Following The Money: Banking While Black
With major lawsuits, scandalous allegations and million-dollar customers walking away, many banks continue to find themselves working to recover from a loss of customer confidence. Recently and most notably, it was reported that Wells Fargo Bank potentially opened an additional 1.4 million sham accounts customers didn’t sign up for,
67 percent more than initially estimated last year and bringing the total to 3.5 million fraudulent accounts. Ranked the third largest bank in the United States, Wells Fargo was sued by employees (current and former) and customers across the nation for the unwarranted fees that were included in the fake accounts. The lawsuits contend that Wells Fargo “violated state and federal laws by misusing confidential information and failing to notify customers when their personal information was breached.”
The bank has also come under fire for charging several hundred thousand borrowers for auto insurance they did not ask for or need–which resulted in numerous delinquencies. Further deepening the mistrust in Wells Fargo was the bank’s support of the controversial Dakota Access Pipeline that caused high-end customers, like Los Angeles City Council, to divest funds from the bank.
While the San Francisco Federal Reserve Bank continues to scrutinize Wells Fargo’s practices, the banking industry at large is feeling the ripple effect. Customers are weighing all their banking and money management options by exploring alternatives such as credit unions, smaller community banks or no bank at all.
“There is a lot of skepticism as it relates to banks,” said Karen A. Clark, Sr. VP of Multicultural Strategies at City National Bank (CNB). “Even though banks are not the only bad players, all of the banks got broad brushed with this negativity (mortgage fraud and fake accounts) when it wasn’t necessarily justified.”
Clark, a 30-year bank industry veteran, said that most banks are still recovering from the mortgage crisis that contributed to the Great Recession a decade ago. “There were some bad actors but everybody (in banking) took the heat from it,” she insists. “I think the banks failed and didn’t band together to come up with a good communications and education strategy for the general public.”
In 2007, when the mortgage crisis slammed the U.S. economy causing a panic globally, financial markets became extremely volatile. The impact has lasted longer than economists and financial analysts ever imagined. “I think banks have a lot of work to do in reestablishing trust with the community,” Clark observes.
Communities defined as low to moderate-income are already faced with disadvantages when it comes to banking relationships. Customers trapped by damaged or poor credit scores, or income to debt ratio shortfalls, are considered vulnerable and sadly the target of such abuses as discriminatory lending and an assortment of high banking fees.
“The problem here is that low-income consumers don't have much of an alternative when it comes to banking,” said Wall Street investment analyst Halah Touryalai. “There's a growing population of people who don’t have a bank account because they feel they can't afford it. They are called the un-banked and under-banked.”
Fact is, according to the Federal Deposit Insurance Corp., more than 18% of African Americans don’t have traditional bank accounts, compared with 7% of all Americans,
Consumers who don't have enough funds or deal mostly in cash transactions say they can’t afford the fees that banks are charging. Popular banking products geared toward low-income consumers are typically offered by payday loan companies, storefront lenders or even big retailers like Wal-Mart.
“This happens all the time! The number of people in the African American community who are paying unnecessary fees to cash their checks at payday lenders is high,” said Frank Robinson of Union Bank. “The majority of those folks cannot open up an account because they’ve been involved with check systems–whereby if you had a check and you were overdrawn and did not pay it–your name is then put into a system for seven years and you’re not allowed to open an account in any bank because you owe that original bank money.”
Robinson said that increasingly online financial service companies are cropping up and are making personal loans at lower interest rates, or creating GoFundMe accounts to loan money to others at an even lower rate. “What’s scary is that those people who are the working poor are almost invisible to all of us [in banking],” he said. “They’re not on welfare. They’re struggling with one or two jobs—sometimes making minimum wage.”
To address the credit needs of the community, every depository institution must set and attain goals established by the Community Reinvestment Act (CRA). The CRA requires that each depository institution's keep a record of how they help to meet the credit needs of its community and they’re to be evaluated by a Federal financial supervisory agency periodically. Members of the public may submit comments on a bank's performance, and all feedback is taken into account during CRA examination periods. A bank's CRA performance record is evaluated when an institution's application for deposit facilities is up for consideration.
Teri Williams, President and Chief Operating Officer of OneUnited Bank, —the nation’s largest black-owned bank—recognizes that underserved communities facing financial disarray still have the power to re-write the narrative. Williams said that One United Bank has come to realize the products and services provided to their bank customers can’t simply mirror other institutions.
“Our community’s needs are different,” Williams reasons. “A lot of the banks are offering prepaid debit cards. When we looked at the fees and the cost of the prepaid cards to individuals, we were like ‘this is predatory.’” “What we thought was the responsible thing to do was to offer a secured card,” Williams continued.
“What’s different is that the secured card reports to the three major credit bureaus, and doesn’t charge the fees, but it helps people rebuild their credit. We’re not going to do what [our competitors] are doing because they see our community as fee generators. What we’re trying to do is create wealth builders.”
Williams believes Black banking customers are getting a bad deal when banks allow you to overdraw accounts so they can earn fees. However, she said the community is beginning to catch on to the idea that they must bank and manage their resources differently. This need for a shift is due in part to what customers are learning about bad banking practices, lack of fairness in customer relations and the ongoing cases of bank fraud. “What’s changing is people are starting to connect the dots between what banks are doing with their money and the stories that they are hearing,” Williams said.
“We are one of the few institutions that are committed to lending to communities that are black and brown- where as the larger banks, their dollars are going to a lot of places, some of the wealthier communities or investments that could be oil and gas, but they’re investments that really are outside of the communities that are providing them with the dollars. So people are starting to say why am I doing this and if I put [my money] in One United; a black bank, or put it in a credit union, it’s going to mean the same thing as me putting it into Wells Fargo…This is us getting woke.”
Clark advises that every banking consumer should make relationship building with branch personnel a first priority. She says most banks offer very similar products and rates, and that the biggest difference is their treatment and how valued the customer feels when being serviced. “They should make you feel like a million dollars even if you only have $5,” she says.
According to Clark, City National Bank, which historically caters to the more affluent client, understands that the unbanked and underbanked population need access to funds and banking services. Therefore, CNB has committed to opening a new storefront location on Crenshaw Blvd at a strip mall (currently occupied by a payday lender) later this fall. They have also pledged to boost the amount of lending and services it offers to lower income and minority neighborhoods.
Chase invests in low-and moderate-income areas through programs like their Small Business Forward global philanthropic initiative, committing $75 million over the next three years to support women-, minority- and veteran-owned small businesses; and their Chase Liquid, a reloadable, prepaid card with a flat monthly $5 fee, no overdraft fees, transaction- and online-bill-pay capabilities.
But what Chase executives like Suzanne Alexander are most proud of is the “Fellowship Initiative” they launched in Los Angeles three years ago.
“It’s a program I’m really proud of,” Alexander stated. “We selected 40 high school boys of color as fellows. Three Saturdays a month they came to our downtown offices for mentorship and tutoring. We introduced the boys to professionals in various fields. We took them on college tours. They traveled to South Africa and stood in Nelson Mandela’s jail cell. The goal was not to turn them into bankers but to equip them to succeed at a four-year college and beyond. Many of the young men had never been out of Los Angeles, the majority would be first-generation college students. Last month, all 40 graduated and will be heading to college in the fall. A new class of 40 high school sophomores will begin the Fellowship Initiative here in the fall.”
Union Bank’s WISH (Workforce Initiative Subsidy for Homeownership) and IDEA (Individual Development and Empowerment Account) first-time homebuyer programs offer eligible low- and moderate-income households 3-to-1 matching grants of up to $15,000 for the purchase of a home. The funds, which can be applied to the home buyer’s down payment or closing costs, target working families and individuals looking to make the transition from renting to owning. “Home ownership is critical to building economically strong communities,” said Julius Robinson, Head of Corporate Social Responsibility. “We look forward to working with our community partners to assist more qualified recipients achieve the dream of home ownership.”
“The beautiful thing about some of these programs is that you can layer them on top of each other,” Robinson said. Earlier this year, Wells Fargo announced a multi-billion dollar commitment to help increase homeownership among African Americans over the next decade. Even amid lawsuits and scandalous accusations, the bank’s goal is to see some 250,000 new homebuyers by 2027.
“Wells Fargo’s $60 billion lending goal can contribute to economic growth by making responsible homeownership possible for more African Americans in communities across the country,” said Brad Blackwell, Executive Vice President and head of housing policy and homeownership growth strategies for Wells Fargo. “We are proud to be the first mortgage lender to make a public commitment to help increase African American homeownership. And, we are grateful for the support of key housing and civil rights organizations, who work alongside us to increase economic prosperity in our communities.”
With many banks engaging in ambitious initiatives to attract and strengthen its customer base in low to moderate-income communities, Clark, Robinson and other executives agree that their industry will have to pass some tests if renewed trust in the banking system is the goal, and with the use of emerging technologies, consumers will have to do their homework to understand better how to protect themselves.
Williams—whose bank teamed with black lives matter for a special debit card— believes that people don’t ask enough questions when they open an account. “You should ask ‘can I overdraw with my debit card’, and you should ask if the bank has an opt-out provision where you can opt-out of being able to overdraw.
You should ask what order they cash your checks in. What banks will typically do is cash the biggest check first to drain all your money out of the account, and then for each of the other little checks, they’ll charge you a fee.
One United is putting heavy emphasis on the use of technology through online banking and smartphone applications. As a result, they are finding success with the use of social media by targeting niche demographics, attracting new customers and building sustainable relationships.
“This is where I think the future of banking is going,” said Williams who revealed that they are gaining the customers who are leaving Wells Fargo and other banks because of mistrust and scandals. “We’ve been seeing the ways in which these banks have been screwing our community and there is a growing consciousness people are having about where they put their money. I believe that we are benefitting from that consciousness.”