Brentin Mock is a staff writer at CityLab. He was previously the justice editor at Grist.
According to a new study from New America, African Americans and Latinx incur more bank account costs and fees than whites even when dealing with small financial institutions.
On May 24, a multi-racial gaggle of Congress members wriggled for prime positioning around Donald Trump as he prepared to sign the Economic Growth, Regulatory Relief, and Consumer Protection Act into law. The bill considerably scales back the Dodd-Frank Act reforms passed in 2010 in response to the financial crash and was passed with the votes of 33 Democrats in the House and 17 in the Senate. It essentially frees small community banks and credit unions from many of the Dodd-Frank regulations, including reporting requirements that would help identify racially discriminatory banking practices.
“By liberating small banks from excessive bureaucracy,” said Trump at the signing, “we are unleashing the economic potential of our people.”
It also unleashes a greater potential for small banks to financially burden people of color and people with low incomes. Under Dodd-Frank, banks large and small were subjected to stricter regulatory monitoring, but the new law exempts small banks from much of that oversight. During the Occupy Wall Street protests, many activists pushed for people to close their accounts at large, corporate banks and to, instead, open accounts in smaller community banks and credit unions, under the premise that they are less prone to exploitative banking practices. That reputation is not well deserved, though, according to a study released today on the “Racialized Costs of Banking” by the D.C.-based think tank New America.
Analyzing data collected from surveys from over 1,300 financial institutions, the study finds that community banks—or “Main St. banks,” as they’re identified in the report—also discriminate against black and Latinx customers, particularly when it comes to the fees associated with opening, maintaining, and closing checking accounts. Not only that, but the relationship-based character that neighborhood banks often sell themselves on—where bank staff use discretionary power to assess or waive fees and penalties based on their relationship with the customer—has been a driving force for discrimination at the teller window.
For example, the study finds that overdraft fees are higher in banks located in predominantly black and Latinx neighborhoods when compared with the overdraft fees assessed in white communities. Not only that, but banks in black and Latinx neighborhoods are more likely to use credit-screening agencies for opening accounts than they are in white neighborhoods.
Other findings from the report:
- Banks in predominantly African-American neighborhoods require higher opening deposit charges for starting a basic checking account.
- The average minimum balance needed to maintain a checking account without incurring fees is $625.50 in majority-white neighborhoods. In Latinx neighborhoods, it’s $748.80. In black neighborhoods it’s $870.50. In some non-white neighborhoods it’s $957.10.
- Because of racial wealth and income gaps in the U.S., people of color end up needing to deposit a higher percentage of their paychecks into their checking accounts to avoid fees or closure. African Americans and Latinx Americans usually have to deposit 6 percent of their take-home checks, on average. For whites banking, that amount is only 3 percent of their checks.
There is essentially a tax on being black and brown when banking in America no matter the size of the financial institution. Segregation only exacerbates that tax, according to the study. We know that in cities like Atlanta, segregation allows for shady payday loan and check-cashing counters to be concentrated in black neighborhoods. These maps created for a prior New America study on where financial institutions are located, show what that looks like in other cities.
The red dots in the first map are alternative services like check-cashing counters, the shading in the second two maps shows where minority and low-income residents are concentrated.
According to the “Racialized Costs of Banking” study, segregation also ends up costing people of color when they use the traditional banks in their neighborhoods. For black people, that means paying, on average, $190 more in costs and fees for maintaining checking accounts than do whites. Latinx pay an average of $262 more in costs when banking.
These are not marginal expenses, especially for those on the lower ends of the payscale who have far less disposable income to work with. As the study’s authors write, “These practices powerfully illustrate how banks can engage in racially discriminatory practices that effectively siphon wealth out of communities of color through the very financial products and services that are considered to be tools for wealth and investment.”