Where you bank can make a big difference for racial justice

Consumers can push for racial justice – and it’s as simple as opening an account at a community bank or credit union that supports under-served communities.

Netflix announced recently that it would transfer $100 million of its cash holdings to financial institutions that support Black communities in the U.S.

Meanwhile, across the U.S., there are more than 1,000 Community Development Financial Institutions, or CDFIs. These institutions specialize in under-served communities and more than a third of their banks are led by minorities. One analysis found that more than 40% of CDFI’s loans and investments are in majority-minority communities.

“With all the racial problems going on, right now is the perfect time for people to open up an account at a community development bank or credit union,” said John Holdsclaw, board chair of the Coalition of Community Development Financial Institutions.

Personal finance website NerdWallet has a list of CDFIs by state.

“These institutions provide equity in these black and brown, low-income communities. They were created to be able to provide fairly priced loans and a place to build assets. It’s not about profit, it’s about creating access,” Holdsclaw said.

Communities of color have historically been under-served by banks: 14% of Black households and 10% of Hispanics had no bank accounts in 2019, according to the Federal Reserve. For comparison, just 3% of White households are unbanked.

Perversely, not having access to a bank can cost consumers more. That’s because they often turn to alternative financial services to handle everyday banking needs, including cashing checks at retailers or using payday loans.

Both options are rife with fees. Check cashing services can ding consumers 1% to 10% of a check’s value, according to NerdWallet. Meanwhile, payday loan providers can slap a fee ranging from $10 to $30 for every $100 borrowed, according to the Consumer Financial Protection Bureau.

Similarly, Black and Hispanic business owners suffered during the coronavirus pandemic – and they missed out on federal lifelines that could have kept their businesses afloat.

Amid the public health crisis, the number of working black business owners is down more than 40%, according to recent research by the Stanford Institute for Economic Policy and Research.

However, one survey found that just 1 in 10 Black or Latinx small business owners received the assistance they requested under the government stimulus package. The Center for Responsible Lending also found that many Black business owners were shut out of the Paycheck Protection Program, the small business loans designed to keep employees on the payroll throughout the pandemic. The deadline for applications is Aug. 8.

The unbanked and underbanked were at a particular disadvantage.

“The first time the PPP rolled out, not all of the banks were doing them,” said Sheneya Wilson, CPA and founder of Fola Financial in New York. “Those that did required you to have an account with them prior to COVID-19.”

At Hope Credit Union, a CDFI with close to 30 locations across the south, the PPP numbers are much better. More than half of the Paycheck Protection Loans issued there during the pandemic have gone to business owners of color.

“We get people in the banking system in a region that is one of the most underbanked in the nation,” said Bill Bynum, CEO of Hope Credit Union. “We help them access a number of tools, from credit building products to down-payment assistance for first time home-buyers.”

The credit union also helps formerly incarcerated people get access to savings accounts and small loans, by considering factors like rent or cell phone payment records for those with little or troubled credit histories. African Americans are imprisoned at five times the rate of Whites, according to the NAACP.

You can live anywhere in the U.S. and open a savings account with Hope Credit Union, Bynum said.

Lower East Side People’s Federal Credit Union, anther CDFI, assists immigrants by offering its savings and lending products to members who have an Individual Taxpayer Identification Number instead of a Social Security number.

“All of our products and services are designed to benefit our members of color and to bring financial services to at-risk communities where many people are either un- or underbanked,” said Maureen Genna, chief executive officer of Lower East Side People’s Federal Credit Union. (To be a member, you have to live or work in certain neighborhoods in New York City or live anywhere in the city and make less than $50,000.)

Overall, more than 17% of credit union members are Black, compared with around 13% of bank customers, according to an analysis by The Credit Union National Association. At YourMoneyFurther.com, you can find a credit union near where you live.

OneUnited Bank, a Black-owned CDFI, offers “second-chance checking” for individuals who might have a hard time opening accounts elsewhere due to imperfect banking histories. Anyone can join the bank, which has offices in Los Angeles, Boston and Miami.

The bank has also provided lifelines to small businesses through the PPP loans.

“The first PPP loan we processed was an Uber driver,” said Kevin Cohee, CEO of OneUnited. “The reason we did that was to make the point that it’s the smallest among us – the one you could lose money on – that need the most help.”

Finally, Ponce Bank, a CDFI headquartered in Bronx, N.Y., has helped customers build credit. The bank recently paired with Grain Technology to provide individuals with a line of credit using their existing debit card.

“These are revolving lines of credit to those with little or no credit,” said Frank Perez, executive vice president and CFO of Ponce Bank. “This gets reported to credit agencies, so now we’re helping people who are under-served.”

The bank has also recently acquired Mortgage World Bankers in Queens, N.Y., which means it will soon be able to offer 30-year mortgages to its customers.

“With this acquisition, it’s another tool in our war chest to help low-income communities get the mortgage they are looking for,” Perez said.

Before you move your money from one institution to another, you should compare the fees between the two, said Graciela Aponte-Diaz, the director of federal campaigns at the Center for Responsible Lending.

“There are a lot of checking accounts now with monthly fees,” she said. “You want to be aware of those before switching over.”

You should also ensure that your bank is backed by the Federal Deposit Insurance Corporation, which insures your savings up to $250,000 per depositor per bank. Credit unions, meanwhile, are insured by the National Credit Union Administration, also up to $250,000 per individual account.

Credit unions and CDFIs can also offer competitive rates on auto loans and mortgages, Aponte-Diaz said.

“See who offers you the best interest rate,” she said. “If the credit union and large bank are offering the same thing, going with the credit union will mean the interest you’re paying back will go toward their revenue instead of a large bank.”

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