corporation) found that almost 1000 net branches had been lost in 2010.  Certainly not surprising to anyone is that the loss has been much higher in lower income and minority dominated areas, while branches continue to explode in upper-income areas.  Fingers will inevitably be pointed in all kinds of different directions other than back towards the banks themselves:  the economy, bank closures, blah, blah, blah.

The next shoe to fall is going to hurt more.

A preliminary report I reviewed from A Community Voice, the membership community organization in Louisiana (www.acommunityvoice.com) of the results of their extensive data crunching of HMDA (Home Mortgage Disclosure Act) data on lending for 2009 (the most recent year available) reveal a significant return of racial discrimination in lending across impacting all minority segments.  The A Community Voice should be available in March, so we will see what conclusions they draw, but the early indications are deeply disturbing and were revealed in a hearing before a Department of Justice hearing in the Lower 9th Ward of New Orleans last night. I’m not sure where else the data is being reviewed or released, since this used to be an annual project of ACORN at least when I was there, but we should all keep our eyes out for these numbers.  They will not be pretty.

The much maligned Community Reinvestment Act (CRA) blamed so roundly and falsely by the right and Republicans as a whipping dog for the housing crash and the Great Recession for supposedly moving loans to the poor, was more appropriately characterized in a story in today’s Times.

“The C.R.A. has been a financial Maginot Line – weakly defended and quickly overrun,” said Raymond H. Brescia, a professor at Albany Law School.  What’s more, Mr. Brescia said, while closing branches violates the spirit of the law, if not the letter, he could not recall a single example in which a bank was cited by regulators under the C.R.A. for branch closures in recent years.  “The C.R.A. leaves banks a lot of leeway,” he said, “and regulators have not wielded their power with much force.”

And, frankly, Professor Brescia is guilty of understatement if anything.  Lending discrimination never really left, as he points out, but at least it receded and there were efforts made and lip service spent.

Given the huge setbacks in homeownership by minorities due to the recession, this should be a battleground widely engaged to attempt to recapture this ground, hold and extend the line again, but it will only be so, if we have the capacity and commitment to reengage banks and push back again with whatever weak tools we still are allowed.  If not, no army of “Elizabeth Warrens’ can prevent the implosion of payday lending, predatory financial institutions preying on the poor and moderate income families across the land.

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