Fair Access To Financial Services Is Vital To Closing The Racial Wealth Gap
Marc H. Morial
President and CEO
National Urban League
“In 2022, in the United States of America, you can be turned away at a bank because of the color of your skin. The wealth and income disparities between white and minority households are a consequence of the unequal access and treatment minorities have faced. From accepting slaves as collateral for loans, to Jim Crow, to redlining, to the subprime mortgage crisis’ predatory practices, to the current crypto crisis, Black and brown Americans have never had equal access to or fair treatment in financial services.” – Sen. Sherrod Brown
Recently, I had the opportunity to testify to the Senate Banking Committee at a hearing entitled, “Fairness in Financial Services: Racism and Discrimination in Banking,” to shed light on racism in the banking industry and urge passage of the Fair Access to Financial Services Act.
Throughout our work, we have seen the dire consequences of an American financial system that has systematically cut off and shut out individuals, families, businesses, and communities of color from access to capital.
When people of color suffer racist engagement in the financial marketplace, it causes substantial monetary and non-monetary harm. Depending on how the racist behavior occurs, be it systematic, digital, in-person, community members often are unaware they received disparate treatment or a discriminatory outcome. This stems from a centuries-long strain of the Black and minority community with banking institutions. The exclusionary and biased practices have been widely documented, including the banking industry’s tendency to disproportionately open and operate branches in white/non-minority communities.
In addition to the reluctance to operate in communities of color, another source of racial discrimination may be bank employees' discretionary practices in charging costs and fees. Bank employees wield discretionary power in racially executing bank policies – they determine how much a customer pays in costs, and customers may face varying fees depending on who they talk to at the bank. The concerns about racial discrimination and bias in the banking workforce are also not new and are illustrated in analyses of data from mortgage lending lawsuits brought to the U.S. Department of Justice Civil Rights Division, which illuminated widespread discriminatory practices, including loan officers who "referred to subprime loans in minority communities as 'ghetto loans' and minority customers as… 'mud people.'
The consequences of these acts are reflected in the data: in the National Urban League’s State of Black America® 2022 Equality IndexTM, Black Americans are less likely to be approved for mortgages than white Americans, at a disparity rate of 41%.
Traditionally, decision-making authority at banks has been the bastion of middle- and upper-class white males. A clear solution to this issue is to invest and strengthen Black-owned banks, of which there is an incredible need. In our 2022 State of Black America Report we found that the number of Black-owned banks has dwindled immensely over the years. Between 1888 and 1934, there were 134 Black-owned banks to help the Black community. Today, there are only 19 Black-owned banks that qualify as Minority Depository Institutions.
Due to historic undercapitalization, Black banks are small, with average assets of $363 million compared to $4 billion for all U.S. banks. The small number of Black banks and their small asset size limits their overall impact. A century of data proves that Black banks matter. When there is a Black bank in a community, Black people are more likely to be able to buy a home or secure a small business loan. These institutions help minorities build wealth by providing mortgages, small business loans, and financial services when others will not. That is why the work of uplifting Black banks is so vital.
There is work being done at the federal level and additional bipartisan solutions that Congress and the Executive Branch can take to address these ills and barriers. The National Urban League has partnered with both to be part of the solution, because just as redlining and disinvestment in communities of color is contagious, so is “Greenlining” and reinvestment in those communities.
In March of this year, the Treasury Department certified the National Urban League’s small business lending subsidiary, The Urban Empowerment Fund, as a Community Development Financial Institution (CDFI), bolstering its ability to deliver vital capital to urban communities. The Fund provides direct loans to Black and other minority-owned businesses in tandem with select Urban League Entrepreneurship Centers, which are currently operating in thirteen Urban League affiliate cities.
Perhaps one of our greatest achievements to date, however, will be the opening of the National Urban League’s new headquarters, the Urban League Empowerment Center. Our new home is not just a home for us, it is a $242 million, 414,000-square-foot investment in the community. Our Empowerment Center is one of the most significant economic development projects in Harlem’s recent history. And in constructing it, we are leading with our values. In addition to affordable housing, we are using minority and women-owned contractors and businesses throughout the building’s conceptualization to construction – from our owners’ representative to our construction firms to our professional services firms. Our project – built in one of the toughest real estate markets in the world – is on time, on budget, embraced by the community, and slated to open fully by early 2025.
In 2010, Congress passed, and the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Not only did this bill prohibit some of the most outrageous practices witnessed by predatory banking lenders, but it also created the Consumer Financial Protection Bureau (CFPB). We are disappointed by recent actions and court rulings aimed at preventing the CFPB from using its existing authority to protect consumers from racial discrimination when seeking mortgages, auto loans, credit cards, bank accounts or other financial services. Just two years after banking executives named themselves allies in the fight against systemic racism, these lawsuits feel like a betrayal to communities who have been too long discriminated against by these institutions.
The Fair Access to Financial Services Act has an opportunity to build upon the Dodd-Frank Act of 2010 and regulatory protections by ensuring that all Americans have equal access to goods and services offered by financial institutions and that they are held liable if they do not comply with these standards. The legislation would prohibit banking and other financial institutions from conducting discriminatory practices and services on the basis race, color, religion, national origin, or sex – closing the gap and fulfilling the spirit of the Civil Rights Act to ensure that all people in this country have access to economic equity and empowerment. Congress must take action to advance and pass this critical piece of legislation.
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