Fair access to financial services is vital to closing racial wealth gap

By: Marc Moral

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-squarefoot 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.