The finding against Bancorp South by the Consumer Financial Protection Bureau (CFPB) was published on June 29th of this year.
The fact that this news slipped by is unsettling. The only local news outlet that picked up the story is this stub from the Memphis Daily News. That’s pretty pathetic news people.
In its report, the CFPB detailed how it used forensic accounting and a “mystery shopper” technique to find a pattern of disparate lending practices against African American borrowers. The Mystery Shoppers, some white, and some black, sought out home loans in similar areas with similar credit backgrounds, but were offered very different loan packages based on race.
This practice is known as redlining.
Redlining: the practice of denying services, either directly or through selectively raising prices, to residents of certain areas based on the racial or ethnic makeups of those areas.
A Continuing Pattern
This isn’t the first time Memphis has been faced with a financial institution seeking to load up black borrowers with high cost debt products. As recently as 2009, the City of Memphis and Shelby County sued and reached a settlement with Wells Fargo Bank for similar practices in the run up to the mortgage crisis that tanked the whole damn economy and devastated Memphis’ tax base for years.
In researching the settlement, I found the original 2009 complaint, that lays out the City and County’s claims against the bank. I also discovered this complaint, made by the Los Angeles School District in 2014.
One interesting tidbit buried on page 47 of the document, was the Bank’s policy of using African American churches to promote “wealth building” with the specific purpose of delivering sub-prime loans to these congregations of color. In short, the bank went to places of trust in the African American community, to use it as a means to illegally profit.
Redlining Defines the Memphis Landscape
For decades there has been a practice of redlining in Memphis…and that practice isn’t just about purchasing homes.
Redlining can include the removal of critical services like banks, supermarkets, healthcare and more from minority areas of the city. Often times the removal of these community anchors are justified as “business decisions”, but based on Memphis’ long and complicated history of depriving African Americans equality on so many levels (from education, to healthcare, to economic opportunity), it is difficult to look at the prevalence of food deserts, banking deserts, and healthcare deserts, and not conclude that this is more than a coincidence.
In the absence of these institutions, other businesses, like check cashing establishments, have taken over the landscape, often charging huge fees for fairly mundane financial transactions.
The additional fees these business charge would not make it in the marketplace but for the absence of more reputable financial service providers. They use this scarcity to capture large percentages of working poor wages in high and unnecessary fees while returning little, if anything of value to the community at large.
Life Beyond the (Red)Lines
Bancorp South paid a pittance ($10m) and accepted no blame for their role in passing off high-cost loans to black customers who qualified for better deals. The fine amounts to less than .1% of the bank’s total assets and just over 1% of their annual revenue. The company’s stock dropped on the news, but has since recovered and then some.
I applaud the efforts of the CFPB, but I also recognize that their finding is just the tip of the iceberg…and the fine they imposed is but a fraction of the economic damage to black loan-seekers that has been inflicted.
I’m not foolish enough to believe that Bancorp South is the only bad actor here. Businesses adopt business practices out of imitation, not innovation.
That imitation is easy to see from the scores of closed bank branches in traditionally black communities to the food deserts that leave neighborhoods with options that cost both more and provide less. And all of that is the definition of redlining.
Memphis can’t live like this. We can’t build up our neighborhoods without these kind of community anchors. We can’t expect people to thrive when they’re expected to do more with fewer options…most of which cost more.
City, County and State government have a direct interest in maintaining community anchors. Their loss means lost revenue in the form of property, business and sales taxes. But aside from talk, neither the City, County, nor State government has done anything of any substance to reverse the trend over the past 30 years. If anything, through sprawl inducing land-use policies and blind-eye rubber-stamping, all have made the problem worse.
So while the fine against Bancorp South is a small victory, there’s still a lot of war on many fronts left to be fought. Because while businesses may get busted every once in a while for adopting racist policies, our local and state governments have been been complicit. That complicity has appeared in the loss of businesses, schools, parks and other anchors that are vital to the vitality of neighborhoods. Their loss represents a kind of government sanctioned redlining that often flies under the radar and sometimes takes decades to notice.