Housing Discrimination is Back! Did it Ever Leave?

hudson-city-savings New Orleans      The Community Reinvestment Act (CRA) was passed in 1978 banning racial discrimination in lending.  The Home Mortgage Disclosure Act (HMDA) was passed as well, forcing banks to supply the data on where they approved mortgages and the racial and ethnic information on the borrowers.  Reporting and enforcement is under the jurisdiction of the Federal Reserve banking system.

            This is called redlining.  There have been recent settlements in this area in Buffalo, Milwaukee, Providence, Rochester, and St. Louis.  Hudson City Savings Bank, the 7th largest savings bank in the US and the largest in New Jersey with offices in New York and Connecticut as well, and a merger candidate for the larger M&T Bank Corporation, settled a case with the Department of Justice and the Consumer Financial Protection Bureau without admitting guilt but by agreeing to a fine of over $30 million for discrimination.  The New York Times reported that that “In 2014, Hudson approved 1886 mortgages in the market…federal mortgage data show.  Only 25 went to black borrowers.”  Hudson claimed innocence, arguing that it bought mortgages on the secondary market, that the bank felt was sufficient to satisfy its CRA obligations.   Attention to the discrimination was brought to the authorities by New Jersey Citizen Action and that’s about the only good news in any of this.

            The bank’s argument is perverse.  They seem to believe that racial discrimination can be handled like climate change with a “cap-and-trade” type agreement where it is alright to discriminate in your home markets, just like you can pollute in your home countries, as long as you purchase an offset in some other way by buying mortgages or helping protect a rain forest.  What a load of hooey!  I’m also troubled about the non-existent role of the Federal Reserve in the Hudson story, especially because any pending merger like the one playing out with M&T would have triggered a review by the Fed on the CRA banking record and requirements.  Without a doubt the CRA has been steadily weakened over the last almost forty years, but has the Federal Reserve decided to be completely derelict in their duty and shuffle this over to no one or by luck have some other agencies like the CFPB and the DOJ pick up the slack.  This is not reassuring.

            Nor is it uncommon.  Without data or taking the time to collect and study it when it is available, it becomes easy to simply say with the banks that there is no discrimination.  I heard that repeatedly in the United Kingdom when discussing the need for a CRA and HMDA for British banking.  Data now exists that allows some evaluation of credit, mortgage, and small business loans in the UK, but the initial reactions have been ho-hum, indicating no surprise that there is more action on lending in higher income areas than lower income ones.  The finer data is not available, and the raw data is deliberately opaque.

            As long as there are bankers that will welcome deposits from lower income families and minorities and still maintain that they have no community responsibility, even though they are chartered with such obligations, and justify their practice based on aversion to risks rather than embracing more robust and generalized rewards, there will be discrimination. There’s always smoke, we just need to make sure that many are still also continually looking for the inevitable fire hidden beneath the smokescreens.


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.