Wanted: fair access to credit to create wealth
Over the past year, the COVID-19 pandemic has imposed a double crisis. More than 542,000 American lives have been lost and the toll continues to rise. At the same time, the ripple effects of a massive economic recession caused the country to lose 9.5 million jobs – more losses than even those of the Great Recession, according to the Carsey School of Public Policy of the University of New Hampshire.
Although many officials have called for a “return to normalcy,” millions of small businesses and communities are in need of something new instead. In black America in particular, the “old standard” never provided equitable access to the wealth creation opportunities that have served much of white America. Instead, a long history of public policies designed to create and maintain a thriving middle class has systematically excluded blacks and other people of color.
Now, as federal lawmakers seek to understand how best to pull the nation out of these health and financial crises, many advocates are calling for a new paradigm – the intentional inclusion of all who have been excluded, overthrown and underserved. Recent testimony before Capitol Hill committees focused on different issues, but led to the same conclusion: the time for change has come.
For example, during a confirmation hearing in February for Adewale Adeyemo, appointed by President Biden to become Assistant Secretary of the Treasury, the candidate said: “Until we get the pandemic under control, economic policy must remain focused on assisting those affected by the public health crisis, especially those disproportionately affected: low-income communities and communities of color. The pandemic has exacerbated inequalities, strained families and exposed disparities of opportunity across our country that existed long before COVID-19. Without further relief, these difficulties will become even more acute and inflict lasting suffering on countless Americans.
Adeyemo is the agency’s resource person for implementing the decree requiring all federal offices to submit diversity and inclusion plans to the Office of Management and Budget. Prior to her appointment, Treasury Secretary Janet Yellen, as reported by The New York Times, announced plans to invest $ 9 billion in community development finance institutions and minority depositories with the aim of increase loans.
Meanwhile, the U.S. House of Representatives Financial Services Committee convened several hearings that included expert testimony echoing Mr. Adeyemo’s appeals.
On March 10, Committee of the Whole held a hearing titled “Justice for All: Achieving Racial Equity Through Equitable Access to Housing and Financial Services”.
Opening remarks by Representative Maxine Waters, California Congressman and Committee Chair, set the tone for the forum.
“Today we are here to discuss the steps this committee can take to achieve justice and achieve racial equity through access to equitable housing and financial services. … And no matter where you are – and who you are – in America or in the world, institutional racism based on skin color creates barriers that impact social and economic outcomes, ”Waters noted.
Testifying on behalf of the Center for Responsible Lending, Nikitra Bailey, Executive Vice President of CRLs, recounted the legacy of federal housing policies the sum of which has created today’s financial inequalities.
A 1933 federal housing program, the Home Owners Loan Corporation (HOLC), supported redlining through its underwriting guidelines. As a result, black communities and other communities of color have been denied access to general funding. In the first 35 years of this program, only 2% of FHA insured mortgages went to blacks and other buyers of color.
Likewise, the 1944 GI Bill continued the same systemic discrimination. In Mississippi, for example, the 3,329 mortgages approved by the VA included only two black members.
Fast forward to newer times. In the early 2000s, half of all mortgages made to black and Latin families in the run-up to the foreclosure crisis were unsustainable subprime loans – although these consumers had credit histories that qualified for cheaper loans. , safer and more responsible.
“As a result of these lending practices,” Bailey testified, “black and Latin American families lost over a trillion dollars in wealth during the crisis. In addition, black homeownership has been the slowest to recover from the Great Recession. In fact, there would be 770,000 more black homeowners if the homeownership rate were to return to its pre-crisis level in 2000 … The racial wealth gap contributes to the fact that in the 46 largest markets in the world. housing the country, a median-income black household could only afford 25 percent of homes on the market last year, compared to 57 percent that a median-income white household could afford. It will take bold and targeted action to reverse these inequalities. “
The next day, a House financial services subcommittee called another hearing. Entitled “Going Through the Cracks: Policy Options to Help American Consumers During the Pandemic,” the session covered access to affordable credit or small business capital, debt collection and stagnant credit, which became inevitable and further complicated the financial disadvantages facing the Color.
“Without a safety net or a cushion to fall back on, people of color are much less able to cope with financial calamities,” said Carla Sanchez Adams, chief counsel at Texas Rio Grande Legal Aid, Inc. “With less money. assets to draw on, people of color are more prone to poverty traps. ”
Sanchez Adams continued, “Debt collection activity increased in 2020, as did the profits of debt collectors. Auto repossessions were common and consumers were left at the mercy of their lenders. Consumers would benefit if all debt-related activity ceased during the pandemic. … Consumers would benefit from a moratorium on negative notification of delinquencies during the pandemic. Scams and frauds have also increased. ”
Speaking on behalf of minority lenders and small businesses, Robert James, President of Carter Development CDE and President of the National The Bankers Association, stressed the importance of small minority-owned businesses and cited the lack of convenient access to traditional banks and the decrease in the number of minority deposit-taking institutions as issues requiring attention and maintenance. correction.
“Small minority-owned businesses are the lifeblood of their communities,” said James. “The 1.1 million small minority-owned businesses before the pandemic employed more than 8.7 million workers and generated more than $ 1 trillion in savings annually.exit c. Women own nearly 300,000, employing 2.4 million workers. Despite their importance, these companies funderlying challenges that make them vulnerable in normal times. ”
But credit terms and a severe shortage of accessible credit, according to Carter, are also lending terms that need to become more inclusive.
At the same time, Carter noted that from 2009 to the second quarter of 2018, nationwide, the number of Minority Depository Institutions (MDIs) increased from 215 to 155. IDMs are also much smaller in assets than the average non-MDI bank.
“Black and Hispanic IDMs have average assets of $ 245 million and $ 2.7 billion, respectively,” Carter said, “compared to an average of $ 3.1 billion for all U.S. banks.”
Ashley Harrington, federal advocacy director for the Center for Responsible Lending, offered federal lawmakers a key recommendation that could give consumers more control over their own financial management.
“Allowing every adult to save and keep at least $ 1,000 per week in salary and $ 12,000 per bank account,” Harrington insisted, “will help families avoid eviction and pay for essential costs like drugs and food. While family savings cannot replace the social safety net, it is essential that families are able to support themselves at a minimum and basic level. These protections are more urgent than ever: recent research has established that an additional 8 million families have fallen into poverty since May 2020. ”
Charlene Crowell is a Principal Investigator at the Center for Responsible Lending.