This article first appeared in the St. Louis Beacon, Oct. 1, 2012 - St. Louis banks have taken positive steps to invest and improve access to financial services in minority and low-income communities, but much work is left to be done, says a recent report by an alliance of local nonprofits that advocate for fair lending.
Banks have opened three new branches in underserved neighborhoods and started new partnerships with community organizations since the St. Louis Equal Housing and Community Reinvestment Alliance formed in 2009 to challenge local banks on their lending practices. The group’s clout is the 1977 Community Reinvestment Act (CRA) that requires lenders to invest in all of the local communities they serve, including minority and low-income neighborhoods.
"Banks are doing more than when we first started doing this work. They’re hiring people who are specifically trained and have the experience to work with communities. There has been an increase in the services that are being provided,” said Elisabeth Risch, education and research coordinator for the Equal Housing Opportunity Council (EHOC), one of about a dozen nonprofits that belong to the alliance, known as SLEHCRA.
"Some banks are being really pro-active and developing good products and reaching the right communities. It’s up to the rest of us and up to the other banks to follow suit to increase what has been done. We need to think more creatively and think bigger, too. There’s a lot more room for growth,” she said.
The report notes that local banks have:
- Committed $14.5 million for community development activities.
- Established three new branches in underbanked communities -- in Pagedale (Midwest BankCentre), Olivette (Enterprise Bank and Trust) and Jennings (First National Bank of St. Louis).
- Developed new services aimed at attracting low-income customers, including small dollar loan programs and "second-chance” checking accounts for those who don't qualify for regular accounts.
- Committed $550,000 toward financial education.
- Increased outreach to low-income communities and predominantly minority communities, including spending $660,000 in marketing targeted for African-American and Hispanic communities.
- Increased staff diversity and added community development positions.
- Developed partnerships with nonprofits and community organizations.
Local 'unbanked' population still growing
A 2009 national survey of “unbanked” households by the Federal Deposit Insurance Corporation raised awareness about banking access in the St. Louis region. The FDIC found that 31 percent of African-American households were "unbanked" compared to 1 percent of white households -- the largest racial disparity of any metropolitan region in the country.
Overall, the proportion of unbanked households in the St. Louis metro area was 7.5 percent, which was just slightly below the national proportion of 7.7 percent. But the proportion of underbanked -- 22.4 percent -- was higher than the national proportion. (Underbanked households have a bank account, but also rely on alternative financial services providers.)
The latest FDIC survey, released on Sept. 12, reported that the region’s unbanked households had increased to 9.7 percent, while underbanked households decreased to 20 percent.
The SLEHCRA report notes that north St. Louis and East St. Louis continue to lack bank branches but are saturated with providers of “alternative” financial services like payday lenders and check-cashing operations. And disparities remain between minority borrowers and white borrowers in the types and terms of mortgage loans.
Alternative lenders are filling a need because of the gap left by mainstream financial services, Risch said, adding that SLEHCRA will continue to pressure federal regulatory agencies to increase their enforcement of CRA and fair lending laws.
"We want the public to know what we’re doing,” she said. “There are resources available to partner with banks and have them provide more services to underserved communities. We definitely want more community input. We want people to be engaged with our actions.”
Todd Swanstrom, professor of community collaboration and public policy administration at the University of Missouri-St. Louis, said that before SLEHCRA organized there was little or no community pressure on regulators or on lenders. He pointed out that that the CRA and the Home Mortgage Disclosure Act are implemented through citizen engagement, not just by a government bureaucracy.
"SLEHCRA has pushed the envelope a little in St. Louis to the point that it has led to some discomfort by people who feel that they are being pressured,” he said. “To me, there is little doubt that it has caused people to change their behavior, and it has resulted in a number of positive developments.”
He notes that lending challenges have changed over time.
"Thirty-five years ago when the CRA was passed, the issue was red-lining. The issue was that banks did not go into a community. Now the issue is in part that you have payday lenders and others who have filled that vacuum and these alternative lending institutions are sucking money out of the communities,” he said. “It’s incumbent that we have access to banking services and mortgage loans for these distressed communities. It’s not just that people can’t get a loan but that people are getting the wrong types of financial products that end up making them even worse off.”
Swanstrom noted another positive step by lenders: the newly formed Metropolitan St. Louis CRA Association, a nonprofit organization of community development banking officials that he says will allow for deeper discussions of regional strategies.
"They’re talking to each other, which I think is excellent,” Swanstrom said.
'Conflict and collaboration'
Swanstrom said that a key to success is forging partnerships between lenders, regulators and nonprofits to identify profitable opportunities that are good for communities.
"The CRA is not asking lending institutions to engage in philanthropy. It’s asking them to reach out to these communities and find where they can offer products that meet the needs of the community and are profitable. But it does mean that they have to make a special effort. They can’t just put on their green shades and behave the way they always did. They’re going to have to form relationships with these communities and partner with groups on the ground to come up with new lending products and banking services. Obviously, if alternative lenders, and in some cases predatory lenders, are stepping in, there is profit to be made.”
Swanstrom refers to it as "a dance of conflict and collaboration.”
"SLEHCRA is pushing the envelope, in some cases pressuring people, and people feel conflict and people get very uncomfortable when accused of racial discrimination. But on the other hand, the purpose of this should always be to forge relationships that can help these communities and to forge collaboration,” he said.
Risch said that such partnerships also help to establish relationships with residents of communities who don’t trust banks.
"And that’s a huge challenge,” she said. "The best way to do that is to use channels and other organizations that are already doing things within the community and have banks partner with them to support their work. “
Risch sees positives in the commitments made so far by banks, but she said more needs to be done to rebuild communities that were hard hit by the foreclosure crisis.
"There are a lot more bigger picture things that need to happen,” she said. "We as a coalition are looking for new community partners to be involved -- and in making sure that we’re continuing to move forward.”
