The Justice Department has secured $122 million from a dozen banks and mortgage companies in redlining cases since Attorney General Merrick Garland announced the agency’s Combat Redlining Initiative in 2021.
Haiyun Jiang/Bloomberg
When the Justice Department alleged last year that American Bank of Oklahoma had engaged in redlining, emails containing racial slurs became a focal point of the allegations. One bank executive forwarded an email that proclaimed “Proud to be White!” and used the “N word” in its entirety and other racial slurs.
In another separate redlining case against Trident Mortgage, the Justice Department described how loan officers, assistants and other employees received and distributed emails containing racial slurs and content that used racial tropes and terms. The communications sent on work emails included a photo showing a senior loan officer posing with colleagues in front of a Confederate flag, and pejorative content related to real estate and appraisals and content targeting people living in majority-minority neighborhoods. Trident, which is owned by Warren Buffet’s Berkshire Hathaway, settled the DOJ’s complaint in 2022 for $24 million.
Since the Justice Department launched its Combatting Redlining Initiative in late 2021, racist emails have received more attention from both the DOJ and the Consumer Financial Protection Bureau in an effort to show racial bias has permeated a company’s culture.
Discriminatory emails on their own have not been used to allege redlining. Rather they are combined with key lending statistics that show how lenders compare with their peers in making loans in minority communities and whether a lender has avoided locating branches or hiring loan officers in minority communities. All of that, taken together, is then used to show intentional discrimination.
In some cases the emails help regulators differentiate among lenders that are not providing equal access to credit.
Banks rarely push back against redlining claims and typically choose to settle such cases, often citing the cost and distraction of protracted litigation as the reasons for reaching an agreement with authorities. But some legal experts say that financial institutions have little control if a racist email is sent to an employee from outside a company. A distinction is being made when discriminatory emails are sent by a company’s employees, or are forwarded to others even without comment.
“Holding a company accountable for an employee’s views or statements, even when those statements are inconsistent with the company’s values and culture, places a burden on that company to censor its employees to avoid the risk of being branded as a discriminatory lender,” said Andrea Mitchell, managing partner at Mitchell Sandler, who represented American Bank of Oklahoma.
“There are limits on an employer’s ability to prevent staff from receiving racially insensitive emails or sharing personal views to exercise their right to freedom of expression,” she added.
Still, legal experts are quick to point out that discrimination is against the law. Employees have no First Amendment rights to assert when using a company’s communication system.
“If there are racist jokes or an employee saying they’re proud to be white, they’re not going to have much of a case on free speech grounds because no one is punishing the employee for saying it. They’re just using it as evidence to bolster claims of discriminatory intent,” said David E. Bernstein, a law professor at George Mason University School of Law.
Lisa Rice, president and CEO of the National Fair Housing Alliance, recalled working at the Toledo Fair Housing Center nearly two decades ago and routinely sending requests for emails, text messages and audio and video recordings that included a list of specific racial slurs.
“We’ve always been able to use public statements, verbal or written, as evidence in fair housing and fair lending cases,” said Rice. “You can request for emails to be turned over and those emails can be used as evidence and as evidence of discrimination. And they might even be used as evidence of discriminatory intent.”
She added that regulators “may not have gone full throttle” in using emails in the past to bolster claims of intentional discrimination.
To be clear, racist emails are found in a minority of redlining cases currently being brought by the DOJ.
Though searching hundreds of thousands of emails or texts is a ponderous task, sophisticated tools, including those that utilize artificial intelligence, can make it much easier to root out racist terms. In some cases there may be just a handful of racist emails out of hundreds of thousands.
“This is old-school redlining using new techniques,” said Ken Thomas, president of Community Development Fund Advisors and an expert on the Community Reinvestment Act, which requires that banks lend to low- and moderate-income communities. Among the LMI population, about 60% are minorities, he said.
If there are racist jokes or an employee saying they’re proud to be white, they’re not going to have much of a case on free speech grounds because no one is punishing the employee for saying it. They’re just using it as evidence to bolster claims of discriminatory intent.
David E. Bernstein, professor at George Mason University School of Law
Thomas said regulators are searching for the digital-age equivalent of a smoking gun.
“They are checking emails, Instagram and text messages, looking across the board at all communications, period,” said Thomas. “It’s more than a smoking gun. It’s a gun with fingerprints and blood stains on it.”
Bernstein agreed, adding that the emails typically are used as supplementary evidence to get a bank or lender to agree to a settlement rather than have a case go to trial.
“Some of the emails may actually signal a racially charged environment where you wouldn’t really trust the people not to be discriminatory and some may just be from a few adolescent-types sending silly or stupid jokes that they really shouldn’t be sending, but either way it’s not gonna look good to a jury or the public,” he said. “If it ever got to a jury, the government says, ‘Look, here are these five emails that show the racist environment people are working in.’ That’s a very effective tactic.”
Since Attorney General Merrick Garland announced the Combat Redlining Initiative in 2021, the department has secured over $122 million from 12 banks and mortgage lenders to resolve redlining allegations. The Justice Department is working with its civil rights division and U.S. attorneys’ offices in coordination with the Office of the Comptroller of the Currency and the CFPB. Garland has said the DOJ has 25 redlining cases in its pipeline.
Garland has spoken about how lenders are breaking the law by redlining and he has put a priority on cracking down on lenders to redress past wrongs. He also has highlighted how the gap in homeownership rates is wider today than in the 1960s. The homeownership rate for whites currently is 74% compared with 45% for Blacks, a 29-point gap, according to the U.S. Census Bureau. In 1960, the homeownership rate was 65% for whites and 38% for Blacks, a 27-point gap.
The gap in homeownership is wider now than before the passage of the Fair Housing Act of 1968, which bans discrimination in home lending. That’s the law that the DOJ typically uses to bring discrimination cases against lenders. Additionally, the CFPB has jurisdiction over the Equal Credit Opportunity Act, which prohibits discrimination in any aspect of a credit transaction.
“Redlining remains a persistent form of discrimination that harms minority communities,” Garland said at a news conference in 2021, when the DOJ first announced its redlining initiative.
He also has stated that “redlining is a practice from a bygone era, runs contrary to the principles of equity and justice, and has no place in our economy today.”
Rice said that the increase in redlining cases suggests that lenders need more training in compliance management and fair lending.
“Every single year the federal regulatory agencies conduct fair lending training and HUD provides all kinds of training on best practices in fair housing to learn about what are the best practices and what you should and shouldn’t do,” she said.
Still, some experts have voiced concerns that incendiary emails have become a centerpiece of some fair lending investigations.
“Federal regulators have effectively investigated and pursued redlining claims for decades without the need for combing through emails and text messages that are entirely unrelated to lending and branching,” said Mitchell, the attorney for American Bank of Oklahoma.
She also suggests banks push back against claims that are false and inflammatory or that harm a bank’s reputation.
In the case of American Bank of Oklahoma, the Justice Department made a reference in a complaint filed with the courts to the 1921 Tulsa Race Massacre in which white rioters killed as many as 300 people, according to some accounts. The tragedy destroyed the city’s Black business district called the Greenwood District.
The $313 million-asset bank in Collinsville, Oklahoma, vehemently objected to any link between the current redlining allegations against it and the massacre given that the bank was founded in 1998 — nearly 80 years after the massacre occurred. A magistrate judge sided with the bank, and struck the two paragraphs from the complaint that mentioned the massacre. The rest of the order remained intact.
There also is a concern that the use of racist emails has the e ect of branding a company as racist even as settlement agreements require that lenders build relationships and extend credit in minority communities.
In the case of American Bank of Oklahoma, its settlement requires it to lend $1 million in Black and Hispanic communities in Tulsa.
“There’s obviously all sorts of unintended consequences,” said Bernstein, the law professor at George Mason University.
“It’s an interesting paradox. We’re going to announce you’re racist and said now go lend to people who we just told shouldn’t trust you. They’re making it much harder for these companies to lend and get people to borrow from them, or to recruit members of minority groups on their staff,” he added.
The Jefferson Avenue commercial district in Buffalo, New York, is anchored by a supermarket.
There are dozens of other businesses and services along the 12-block corridor — a couple of bank branches, a library, a coffee shop, gas stations, a small plaza with a dollar store and a primary care clinic and a business incubator for entrepreneurs of color.
But Tops Friendly Markets, the only grocery store on Buffalo’s vast East Side, is the center of activity. More than just a place to buy food, pick up medications and use an ATM, the store is a communal gathering space in a predominantly Black neighborhood that, for generations, has been segregated, isolated and disenfranchised from the wealthier — and whiter — parts of the city.
Which explains how it came to be the site of a mass shooting on a spring day in May of last year. On that Saturday, a gunman, who lived 200 miles away in another part of the state, drove to Jefferson Avenue and went into Tops, and in just a few minutes killed 10 people, injured three and inflicted mass trauma across the community.
It is a scenario that has sadly, and repeatedly, played out in other parts of the country that have experienced mass shootings. But this one came with a twist: The gunman’s intention was to kill as many Black people as possible.
To achieve that, he specifically targeted a ZIP code with one of the highest percentages of Black residents in New York state. All 10 who died that day were Black.
“The mere fact that someone can research, ‘Where will the greatest number of Black people be … on a Saturday morning,’ that’s not by chance,” said Franchelle Parker, a community organizer and executive director of Open Buffalo, a nonprofit focused on racial, economic and ecological justice. “That’s not a mistake. It’s a community that’s been deeply segregated for decades.”
The day of the shooting, Parker, who grew up in nearby Niagara Falls, was driving to Tops, where she planned to buy a donut and an unsweetened iced tea before heading into the Open Buffalo office, which is located a block away from Tops. The mother of two had intended to complete the mundane task of cleaning up her desk — “old coffee cups and stuff” — after a busy week.
Franchelle Parker, executive director of Open Buffalo, stands in front of a mural that was created after the May 14, 2022, shooting at Tops Friendly Markets in Buffalo, New York.
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She saw the news on Twitter and didn’t know if she should keep driving to Jefferson Avenue or turn around and go back home. She eventually picked the latter.
When she showed up the next day, there were thousands of people grieving in the streets. “The only way that I could explain my feeling, it was almost like watching an old war movie when a bomb had gone off and someone’s in, like, shell shock. That’s how it felt,” said Parker, vividly recounting the community’s collective trauma in a meeting room tucked inside of Open Buffalo’s second-story office on Jefferson Avenue.
Almost immediately following the May 14, 2022, massacre, which was the second-deadliest mass shooting in the United States last year, conversations locally and nationally turned to the harsh realities of the East Side and how long-standing factors that affect the daily life of residents — racism, poverty and inequity — made the community an ideal target for a white supremacist.
Now, more than a year after the tragedy, there is growing concern that not enough is being done fast enough to begin to dismantle those factors. And amid those conversations, there are mounting calls for the banking industry — whose historical policies and practices helped cement the racial segregation and disinvestment that ultimately shaped the East Side — to leverage its collective power and influence to band together in an effort to create systemic change.
The ideas about how banks should support the East Side and better embed themselves in the neighborhood vary by people and organizations. But the basic argument is the same: Banks, in their role as financiers and because of the industry’s history of lending discrimination, are obligated to bring forth economic prosperity in disinvested communities like the East Side.
I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.
Chiwuike Owunwanne, corporate responsibility officer at KeyBank
“Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that,” said The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity, a four-year-old enterprise focused on racial, geographic and economic health disparities. “But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.”
To be sure, banks’ ability to reverse the course of the community isn’t guaranteed — and there is no formula to determine how much accountability they should hold to fix deeply entrenched problems like racism. Several Buffalo-area bankers said that while the Tops shooting heightened the urgency to help the East Side, the industry itself cannot be the sole driver of change.
“There are a lot of institutions … that can certainly play a part in reversing the challenges that we see today,” said Chiwuike “Chi-Chi” Owunwanne, a corporate responsibility officer at KeyBank, the second-largest bank by deposits in Buffalo. “I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.”
This federal underwriting map from 1937 shows how redlining worked. Neighborhoods that were predominantly minority were given the lowest ratings, which were color coded red.
Residential Security Map Buffalo N.Y. City Survey File. Record Group 195. National Archives II College Park MD. Image courtesy of Carl Nightingale.
A long history of segregation
How the East Side — and the Tops store on Jefferson Avenue — became the destination for a racially motivated mass murderer is a story about racism, segregation and disinvestment.
Even as it bears the nickname “the city of good neighbors,” Buffalo has long been one of the most racially segregated cities in the United States. Of the 114,965 residents who live on the East Side, 59% are Black, according to data from the 2021 U.S. Census American Community Survey. The percentage is even higher in the 14208 ZIP code, where the Tops store is located. In that ZIP code, among 11,029 total residents, nearly 76% are Black, the census data shows.
The city’s path toward racial segregation started in the early 20th century when a small number of job-seeking Black Americans migrated north to Buffalo, a former steel and auto manufacturing hub at the far northwestern end of New York state. Initially, they moved into the same neighborhoods as many of the city’s poorer immigrants and lived just east of what is today the city’s downtown district. As the number of Blacks arriving in Buffalo swelled in the 1940s, they were increasingly confronted with various housing challenges, including racist zoning laws and restrictive deed covenants that kept them from buying homes in more affluent white areas.
Black Buffalonians also faced housing discrimination in the form of redlining, the practice of restricting the flow of capital into minority communities. In 1933, as the Great Depression roiled the economy, a temporary federal agency known as the Home Owners’ Loan Corporation used government bonds to buy out and refinance mortgages of properties that were facing or already in foreclosure. The point was to try to stabilize the nation’s real estate market.
“I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this,” said Chiwuike Owunwanne, a corporate responsibility officer at KeyBank.
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As part of its program, HOLC created maps of American cities, including Buffalo, that used a color coding scheme — green, blue, yellow and red — to convey the perceived riskiness of making loans in certain neighborhoods. Green was considered minimally risky; other areas that were largely populated by immigrant, Black or Latino residents were labeled red and thus determined to be “hazardous.”
“The goal was to free up mortgage capital by going to cities and giving banks a way to unload mortgages, so they could turn around and make more mortgage loans,” said Jason Richardson, senior director of research at the National Community Reinvestment Coalition, an association of more than 750 community-based organizations that advocates for fair lending. “It was kind of a radical concept and it has evolved over the decades into our modern mortgage finance system.”
The Federal Housing Administration, which was established as a permanent agency in 1934, used similar methods to map urban areas and labeled neighborhoods from “A” to “D,” with “A” considered to be the most financially stable and “D” considered the least. Neighborhoods that were largely Black, even relatively stable ones, were put in the “D” category.
The result was that banks, which wanted to be able to sell mortgage loans to the FHA, were largely dissuaded from making loans in “risky” areas. And Buffalo’s East Side, where the majority of Blacks were settling, was deemed risky. Unable to get loans, Blacks couldn’t buy homes, start businesses or build equity. At the same time, large industrial factories on the East Side were closing or moving away, limiting job opportunities and contributing to rising poverty levels.
“Today what we’re left with is the residue of this process where we’ve enshrined … a pattern of economic segregation that favors neighborhoods that had fewer Black people in them and generally ignores neighborhoods that had African Americans living in them,” Richardson said.
Case in point: Research by the National Community Reinvestment Coalition shows that three-quarters of neighborhoods that were once redlined are low- to moderate-income neighborhoods today, and two-thirds of them are majority minority communities.
Adding to the division between Blacks and whites in Buffalo was the construction of a highway called the Kensington Expressway. Built during the 1960s, the below-grade, limited-access highway proved to be a speedy way for suburban workers to get to their downtown jobs. But its construction cut off the already-segregated East Side even more from other parts of the city, displacing residents, devaluing houses and destroying neighborhoods and small businesses.
As a result of those factors and more, many Black residents have become “trapped” on the East Side, according to Dr. Henry Louis Taylor Jr., a professor of urban and regional planning at the University at Buffalo. In 1987, Taylor founded the UB Center for Urban Studies, a research, neighborhood planning and community development institute that works on eliminating inequality in cities and metropolitan regions. In September 2021, eight months before the Tops shooting, the Center for Urban Studies published a report that compared the state of Black Buffalo in 1990 to present-day conditions. The conclusion: Nothing had changed for Blacks over 31 years.
As of 2019, the Black unemployment rate was 11%, the average household income was $42,000 and about 35% of Blacks had incomes that fell below the poverty line, the report said. It also noted that just 32% of Blacks own their homes and that most Blacks in the area live on the East Side.
“Those figures remain virtually unchanged while the actual, physical conditions that existed inside of the community worsened,” Taylor told American Banker in an interview in his sun-filled office at the center, located on the University at Buffalo’s city campus. “When we looked upstream to see what was causing it, it was clear: It was systemic, structural racism.”
Last fall, BankOnBuffalo launched a mobile bank on wheels truck that’s stationed on the East Side every Wednesday. Michael Noah, president of BankOnBuffalo, said that the shooting at Tops Friendly Markets “cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up.”
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Banks’ moral obligations
As the East Side struggled over the decades with rampant poverty, dilapidated housing, vacant lots and disintegrating infrastructure, banks kept a physical presence in the community, albeit a shrinking one. In mid-2000, there were at least 20 bank branches scattered across the East Side, but by mid-2022, the number had fallen to around 14, according to the Federal Deposit Insurance Corp.’s deposit market share data. The 14 include four new branches that have opened since early 2019 — Northwest Bank, KeyBank, Evans Bank and BankOnBuffalo.
The first two branches, operated by Northwest in Columbus, Ohio, and KeyBank, the banking subsidiary of KeyCorp in Cleveland, were requirements of community benefits agreements negotiated between each bank and the National Community Reinvestment Coalition. In both cases, Northwest and KeyBank agreed to open an office in an underserved community.
Evans Bank opened its first East Side branch in the fall of 2021. The office is located in the basement of an $84 million affordable senior housing building that was financed by Evans, a $2.1 billion-asset community bank headquartered south of Buffalo in Angola, New York.
Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that. But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.
The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity
On the community and economic development front, banks have had varying levels of participation. Buffalo-based M&T Bank, which holds a whopping 64% of all deposits in the Buffalo market and is one of the largest private employers in the region, has made consistent investments in the East Side by supporting Westminster Community Charter School, a kindergarten through eighth-grade school, and the Buffalo Promise Neighborhood, a nonprofit organization focused on improving access to education in the city’s 14215 ZIP code.
Currently, Buffalo Promise Neighborhood operates four schools. In addition to Westminster, it runs Highgate Heights Elementary, also K-8, as well as two academies that serve children ages six weeks through pre-kindergarten. Twelve M&T employees are dedicated to the program, according to the Buffalo Promise Neighborhood website. The bank has invested $31.5 million into the program since its 2010 launch, a spokesperson said.
Other banks are making contributions in other ways. In addition to the Jefferson Avenue branch and as part of its community benefits plan, Northwest Bank, a $14.2 billion-asset bank, supports a financial education center through a partnership with Belmont Housing Resources of Western New York. Meanwhile, the $198 billion-asset KeyBank gave $30 million for bridge and construction financing for Northland Workforce Training Center, a $100 million redevelopment project at a former manufacturing complex on the East Side that was partially funded by the state.
BankOnBuffalo’s East Side branch is located inside the center, which offers KeyBank training in advanced manufacturing and clean energy technology careers. A subsidiary of $5.6 billion-asset CNB Financial in Clearfield, Pennsylvania, BankOnBuffalo’s office opened a month after the shooting. The timing was coincidental, but important, said Michael Noah, president of BankOnBuffalo.
“I think it just cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up,” Noah said.
In terms of public-private collaboration, some banks have been involved in a deeper way. In 2019, New York state, which had already been pouring $1 billion into Buffalo to help revitalize the economy, announced a $65 million economic development fund for the East Side. The initiative is focused on stabilizing neighborhoods, increasing homeownership, redeveloping commercial corridors including Jefferson Avenue, improving historical assets, expanding workforce training and development and supporting small businesses and entrepreneurship.
In conjunction with the funding, a public-private partnership called East Side Avenues was created to provide capital and organizational support to the projects happening along four East Side commercial corridors. Six banks — Charlotte, North Carolina-based Bank of America, the second-largest bank in the nation with $2.5 trillion of assets; M&T, which has $203 billion of assets; KeyBank; Warsaw, New York-based Five Star Bank, which has about $6 billion of assets; Northwest and Evans — are among the 14 private and philanthropic organizations that pledged a combined $8.4 million to pay for five years’ worth of operational support, governance and finance, fundraising and technical assistance to support the nonprofits doing the work.
Laura Quebral, director of the University at Buffalo Regional Institute, which is managing East Side Avenues, said the banks were the first corporations to step up to the request for help, and since then have provided loans and other products and education to keep the program moving.
Their participation “is a signal to the community that banks cared and were invested and were willing to collaborate around something,” Quebral said. “Being at the table was so meaningful.”
Richard Hamister is Northwest’s New York regional president and former co-chair of East Side Avenues. Hamister, who is based in Buffalo, said banks are a “community asset” that have a responsibility to lift up all communities, including those where conditions have arisen that allow it to be a target of racism like the East Side.
“We operate under federal charters, so we have an obligation to the community to not only provide products and services they need but also support when you go through a tragedy like that,” Hamister said. “We also have a moral obligation to try to help when things are broken … and to do what we can. We can’t fix everything, but we’ve got to fix our piece and try to help where we can.”
Allison Dehonney, founder of Buffalo Go Green, distributes strawberries at the Delavan-Grider Farmers’ Market. For a second year, KeyBank is sponsoring the event in the East Side as an attempt to help fill the food desert there. The community’s only grocery store, Tops Friendly Markets, was the site of the mass shooting last year.
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In the wake of a tragedy
After the massacre, there was a flurry of activity within banks and other organizations, local and out-of-town, to respond to the immediate needs of East Side residents. With the community’s only supermarket closed indefinitely, much of the response centered around food collection and distribution. Three of M&T’s five East Side branches, including the Jefferson Avenue branch across the street from Tops, became food distribution sites for weeks after the shooting. On two consecutive Fridays, Northwest provided around 200 free lunches to the community, using a neighborhood caterer who is also the bank’s customer. And BankOnBuffalo collected employee donations that amounted to more than 20 boxes of toiletries and other items that were distributed to a nonprofit.
At the same time, M&T, KeyBank and other banks began financial donations to organizations that could support the immediate needs of the community. KeyBank provided a van that delivered food and took people to nearby grocery stores. Providence, Rhode Island-based Citizens Financial Group, whose ATM inside Tops was inaccessible during the store’s temporary closure, installed a fee-free ATM near a community center located about a half-mile north of Tops, and later put a permanent ATM inside the center that remains there today. And M&T rolled out a short-term loan program to provide capital to East Side small-business owners.
One of the funds that benefited from banks’ support was the Buffalo Together Community Response Fund, which has raised $6.2 million to address the long-term needs of the East Side.
Bank of America and Evans Bank each donated $100,000 to the fund, whose list of major sponsors includes four other banks — JPMorgan Chase, Citigroup, M&T and KeyBank. Thomas Beauford Jr., a former banker who is co-chair of the response fund, said banks, by and large, directed their resources into organizations where the dollars would have an immediate impact.
“Banks said, ‘Hey, you know … it doesn’t make sense for us to try to build something right now. … We will fund you in the work you’re doing,’” said Beauford, who has been president and CEO of the Buffalo Urban League since the fall of 2020. “I would say banks showed up in a big way.”
Fourteen months later, banks say they are committed to playing a positive role on the East Side. For the second year, KeyBank is sponsoring a farmers’ market on the East Side, an attempt to help fill the food desert in the community. Last fall, BankOnBuffalo launched a mobile “bank on wheels” truck that’s stationed on the East Side every Wednesday. The 34-foot-long truck, which is staffed by two people and includes an ATM and a printer to make debit cards, was in the works before the shooting, and will eventually make four stops per week around the Buffalo area.
Evans has partnered with the city of Buffalo to construct seven market-rate single family homes on vacant lots on the East Side. The relationship with the city is an example of how banks can pair up with other entities to create something meaningful and lasting, more than they might be able to do on their own, said Evans President and CEO David Nasca.
The bank has “picked areas” where it can use its resources to make a difference, Nasca said.
“I don’t think the root causes can be ameliorated” by banks alone, he said. “We can’t just grant money. It has to be within our construct of a financial institution that invests and supports the public-private partnership. … All the oars [need to be] pulling together or this doesn’t work.”
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, according to a 2022 report from the group.
Bloomberg News
‘Little or no engagement with minorities’
All of these efforts are, of course, welcomed by the community, but there is still criticism that banks haven’t done enough to make up for their past contributions to segregating the city. And perhaps more importantly, some of that criticism centers on banks failing to do their most basic function in society — provide credit.
In 2021, the New York State Department of Financial Services issued a report about redlining in Buffalo. The regulator looked at banks and nonbank lenders and found that loans made to minorities in the Buffalo metro area made up 9.74% of total loans in Buffalo. Overall, Black residents comprise about 33% of Buffalo’s total population of more than 276,000, census data shows.
The department said its investigation showed the lower percentage was not due to “excessive denials of loan applications based on race or ethnicity,” but rather that “these companies had little or no engagement with minorities and generally made scant effort to do so.”
“The unsurprising result of this has been that few minority customers or individuals seeking homes in majority-minority neighborhoods have made loan applications … in the first instance.”
Furthermore, accusations of redlining persist today, even though the practice of discriminating in housing based on race was outlawed by the Fair Housing Act of 1968.
In 2014, Evans was accused of redlining by the New York State Attorney General, which said the community bank was specifically avoiding making mortgage loans on the East Side. The bank, which at the time had $874 million of assets, agreed to pay $825,000 to settle the case, but Nasca maintains that the charges were unfounded. He points to the fact that the bank never had a fair lending or fair housing violation, no specific incidents were ever claimed and that the bank’s Community Reinvestment Act exam never found evidence of discriminatory or illegal credit practices.
The bank has a greater presence on the East Side today, but that’s because it has grown in size, not because it is trying to make up for previous accusations of redlining, he said.
“Ten years ago, our involvement [on the East Side] certainly wasn’t what you’re seeing today,” Nasca said. “We were looking to participate more, but we were participating within our means and our reach. As we have grown, we have built more resources to be able to do more.”
Shortly after accusations were made against Evans, Five Star Bank, the banking arm of Financial Institutions in Warsaw, New York, was also accused of redlining by the state Attorney General. Five Star, which has been growing its presence in the Buffalo market for several years, wound up settling the charges for $900,000 and agreeing to open two branches in the city of Rochester.
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. In a 2022 report, the group said that KeyBank is engaging in systemic redlining by making very few home purchase loans in certain neighborhoods where the majority of residents are Black. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, the report said.
KeyBank denied the allegations. In March, the coalition asked regulators to investigate the bank’s mortgage lending practices.
Beyond providing more credit, some community members believe that banks should be playing a larger role in addressing other needs on the East Side. And the list of needs runs the gamut from more grocery stores to safe, affordable housing to infrastructure improvements such as street and sidewalk repairs.
Alexander Wright is founder of the African Heritage Food Co-op, an initiative launched in 2016 to address the dearth of grocery store options on the East Side, where he grew up. Wright said that while banks’ philanthropic efforts are important, banks in general “need to be in a place of remediation” to fix underlying issues that the industry, as a whole, helped create. (After publication of this story, Wright left his job as CEO of the African Heritage Food Co-Op.)
Aside from charitable donations, banks should be finding more ways to work directly with East Side business owners and entrepreneurs, helping them with capital-building support along the way, Wright said. One place to start would be technical assistance by way of bank volunteers.
“Banks are always looking to volunteer. ‘Hey, want to come out and paint a fence? Want to come out and do a garden?’” Wright said. “No. Come out here and help Keshia with bookkeeping. Come out here and do QuickBooks classes for folks. Bring out tax experts. Because these are things that befuddle a lot of small businesses. Who is your marketing person? Bring that person out here. Because those are the things that are going to build the business to self-sufficiency.
“Anything short of the capacity-building … that will allow folks to rise to the occasion and be self-sufficient I think is almost a waste,” Wright added. “We don’t need them to lead the plan. What we need them to do is be in the community and [be] hearing the plan and supporting it.”
Franchelle Parker, a community organizer and executive director of Open Buffalo.
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Parker, of Open Buffalo, has similar thoughts about the role that banks should play. One day, soon after the massacre, an ATM appeared down the street from Tops, next to the library that sits across the street from Parker’s office. Soon after the ATM was installed, Parker began fielding questions from area residents who were skeptical of the machine and wanted to know if it was legitimate. But Parker didn’t have any information to share with them. “There was no outreach. There was no community engagement. So I’m like, ‘Let me investigate,’” she said. “I think that’s a symptom of how investment is done in Black communities, even though it may be well-intentioned.”
As it turns out, the temporary ATM belonged to JPMorgan Chase. The megabank has had a commercial banking presence in Buffalo for years, but it didn’t operate a retail branch in the region until last year. Today it has four branches in operation and plans to open another two by the end of the year, a spokesperson said.
After the Tops shooting, the governor’s office reached out to Chase asking if the bank could help in some way, the spokesperson said in response to the skepticism. The spokesperson said that while the Chase retail brand is new to the Buffalo region, the company has been active in the market for decades by way of commercial banking, private banking, credit card lending, home lending and other businesses.
In addition to the ATM, the bank provided funding to local organizations including FeedMore Western New York, which distributes food throughout the region.
“We are committed to continuing our support for Buffalo and helping the community increase access to opportunities that build wealth and economic empowerment,” the spokesperson said in an email.
In the year since the massacre, there has been some progress by banks in terms of their interest in listening to the East Side community and learning about its needs, said Nicholas. But he hasn’t felt an air of urgency from the banking community to tackle the issues right now.
“I do experience banks being a little more open to figuring out what their role is, but it’s slow. It’s slow,” said Nicholas. The senior pastor of the Lincoln Memorial United Methodist Church, located about a mile north from Tops, Nicholas is part of a 13-member local advisory committee for the New York arm of Local Initiatives Support Coalition, or LISC. The group is focused on mobilizing resources, including banks, to address affordable housing in Western New York, specifically in the inner city, as well as training minority developers and connecting them to potential investors, Nicholas said.
Of the 13 members, seven are from banks — one each from M&T, Bank of America, BankOnBuffalo, Evans and KeyBank, and two members from Citizens Financial Group. One of the priorities of LISC NY is health equity, and the fact that banks are becoming more engaged in looking at health disparities is promising, Nicholas said. Still, they have more work to do, he said.
Deja Griffin, an associate at BankOnBuffalo, sets up inside the institution’s bank on wheels. The 34-footlong truck, which is staffed by two people and includes an ATM and a printer to make debit cards, will eventually make four stops per week around the Buffalo area.
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“I need them to think more on how to strengthen and build the economy on the East Side and provide leadership around that, not only to provide charitable things, but using sound business and banking and community development principles to say, ‘OK, if we’re going to invest in this community, these are the types of things that need to happen in this community,’ and then encourage their partners and other people they work with … to come fully in on the East Side.”
Some bankers agree with the community activists.
“Putting a branch in is great. Having a bank on wheels is great,” said Noah of BankOnBuffalo. “But if you’re not embedded in the community, listening to the community and trying to improve it, you’re not creating that wealth and creating a better lifestyle for everyone.”
What could make a substantial difference in terms of banks’ impact on the community is a combination of collaboration and leadership, said Taylor. He supports the idea of banks leading the charge on the creation of a comprehensive redevelopment and reinvestment plan for the East Side, and then investing accordingly and collaboratively through their charitable foundations.
“All of them have these foundations,” Taylor said. “You can either spend that money in a strategic and intentional way designed to develop a community for the existing population, or you can spend that money alone in piecemeal, siloed, sectorial fashion that will look good on an annual report, but won’t generate transformational and generational changes inside a community.”
Banks might be incentivized to work together because it could mean two things for them, according to Taylor: First, they’d have an opportunity to spend money in a way that would have maximum impact on the East Side, and second, if done right, the city and the banks could become a model of the way to create high levels of diversity, equity and inclusion in an urban area.
“If you prove how to do that, all that does is open up other markets of consumption all over the country because people want to figure out how to do that same thing,” Taylor said.
Some of that is already happening, at least on a bank-by-bank case, said KeyBank’s Owunwanne. Through the KeyBank Foundation, the company is able to leverage different relationships that connect nonprofits to other entities and corporations that can provide help.
“I see this as an opportunity for us to make not just incremental changes, but monumental changes … as part of a larger group,” Owunwanne said “Again, I say that not to absolve the bank of any responsibility, but just as a larger group.”
Downstairs from Parker’s office, Golden Cup Coffee, a roastery and cafe run by a husband and wife team, and some other Jefferson Avenue businesses are trying to build up a business association for existing and potential Jefferson-area businesses. Parker imagined what the group could accomplish if one of the banks could provide someone on a part-time basis to facilitate conversations, provide administrative support and coordinate marketing efforts.
“In the grand scheme of things, when we’re talking about a multimillion dollar [bank], a part-time employee specifically dedicated to relationship-building and building out coalitions, it sounds like a small thing,” Parker said. “But that’s transformational.”
In response to allegations of redlining, KeyBank said it does not discriminate or make lending decisions based on customers’ race. The bank also said that it recently launched a special purpose credit program that provides affordable terms to eligible homeowners who want to refinance their mortgages.
Joe Buglewicz/Bloomberg
More than 80 community development and fair-lending groups are calling on federal regulators to investigate KeyBank’s mortgage lending practices for alleged redlining.
The National Community Reinvestment Coalition is leading the groups, which are also asking regulators to downgrade the bank’s Community Reinvestment Act rating — a move that would prevent it from merging or opening new branches until it receives a higher rating on a future exam.
The groups also want the regional bank’s regulators to examine how well it complied with commitments it made in a $16.5 billion community benefits agreement that it negotiated as part of its 2016 acquisition of First Niagara Financial Group.
Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, wrote in a blog post Thursday that Key’s CRA rating should be lowered based on “flagrant violations of commitments it made” as it sought approval to buy First Niagara.
“When a bank breaks promises, the law says there are consequences, and it’s our government’s job to enforce that accountability,” Van Tol wrote.
The groups’ demands were outlined in a March 31 letter to the Federal Reserve and the Office of the Comptroller of the Currency. The letter was made public on Thursday.
In a November 2022 report, the National Community Reinvestment Coalition was highly critical of Key’s mortgage lending record to Black borrowers. Two months later, the community reinvestment group warned that it would take its concerns to regulators ahead of Key’s next scheduled CRA exam period, which was set to begin on April 1.
The 2022 report, which is based on Home Mortgage Disclosure Act data, included several troubling findings. Of the nation’s 50 largest mortgage lenders, Key had the lowest percentage of mortgage originations to Black borrowers in 2021, and it ranked near the bottom in terms of the percentage of originations to minority borrowers, according to the report.
The report accused KeyBank, which is the banking subsidiary of Cleveland-based KeyCorp, of engaging in systemic redlining by making very few home purchase loans in certain neighborhoods where the majority of the residents are Black.
Key currently has a CRA rating of “outstanding,” the highest possible score in a four-tiered ratings system. It has received 10 consecutive “outstanding” ratings from the OCC since 1977, when the Community Reinvestment Act was enacted, a Key spokesperson said Thursday.
KeyBank’s most recent “outstanding” rating was “the wrong call,” Van Tol wrote in the blog post.
His group wants regulators to conduct a review of the integrity of the community development data submitted during Key’s previous CRA exam period.
“They promised to use their merger with First Niagara to buoy the economic interests of under-resourced communities, then turned around and did the opposite in most of the cities they serve — all while passing the new profits from the merger on to shareholders and insiders,” Van Tol wrote. “Regulators have an obvious duty to act, not only for the communities KeyBank hoodwinked but also to show the industry as a whole that this kind of conduct is not okay.”
In response, the KeyBank spokesperson pointed to a lengthy statement the bank issued back in December after the NCRC’s report was published. That statement says that KeyBank does not discriminate or make lending decisions based on customers’ race.
“Lending decisions are applied consistently to all potential borrowers and are based on predetermined criteria in accordance with fair lending laws,” the bank said. “Any decision to deny an applicant is based solely on the financial information and data associated with the applicant.”
The Key spokesperson also pointed Thursday to new details added to the bank’s original statement, which discussed a special purpose credit program. The new statement notes that the bank has since launched a second special purpose credit program that provides affordable terms to eligible homeowners who want to refinance their mortgages. Those loans feature fixed rates, zero origination fees and first- or second-lien options of up to $100,000.
Since 2017, when the five-year community benefits plan commenced, Key has provided $29 billion in lending and investments in affordable housing, home lending and small business lending in low- and moderate-income communities and philanthropic endeavors, according to the bank.
The relationship between Key and the National Community Reinvestment Coalition hasn’t always been so tense. They worked together amid Key’s acquisition of Buffalo, New York-based First Niagara to draft a community benefits agreement, and the National Community Reinvestment Coalition hailed it as a “landmark” agreement in March 2016.
But the once-cordial relationship turned sour after the community reinvestment group began to question whether Key had fulfilled the various lending promises it made in the agreement.
The National Reinvestment Coalition and Key had been trying to work together on an expanded $40 billion community benefits plan. But the relationship came to a halt in December when the two sides couldn’t agree on certain lending goals for people of color, Van Tol said in January.
Van Tol wound up resigning from KeyBank’s corporate responsibility national advisory council, and KeyBank is no longer part of the NCRC’s Bankers/Community Collaborative Council.
KeyBank has said that it fulfilled all of the commitments it made in the original agreement.
During a 5-year span between 1970 and 1975, 29 states in the United States lowered the legal age for drinking alcohol from 21 to 18, 19, or 20. Advocates for changing the minimum age noted that a person old enough to vote or fight in a war was old enough to drink. Those against it worried about accidents, as car crashes – then as now – were the leading cause of death for teenagers. Then, over the next several years, some states began to raise the minimum drinking age again.
Alex Wagenaar, PhD, now a research professor at the Emory University Rollins School of Public Health in Atlanta, recognized the situation as a natural experiment – something that divides a population into one group exposed to experimental conditions, and one unexposed. “You had 29 examples of experiments, basically each with changing legal ages,” he says. Starting in the late 1970s, while a fledgling graduate student, Wagenaar compared data from those two populations in states that had changed the law, controlling for variables like seat belts and traffic laws, to assess how raising the drinking age affected the rate of alcohol-related car crashes.
He found a decrease in crash-related deaths among teens in states that had raised the drinking age. In 1984, the federal government raised the minimum age to 21, and the rates normalized again.
Wagenaar has spent decades in a field now known as “legal epidemiology,” which uses rigorous scientific methods to investigate how laws impact public health.
Health risk factors are often described and researched in terms of readily identifiable exposure. They may be environmental, like smoking as a risk factor for cancers, or inherited, like mutations in the BRCA gene that increase a person’s risk of breast or ovarian cancer. But a central argument in legal epidemiology is that laws themselves can be risk factors, too.
For most laws, those effects aren’t well understood or studied. “We can think of the law as a treatment, as some kind of pill that we apply to hundreds of millions of people,” says Scott Burris, JD, who leads the Center for Public Health Research at Temple University’s Beasley School of Law.
“But new medical treatments go through all sorts of advanced testing. There’s surveillance after marketing to make sure no unexpected side effects show up.” That’s not the case for many new laws, which are often not evaluated for health risks before they’re passed or surveilled after they’re implemented.
He says it’s no surprise that laws affect health. What is surprising is that so many are proposed and passed without considering those health effects. “It’s crazy that we don’t demand more information about what laws work,” says Burris. “Evidence is important because it’s there if we’re willing to see it. But if you don’t want to see it, you’re not going to see it.”
Finding ways to analyze and use that evidence is central to legal epidemiology. Legal epidemiologists are investigating the health effects of COVID-19 regulations and abortion access laws, but they look at other connections, too, like the one between minimum wage and infant survival, or between housing laws and life expectancy. Researchers in legal epidemiology study the health impact of existing laws and develop new tools to help lawmakers and public health authorities at every level assess or predict the efficacy of a law. Their ongoing goal is to advocate for laws informed by public health evidence and to avoid laws that might lead to adverse public health outcomes.
“Law is one of the most significant determinants of health,” says Matthew Penn, JD, who leads the CDC’s Office of Public Health Law, which was established in 2000. “It also impacts conditions that result in health inequities and negative health outcomes.”
The Science of the Law
Some laws have effects that are easier to recognize than others, says Burris, who has led studies on seat belt laws, how criminalization laws affect people with HIV, and the impact of drug syringe laws on injection drug users.
Some are low-hanging fruit. Seat belts have been required by law in cars since 1968, and the National Highway Traffic Safety Administration estimates that they’ve saved more than 300,000 lives. Compulsory vaccinations for smallpox and polio led to the eradication of those diseases from the U.S. population in the 20th century. During the federal assault weapons ban from 1994 to 2004, homicides due to mass shootings declined, and after the ban was lifted, they rose again.
Other findings are less obvious – and more surprising. A 2016 study in the American Journal of Public Health tied minimum wage increases at the state level to higher birth weight and fewer infant deaths. Previous studies have found that low birth weight is tied to a raft of other problems, from worse health in childhood to lower high school graduation rates, so the 2016 study, which Wagenaar worked on, points to raising minimum wage as a legal action that could improve health across the board.
Housing laws also have some surprising effects. Homeownership is the largest component of personal wealth, and people build wealth by inheriting homes from earlier generations. Myriad studies have linked homeownership to better health and even a longer life expectancy. Overall wealth has the same effect; in July 2022, in a paper published in the Journal of the American Medical Association, researchers from Northwestern University and other institutions analyzed death and financial records of hundreds of thousands of people. They found a gap of more than 15 years between the life expectancies of the wealthiest and poorest individuals studied.
“We know there’s a direct correlation between health outcomes and wealth,” says Georges C. Benjamin, MD, former secretary of the Maryland Department of Health and Mental Hygiene and current executive director of the American Public Health Association, which focuses on public health problems including how laws affect health and access to health care. Racist housing laws offer one example. After his father died 10 years ago, Benjamin was going through paperwork when he found a surprise on the back of the title for his dad’s house – the same one where he’d grown up. “It basically said this home cannot be sold to African Americans,” says Benjamin, who is African American.
Although such racial “covenants” were outlawed in 1968, they still show up in older houses and cause complications for families trying to pass property from generation to generation. “Many of us are now in the process of moving property along, but when you go to pull those titles, you’ll find overt redlining.” Today, studies show, redlining has been linked to higher risk of heart disease, asthma, and other health problems.
A rich subfield of studies has also examined the health effects of criminalization laws. One of the earliest, a 1928 study, reported that mortality rates in children and women declined during the 5 years of the Prohibition era, but rose in men over 35. (The author noted, however, that many causes beyond the law likely contributed to this effect).
More recent investigations look at the connection between criminalization laws and drug overdoses. “It is always important when we use law as an intervention” for a public health crisis like opioid abuse, says Burris. “Overdose is a major killer.” Many states have enacted Good Samaritan laws, which may, for example, protect a person who helps a victim of overdose from prosecution of low-level drug offenses. But “by and large individual studies don’t show very robustly that [these laws] are working,” Burris says. In a paper published earlier this year in the American Journal of Public Health, legal epidemiologists argued that a range of complicating factors, including competing laws, likely blunt the effectiveness.
“It doesn’t mean we shouldn’t try them,” Burris says. “But we have to realize that when we try the law to solve a problem, we’re not finishing the job.” Right now, he says, legal epidemiology studies are woefully underfunded by the National Institutes of Health, but with more financial support researchers could identify – and even predict – which overdose laws could have the biggest impact, both in terms of lives saved and financial investment.
Other recent studies have looked at larger trends to try to identify policies that promote health. A study published in 2020 in The Milbank Quarterly connected state policies including higher tobacco taxes, stricter gun control, and access to abortion to longer life expectancy. If all states were to adopt policies based on gains in life expectancy, the authors estimated that life expectancy in the country would rise by more than 2 years.
Natural Experiments and the Future
Interest in the connection between the law and health effects started to gain momentum around 2000, says Penn, when researchers in public health began to recognize the “centrality of law” in a way they hadn’t before. “Public health law really crystallized between 2000 and 2010,” he says. The term “legal epidemiology” was introduced in 2010 as researchers focused on the idea that a law’s impact on health should be a primary consideration, ideally before it passes but even after it’s put into place.
Wagenaar has spent his entire career in the field. Right now, he says, experts in the field are developing tools that can not only find causal connections between law and health outcomes but also be widely and readily deployed, usable by any public health agency and able to produce results ready for lawmakers’ consideration. He says that unlike medical researchers, legal epidemiologists usually don’t have randomized clinical trials – the current gold standard in evaluating the efficacy of new treatments – to rely on. But that doesn’t mean laws can’t be rigorously scrutinized for how they affect health.
“Randomization is a very good tool, but when it’s impossible to randomize, there are all these other tools that are very helpful,” he says.
He says that many investigations could start by looking at natural experiments unfolding in real time – not unlike the case of lowering the minimum drinking age in the 1970s. At that time, critics of his work claimed that without randomization it revealed only a correlation that could have arisen through other causes, but Wagenaar says he stood by his methods and conclusions. They were rigorously replicated and accurately predicted long-term effects.
“If you’re thoughtful about how you design your study, you can get high levels of causal confidence,” he says.
Now, researchers are working to broaden the reach of legal epidemiology by designing tools that any public health official can use. “Any time you put a new policy in place, health has to be part of the conversation,” says Benjamin.
Legal epidemiology “is applicable to almost anything,” says Wagenaar. And there’s plenty of data – about plenty of policies and laws – to be scrutinized. “Lawmakers are experimenting on us as a society all the time, with everything they pass,” he says.
The COVID-19 pandemic offered a clear case study. In a 2021 perspective published in the New England Journal of Medicine, Wagenaar and others pointed out that decades of scientific research into mRNA vaccines made it possible to quickly develop, manufacture, and distribute enormous quantities of a vaccine. Those decades were built on both basic science research and advances made in the wake of the first SARS virus. But there was no body of research into the health effects of regulations like mask-wearing, stay-at-home orders, travel restrictions, and school closings. The result was a confusing and inconsistent hodgepodge of rules.
He also points to the country’s current tangle of marijuana regulations and sees the current approach to laws and policies as a missed opportunity. The United States has developed strategies, over decades, for using the law as a health intervention to reduce risks associated with drinking and smoking, but he thinks current discussions around new laws for marijuana fail to take that experience into consideration. “We have all that tobacco knowledge and all that alcohol knowledge, and we’re not paying any attention to the lessons we’ve learned,” he says. “That’s an example that’s frustrating.” In other words, decades of practical research has taught us how to regulate substance use to promote public health; putting those lessons into effect is a thorny political matter rather than a medical one.
But in some cases, says Benjamin, legal epidemiology can reveal a simpler solution. In the case of redlining and other racist practices that blunt the accumulation of wealth and impair health, the way forward is obvious, he says. “In some cases, it means going back to the books, and taking those laws off the books.”
The Federal Reserve’s top regulator wants to “eradicate discrimination” from the financial services sector and he’s ready to use all the tools at his disposal to do so.
Fed Vice Chair for Supervision Michael Barr delivered a speech on financial inclusion Tuesday afternoon at Jackson State University, a historically black research university in Mississippi. In it, he said the central bank would incorporate screening for discriminatory practices into all of its supervision practices, including evaluating applications for mergers and acquisitions.
“Congress provided regulators with supervisory and enforcement tools to help ensure that supervised firms resolve consumer protection weaknesses as well as the more pervasive risk management issues that often lead to those weaknesses,” Barr said. “We have a close working relationship with the Consumer Financial Protection Bureau and other regulators and integrate other regulators’ consumer-focused reviews—such as examinations for unfair, deceptive, or abusive acts or practices, as well as fair lending—into our assessments of bank holding companies, including in the context of applications for mergers and acquisitions.”
Michael Barr, vice chair for supervision at the Federal Reserve, said Tuesday that the central bank and other regulators are working to further bridge the racial wealth gap and “eradicate” discrimination in lending.
Bloomberg News
During his prepared remarks, Barr highlighted racial wealth gaps, the difficulties Black-owned small businesses have in obtaining credit and the fact that Black households are nearly six times as likely to be unbanked as their white counterparts. He said many of these issues are part of the “long shadow” of past discriminatory practices at banks and policies set by the U.S. government.
“For most of our country’s history, the United States government and many state and local governments, as well as many private individuals, corporations, and organizations, did not merely fail to protect minorities from discrimination, they actively reinforced segregation, entrenched inequality, and enforced unequal policies,” he said, “including through brutal violence.”
Barr pointed to auto and small business lending as areas of top concern for bank regulators, noting the Black borrowers have faced higher interest rates and more restricted access to these products than their white peers.
He also expressed concerns around mortgage lending, singling out residential appraisals as an area of keen focus for the Fed and other regulators, picking up on a subject that has been a top priority for the Biden administration in its effort to root out systemic racial inequity.
Barr nodded to the Fed’s participation in a hearing on appraisal bias held by the Federal Financial Institutions Examination Council’s Appraisal Subcommittee last month, saying: “I look forward to working with my fellow regulators to help ensure that individuals are treated equally in the appraisal process regardless of race or the racial composition of neighborhoods.”
The central bank sits on the council alongside other bank and housing regulatory agencies, including the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Federal Housing Finance Agency and the Department of Housing and Urban Development.
Barr said the Fed will lean on enhanced data collection to identify discriminatory practices by banks and craft policies accordingly. He noted that under section 1071 of the Dodd-Frank Act, banks should be reporting more data on small business lending. Once this provision is fully implemented, he said, the Fed will have “tangible insights into the availability and pricing of credit” being extended to Black-owned businesses.
At the same, Barr also encouraged banks to be proactive in identifying discriminatory practices, suggesting that they use “mystery shoppers” tests to evaluate their employee practices. This involves two people who have identical profiles except for a different protected class, such as race, both applying for similar loans. The idea is to test whether individuals receive different credit offerings based solely on their race, gender or personal attributes.
Another focal point for the Fed and other regulators, Barr said, will be the use of artificial intelligence or computer algorithms for determining credit scores or otherwise evaluating loan applications.
“[Banks] should review the underlying models, such as their credit scoring and underwriting systems, as well as their marketing and loan servicing activities, just as they should for more traditional models,” he said.
Barr said ongoing efforts to update the Fed’s supervision and regulation policies on bank mergers and the Community Reinvestment Act will both prioritize access to financial services for low and moderate income communities.
He added that it is also important for regulators to encourage innovations that help banks extend services to traditionally underserved areas, especially as it relates to community development financial institutions and minority deposit institutions, which he said provide services in which traditional banks cannot.
“One thing we do is make sure that our examiners understand the CDFI space and the MDI space and the role that CDFIs and MDIs play, and the particular kinds of circumstances that MDIs and CDFIs face such as being able to do small consumer loans and to do character lending and to lend to people without a credit score,” Barr said during a question and answer session following his speech. “Our examiner’s need to know and understand what the offsetting risk mitigation measures that CDFIs and MDIs are using, including knowing the family. It makes a difference.”
Barr also said the Fed is doing its part to help facilitate better services for low-income and underserved customers, noting specifically its instant payments network, FedNow, which is due to roll out this summer. He said FedNow will enable faster services at lower costs to consumers.
“We can also make a difference by updating our rules on check clearance, so that consumers and small businesses still receiving checks have access to their funds in a timelier manner,” Barr said. “And of course, we need strong consumer protections in place so that consumers don’t have to worry about making payments in a safe way.”
