Banks serve as a financial intermediary accepting customers’ deposits and channeling those deposits into lending activities, primarily by providing loans. Discrimination and segregation has always existed in this country, and some of the most impactful discrimination has been done by banks. Typically, when we think of banking discrimination our thoughts drift to the practice known as “redlining.”
The National Housing Act of 1934 established the Federal Housing Administration. In 1935, the Federal Home Loan Bank Board asked Home Owners’ Loan Corporation (HOLC) to look at 239 cities and create “residential security maps” to indicate the level of security for real-estate investments in each surveyed city. Those neighborhoods deemed the worse were outlined in red on the maps provided by HOLC. The consequences for many minority neighborhoods was being labeled (redlined) as ineligible to receive financing.
The label was based on assumptions about African Americans’ ability to satisfy standard lending criteria. Taken together with racially restrictive covenants put in place to keep African Americans out of white neighborhoods, and the policy meant that African Americans could not secure mortgage loans at all.
The HOLC did not redline in its own lending activities. The discriminatory practice of the policy came from the private lending sector and experts they hired to conduct the appraisals. The end result was a paralyzed housing market in African-American neighborhoods, resulting in lowered property values that led to landlord abandonment. The population fled, and the newly abandoned buildings became havens for drug dealing and other illegal activities.
The Fair Housing Act of 1968 was passed to fight redlining, and the Office of Fair Housing and Equal Opportunity was tasked with administering and enforcing this law. Later came the Community Reinvestment Act of 1977, further requiring banks to apply the same lending criteria in all communities.
Though outlawed in the ‘70s, redlining appears to persist in less overt ways. Locally, African Americans still suffer a disparate impact with respect to accessing banking services. One of the hallmarks attributed to redlining was barriers to accessing mortgage loans; locally, African Americans are 2.4 times more likely to be denied a mortgage than whites.
Access to banking services and products is critical in today’s economy. Having a responsible banking relationship is a game-changer for an individual or family. It could mean the difference between going to college or not going to college.
Employment diversity in banking is also critical. There is not enough emphasis at local banks on hiring and retaining employees with roots in African-American communities. African Americans are underrepresented on bank boards and in senior management. It is critically important that decisions are made by people who live in the community and who will feel the impacts of decisions made by banks.
Banks have a role and responsibility in reviving economic vitality in African-American neighborhoods. As community leaders, we must push for more diversity in the leadership of local banks and fight to eliminate stealthy redlining by banks.
Adolphus Pruitt is president of the St. Louis city branch of the NAACP.
