Redlining and Racism at Canadian and American Banks
Despite glossy website photos of minorities, pledges to be a different kind of bank, the banking industry falls short. With enormous diversity and inclusion training and even racial audits, banks continue to attempt to thread the needle of inclusion and do the right thing. It is possible to do the right things while achieving business outcomes, for in truth, authentic leaders understand this reality. Read the Forbes article.
In a historical housing discrimination case, the US Department of Justice and City National Bank have reached a $31 million settlement. City National is one of the 50 biggest banks in the United States. It is based in Los Angeles. This settlement is the largest one the Justice Department has ever reached in a case of redlining.
In October 2021, the Combating Redlining Initiative was started by the Biden Administration. Since then, the Justice Department has won over $75 million for communities hurt by discriminatory housing practices. This includes a $24 million settlement with Trident Mortgage, a Berkshire Hathaway company based in Philadelphia.
Redlining is a long-standing set of rules and practices that keeps banks from giving mortgages to people who want to buy homes in neighborhoods where most residents are Black or Latino. It began in the 1930s and went on for many years. First, on a risk scale from "A" to "D," each neighborhood was given a grade. Then, lenders marked "risky" neighborhoods with red lines on city maps, and most banks refused to provide mortgages in those areas.
Redlining was made illegal by laws like the Fair Housing Act of 1968 and the Home Mortgage Disclosure Act of 1975. By then, hard-to-reverse damage had been done. White families had built up wealth over generations by owning homes. At the same time, Black communities were left with lower property values, schools that were always underfunded, fewer businesses that made money, crime, and poverty. Policy-wise, redlining may have stopped 50 years ago. However, as the recent lawsuit against City National Bank shows, it is still being done in some places.
The DOJ found that between 2017 and 2022, City National was unfair to Black and Latino residents by giving them fewer mortgages and advertising less in their neighborhoods. Also, in 20 years, the bank only opened one new branch in an area where most people were black or Latino. Because of this, other banks got six times as many mortgage applications as City National did during the same period.
Banks have played a significant role in shaping the economic landscape of America, with a history intertwined with racism and discrimination. From redlining to predatory lending, the banking industry has been guilty of practices that have detrimentally impacted communities of color. Read Boston Consulting Group Racial Equity in Banking Starts with Busting the Myths
Redlining, denying or limiting financial services to specific neighborhoods based on racial composition, was common in the mid-20th century. For example, banks would draw red lines on maps to designate areas where they would not offer loans or other services, effectively denying these communities access to credit and perpetuating economic inequality.
Predatory lending, the practice of offering loans with high-interest rates and fees to borrowers who are unlikely to be able to repay them, has also disproportionately affected communities of color. These loans often come with hidden fees and exorbitant interest rates, trapping borrowers in a cycle of debt and making it nearly impossible for them to achieve financial stability.
These practices have had a lasting impact on communities of color, leading to a lack of access to credit and capital and perpetuating economic inequality. Therefore, the banking industry must take steps to address and rectify these injustices. This can include increasing access to credit and financial services in communities that have been historically redlined, implementing stricter regulations to prevent predatory lending, and advancing diversity and inclusion within the industry.
It is also crucial for individuals to take an active role in addressing these issues by supporting community development, financial institutions, and credit unions, which are often more likely to provide loans and services to underserved communities.
The banking industry is responsible for serving all members of society, regardless of race or ethnicity. It is time for the industry to address past injustices and ensure all communities can access the financial services needed to thrive.
In addition to redlining and predatory lending, the banking industry has also been guilty of discriminatory practices in hiring and promotion. Studies have shown that people of color are underrepresented in leadership positions within the industry and are often passed over for promotions in favor of white counterparts with less experience. This lack of diversity in leadership positions means that the perspectives and experiences of communities of color are not adequately represented within the industry, leading to a lack of understanding and sensitivity toward the financial needs of these communities.
Moreover, the lack of representation of people of color in the banking industry is not just a moral issue. Still, it also has economic consequences, as studies have shown that companies with more diverse leadership teams perform better financially. Therefore, increasing diversity and inclusion within the industry is more than a matter of social justice. It also makes good business sense.
One way to address these issues is for banks to invest in outreach and recruitment programs to attract and retain diverse talent and implement training programs to address unconscious bias and promote an inclusive work culture. Another way is to support and invest in community-based organizations that promote financial literacy and education and provide resources and support for entrepreneurship, particularly in communities of color.
The banking industry has a protracted history of racism and discrimination, which has led to a lack of access to credit and capital for communities of color and perpetuated economic inequality. Therefore, the industry must address these injustices and ensure all communities can access the financial services they need to thrive. This includes increasing access to credit and financial services in historically redlined areas, implementing stricter regulations to prevent predatory lending, and increasing diversity and inclusion within the industry. It also requires individuals to actively support the community development of financial institutions and credit unions and promote financial literacy and education.
Image courtesy of Brooke Cagle @brookecagle
About Jim Woods
Jim Woods is a diversity, equity and inclusion expert with over 20 years of experience in the field. He has worked with organizations of all sizes, from small non-profits to large Fortune 500 companies, helping them to create more inclusive and equitable workplaces. Schedule a call with Jim.
Jim is passionate about promoting diversity and inclusion in the workplace and has a track record of success in implementing effective DEI strategies. He deeply understands the challenges and opportunities that organizations face when building a more diverse and inclusive culture and is skilled at working with leadership teams to develop and execute strategies that drive positive change.
In addition to his work as a DEI expert, Jim is also a sought-after speaker and trainer. He has spoken at conferences and events worldwide, sharing his knowledge and insights on unconscious bias, cultural competency, and inclusive leadership. He also frequently contributes to industry publications, sharing his expertise and thought leadership on DEI best practices.
Jim holds a bachelor's degree in business administration and a master's in organizational development and human resources.
Jim is a highly respected and accomplished DEI expert with a proven track record of helping organizations build more inclusive and equitable cultures.