Morning Consult: Equity Should Be Required of the Entire Financial Sector, Not Just Banks

Morning Consult, September 10, 2021, Equity Should Be Required of the Entire Financial Sector, Not Just Banks

Over the last year, the division of inequality in America has been revealed through our simultaneous crises of COVID, racial injustice and economic insecurity. Low income and low-wealth households — many of which are Black American, Latino, and Native American — continue to face economic barriers in access to credit, homeownership, capital assets and other means to improve their economic situations.

The scale of racial and ethnic inequality is extreme, including a 30-percentage-point gap in the Black and white rates of homeownership. The median and mean wealth for Black families is particularly stark, but Latino, Native American and Asian families also have lower wealth. Black and Latino families are far less likely to have retirement accounts, own equities like stocks and mutual funds or receive an inheritance or gift. They are less likely to obtain small-business loans and more likely to rely on high-cost nonbank financial services providers, which may not invest in their communities.

The legacy of racism, segregation, housing and credit discrimination known as redlining and multigenerational and community asset poverty are all to blame. One thing is clear: An effective solution to end these inequities requires strong public policies and equally strong private sector investments.

But our public policies haven’t kept up with innovations in the private sector. Laws and rules meant to ensure equity in consumer, home and small-business lending, community development investments and financial services have not been updated to apply to novel lending businesses and financial services providers.

Congress passed the Community Reinvestment Act in 1977 to impose an affirmative obligation on the nation’s banks to lend, invest and provide financial services to low- and moderate-income neighborhoods. It was intended to reverse the legacy of redlining by ensuring that credit for homeownership, small-business growth and community development reached neighborhoods that had previously been intentionally excluded from the American dream.

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Redlining and Neighborhood Health

Before the pandemic devastated minority communities, banks and government officials starved them of capital.

Lower-income and minority neighborhoods that were intentionally cut off from lending and investment decades ago today suffer not only from reduced wealth and greater poverty, but from lower life expectancy and higher prevalence of chronic diseases that are risk factors for poor outcomes from COVID-19, a new study shows.

The new study, from the National Community Reinvestment Coalition (NCRC) with researchers from the University of Wisconsin–Milwaukee Joseph J. Zilber School of Public Health and the University of Richmond’s Digital Scholarship Lab, compared 1930’s maps of government-sanctioned lending discrimination zones with current census and public health data.

Table of Content

  • Executive Summary
  • Introduction
  • Redlining, the HOLC Maps and Segregation
  • Segregation, Public Health and COVID-19
  • Methods
  • Results
  • Discussion
  • Conclusion and Policy Recommendations
  • Citations
  • Appendix

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