Black America Needs a “New Normal”: Equitable Access to Credit to Create Wealth | Economic news
Over the past year, the COVID-19 pandemic has imposed a double crisis. More than 542,000 lives of Americans have been lost and continue to rise. At the same time, the ripple effects of a massive economic recession have cost the country 9.5 million jobs – more losses than even the Great Recession, according to the University of New Hampshire. Carsey School of Public Policy.
Although many officials have called for a “return to normalcy,” millions of small businesses and communities need something new instead. In black America in particular, the “old standard” has never provided equitable access to wealth creation opportunities like those that have served much of white America well. 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 country out of health and financial crises, many advocates are calling for a new paradigm: the intentional inclusion of all who have been excluded, stunned and underserved. Recent testimony to Capitol Hill committees has focused on different issues, but led to the same conclusion: the time for change is now.
For example, comments during a confirmation hearing in February Adewale Adeyemo, appointed by President Biden to become Deputy Secretary of the Treasury, the candidate said: “Until we get the pandemic under control, economic policy must remain focused on providing relief to those affected by the public health crisis, especially those that are disproportionately affected: communities and low-income communities. colored. The pandemic has exacerbated inequalities, strained families and exposed the 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.
At the time of going to press, the Senate is due to act on Adeyemo’s appointment. If confirmed, he would become the agency’s resource person to implement the executive order requiring all federal offices to submit diversity and inclusion plans to the Office of Management and Budget. In the meantime, Treasury Secretary Janet Yellen, as reported by The New York Times, has announced plans to invest $ 9 billion in community development finance institutions and Minority deposit-taking institutions as they seek to step up lending.
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 entitled: Justice for all: Achieving racial equity through equitable access to housing and financial services.
Representative Maxine Waters, California Congressman and Chair of the Opening Committee remarks sets the tone for the forum.
“Today we are here to discuss the steps this committee can take to create justice and achieve racial equity through access to equitable housing and financial services … and wherever you are – and who you are – in America or around the world, institutional racism based on skin color creates barriers that impact social and economic outcomes, ”said Ms. Waters.
Witnessing on behalf of the Center for Responsible Lending, Nikitra BaileyThe Executive Vice President recounted the legacy of federal housing policies, the sum of which 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 people 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 two black servicemen.
Fast forward to more recent times, in the early 2000s, half of all mortgages made to black and Latin American families during the run-up to the foreclosure crisis were unsustainable subprime loans – although these consumers have credit history that qualified for more responsible loans.
“As a result of these lending practices,” Bailey testified, “Black and Latin American families lost over $ 1 trillion 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 in the country, a median-income black household could only afford 25 percent of the homes on the market last year, compared to 57 percent that a median-income white household could afford.32 Bold, targeted action will be needed. to reverse these inequalities.
The next day, a House financial services subcommittee called another hearing. Entitled, “Falling through the cracks: Policy options to help American consumers during the pandemic” The session focused on accessing affordable credit or small business capital, debt collection and stained credit, all became inevitable and further compounded the financial disadvantages faced by communities of color.
“Without a safety net or a cushion to fall back on, people of color are much less able to withstand financial calamities,” said Carla Sanchez Adams, Chief Counsel for Texas Rio Grande Legal Aid, Inc. “With fewer assets to draw on, people of color are more prone to poverty traps.”
“Debt collection activity increased in 2020,” continued Sanchez Adams, “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. Problems with our credit reporting system continued and revealed the need to reform consumer information and the way it is reported during a pandemic.… Consumers would benefit from a moratorium on negative delinquency reporting during the pandemic. Scams and frauds have also increased. ”
Speaking on behalf of minority lenders and small businesses, Robert James II, chairman of Carver Development CDE and chairman of the National Bankers Association, highlighted the importance of minority-owned small businesses, lack of access practice at traditional banks as well as shrinking number of minority depositories as matters requiring attention and correction.
“Small minority-owned businesses are the lifeblood of their communities,” said James II. “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 economic output annually. Women own nearly 300,000, employing 2.4 million workers. Despite their importance, these businesses face underlying challenges that make them vulnerable in normal times. ”
“Black-owned businesses, on the whole, also tend to start up with a lot less capital, whether it’s investments or bank loans, than white-owned businesses,” James continued. II. “And only 1% of black business owners get a bank loan in their first year in business, compared to 7% of white business owners. The COVID-19 crisis has exacerbated this problem: 42% of minority-owned small businesses that responded to McKinsey’s survey of small businesses in the United States said getting credit was increasingly becoming difficile, compared to 29% of all respondents.
But credit conditions and a pronounced shortage of accessible credit, according to James II, are also lending terms that must become more inclusive.
“Limited access to credit is an aggravating factor that undermines the underlying health of small minority-owned businesses,” said James II. “Research has shown that black small business owners are much more likely to be asked to provide more information about their personal finances – including personal financial statements and personal W-2 forms – when they ask for information. small business loans that white small business owners. were even controlling the credit rating and characteristics of the business. ”
At the same time, as noted by James II, from 2009 to the second quarter of 2018, nationally, the number of minority depositories (MDIs) increased from 215 to 155. MDIs are also much smaller in assets than the average of non-IDM Bank.
“Black and Hispanic MDIs have average assets of $ 245 million and $ 2.7 billion, respectively,” said James II, “compared to an average of $ 3.1 billion for all US banks.”
“Even before the start of the COVID-19 pandemic, US household debt was on the rise, reaching over $ 14 trillion,” said Ashley harrington, Federal Director of Defense of LCR Interests. “While much of this debt comes from mortgages, an increasing amount comes from non-mortgage consumer debt, including student loans, credit cards, installment loans and auto loans. As people continue to lose their jobs and hours are reduced, and deferred rent payments and other debts fall due, we can expect an increase in delinquencies and defaults on these non-mortgage debts.
Harrington offered a key recommendation to federal lawmakers that could begin to allow consumers to have 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. ”