The Washington Post, June 22, 2018: Small banks discriminate against people of color. A new law makes it worse.
President Trump and Congress continue to chip away at regulations for financial institutions, arguing, in part, that these moves will support small and community banks. “Our smaller banks are engines of growth,” House Speaker Paul D. Ryan (R-Wis.) said when the bank deregulation bill passed last month. “This bill opens the door to new opportunities for families and small businesses.”
However, community banks’ racially discriminatory patterns are well-documented when it comes to locating branches and making loans . This week, we published a study that reveals that these practices are present even in the most basic of products: entry-level checking accounts.
Ninety-eight percent of Americans who use a bank have a checking account; it is necessary for a wide range of transactions that shape everyday life and enable investment for the future. A checking account is essentially a prerequisite for almost all other types of financial services — from savings accounts to home loans. As a result, banks’ racially disparate patterns in costs and fees for these accounts threaten to claw back advances that consumers and communities of color have made toward full participation in the economy.
Our analysis of data from 1,344 banks — a random national sample of mostly small and community banks — shows that minimum opening deposits and other fees associated with checking accounts are significantly higher in communities of color than in white communities.
The minimum opening deposit represents the cash that consumers must have on hand to open an account. Our study found that new customers in cities and towns with white majorities needed an average of only $68 to open a checking account, while those in cities and towns with black and other majorities needed from $7 to $22 more. Racial disparities hold even after controlling for factors such as education level, poverty and competition from alternative financial services.
When we add up minimum opening deposits, maintenance fees, minimum balances and overdraft fees, the average checking account costs are $190.09 higher for blacks, $25.53 higher for Asians, and $262.09 higher for Latinos than they are for whites.
