Community activists pressure banks to provide fair lending to poor and minorities
This article first appeared in the St. Louis Beacon, June 2, 2011 - There is nothing catchy about the acronym SLEHCRA -- St. Louis Equal Housing and Community Reinvestment Alliance -- but the nonprofit coalition is making a name for itself with its efforts to promote bank investment in local minority and poor communities.
Bloomberg Businessweek recently wrote about the group's successes in battling redlining -- the practice of denying minority and low-income borrowers equal access to lending. The article pointed out that the Obama administration has increased its attention to credit access in poor and minority communities in the wake of the subprime lending meltdown.
Since SLEHCRA formed in the summer of 2009, the alliance has been challenging local banks on fair lending. Its clout is the 1977 Community Reinvestment Act (CRA) that requires lenders to invest in all of the local communities they serve, including low-income and minority neighborhoods.
The alliance is open to Missouri and Illinois nonprofit, neighborhood organizations that work in the St. Louis area. Members include more than a dozen such groups, including the Metropolitan St. Louis Equal Housing Opportunity Council (EHOC), the Center for the Acceleration of African-American Business, the Community Action Agency of St. Louis County, the Human Development Corporation of Metropolitan St. Louis, Justine Peterson, the NAACP of St. Louis and the Red Brick Community Land Trust.
Mira Tanna, former assistant director of EHOC, said the coalition grew out of a recognition that the St. Louis agencies -- which had historically tackled individual fair lending issues on their own -- would be more effective if they banded together. Researchers have found more lending to low-income and minority borrowers in metro communities with an active CRA coalition.
"EHOC does most of the research to look at these lending practices," Tanna said. "But we want other folks to be part of that discussion. Having that larger partnership has given us a lot more credibility with banks. This isn't just a lone ranger out there saying, 'You ought to do better.' This is actually a broad-based community-wide response. It's a coalition of those who have a critique to make but who also have ideas, creativity and answers about how things could be done better. Members want to form partnerships with banks so our constituents can be better served."
Something to Talk About
Todd Swanstrom, a public policy professor at the University of Missouri-St. Louis, said there had been a vacuum of challenges to area banks regarding their CRA activities. He believes that it is good for community activists to make use of the public data intended to evaluate the fair lending performance of banks.
"Some people will complain that this is too confrontational, and the answer to that is if we're looking at the facts, it's not confrontational at all,'' he said. "It's just a question of whether those banks are meeting the credit needs of their communities. And we should discuss those facts.''
Swanstrom said that SLEHCRA's actions have led to positive developments on the part of the banks.
"The goal is to form trusted relationships -- so the banks can fund community development that meets the needs of the community and is profitable and safe and sound,'' Swanstrom said.
Swanstrom said that research has shown that CRA investments were not the cause of the foreclosure crisis, as some critics have argued, but tend to be secure investments for banks.
"I'd like to see them do more in St. Louis," he said.
As one of its first actions, SLEHCRA challenged the lending record of Midwest BankCentre in October 2009 in a public comment letter filed with bank regulators of the St. Louis Federal Reserve alleging that the bank wasn't providing equal access in African-American communities.
In March, the Fed's regulators gave Midwest BankCentre an overall "needs to improve" rating in its CRA performance evaluation, the first such rating for a Missouri bank in 10 years.
Midwest BankCentre Chairman Ronald T. Barnes responded to the Fed's evaluation with a statement describing the steps his bank is taking to improve credit access in underserved communities, including plans for a full-service branch in Pagedale. He insisted that his bank's policies and practices have always complied with laws and regulations, and he cited the economic challenges of the recent tough economy.
In December, Rick Bagy, president of First National Bank of St. Louis, announced the bank's plans to invest $2.75 million over the next four years in north St. Louis County, St. Louis and northwest St. Clair County and to open a branch location in the designated area. The bank's action was in response to a fair housing complaint filed by EHOC alleging that the bank failed to locate branches in African-American neighborhoods. The U.S. Department of Housing and Urban Development worked out the agreement with First National.
Tanna said the alliance members recognized that they had been trying to stem the tide of fair-lending issues -- such as foreclosures and reverse redlining that targeted low-income and minority borrowers with subprime mortgages -- but they hadn't addressed systemic problems with lending.
A study by the Federal Deposit Insurance Corp., for example, found that 31 percent of the St. Louis area's African-American households are "unbanked" -- they don't have a savings or a checking account. St. Louis had the highest rate among the 20 metro areas surveyed.
"When the bottom fell out of the economy, we took a step back, and we realized that the pendulum was going to swing the other way, and credit was going to be constricted, especially for the communities that have been hardest hit by reverse redlining: that we're going to go back to more typical redlining practices,'' Tanna said.
Knowing the Score
Community advocates say that entrenched segregation in St. Louis allows redlining practices -- no matter how unintended or covert -- and makes it easier for "alternative" lenders to prey on residents who don't have access to traditional banks.
"Redlining allows reverse redlining to occur because there is a vacuum that alternative lenders try to fill, and unfortunately they don't promote products that are equitable for those communities," Tanna said. "So we wanted to take a step back and say that if part of the problem is that prime lenders weren't in those communities, let's sit down and talk with them and try to get them into the communities so people will have equitable access to credit."
In a February study, "Redlined: A Fair Lending Analysis of the St. Louis Metropolitan Area," analyzed area mortgage lending trends and found a substantial decline from 2007 to 2009 in lending to low-income and minority borrowers and communities. The report also found that African-American borrowers and neighborhoods were more likely to be denied a loan or would receive a high-cost loan than white borrowers and white communities. The report also examined the performance of the top 10 mortgage-lending institutions in the area and found them deficient in providing equal access to credit and loan modifications.
In a key finding, the report found seven zip codes in St. Louis city and county without a full-service bank branch. The areas, which have a total combined population of 103,219, are predominantly African-American. By contrast, the study found six zip codes that have a ratio of at least one bank for every 1,500 people; those areas are predominantly white.
Tanna, who recently left EHOC for a new job with a community legal services agency in Florida, said she hopes to replicate some of her CRA work there, perhaps joining with St. Louis activists to tackle lending issues with national banks.
Swanstrom said that submitting CRA public comment letters to bank regulators is effective, but the research can be time-consuming and costly. By joining together, a coalition such as SLEHCRA can take advantage of economies of scale.
"Banks do really care about their CRA scores -- because of their image, and because it does also make a difference especially if it causes any delays in their future actions," he said.