Young adults have a saying that I think applies to a banking bill now in Congress that would roll back consumer protections won after the Great Recession.
We’ve got to “stay woke.”
It’s so easy to become complacent when times get better. In my experience, I find it harder for folks to save when they have more money. That’s because they get overconfident about their ability to handle debt, for example. Credit is flowing mightily now, and people are charging big time. A study by WalletHub found that Americans owe more than $1 trillion in credit card debt for the first time ever. And housing prices are up so much at the moment in some areas that bidding wars are back.
Meanwhile, the banking bill just passed the Senate without a great outcry from consumers because, frankly, it’s hard to rile people over the technicalities of banking. You probably didn’t notice or even care that the legislation would dismantle parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Yet, it’s not lost on consumer advocates that Congress is loosening rules for big banks on the 10th anniversary of the start of the financial crisis.
“I’ve been fighting as hard as I can to help people understand why this banking deregulation bill is so dangerous,” said Sen. Elizabeth Warren (D-Mass.), a key member of the Senate Banking Committee, during a conference call a day before the bill passed.
The legislation will now move to the House. This was a bipartisan effort, but it doesn’t make it right. In particular, there’s a provision in the Senate bill that would exempt 85 percent of U.S. banks from reporting certain data about the loans they make under a law called the Home Mortgage Disclosure Act. The scrutiny is intended to spot racial discrimination in mortgage lending.
This bill makes “the financial system more fragile and dangerous for us all,” said Lisa Donner, executive director of Americans for Financial Reform, a nonpartisan advocacy group.
The lending industry of course complains that the reporting is too burdensome. With less stringent reporting requirements, they could lend more money, they argue. And yet we know because of such reporting that abusive and predatory lending practices are still happening.
In 2012, in one of the largest fair-lending payouts in history, Wells Fargo paid $175 million to settle allegations that it systematically steered borrowers of color into more expensive subprime mortgage loan products while offering prime loans to white borrowers with similar creditworthiness.
In 2007, for example, Wells Fargo charged a black borrower in Chicago about $3,000 more than a similarly situated white loan applicant, according to allegations by the Justice Department. In Miami, a Latino borrower was charged $2,500 more than a similar white applicant. Wells Fargo denied any wrongdoing.
But let me be clear: The African American and Hispanic borrowers qualified for better loans or rates but were navigated to subprime loans. This wasn’t about their risk but their race.
The mortgage loan “data is how we can see how much black families were charged for a mortgage or how often Latino families were denied a chance to take out a mortgage,” Warren said. “We can compare those numbers with white borrowers who have the same incomes and the same credit scores. Lenders will no longer have to disclose important information like the borrower’s credit score and interest rates. That’s pretty important stuff in figuring out whether or not the borrower got a fair deal.”
Redlining, in which financial institutions refuse to lend money for mortgages to certain racial groups, is a practice of the past and the present.
“I personally have prepared complaints under the Community Reinvestment Act against banks for refusing to lend to communities of color,” said Damon Silvers, policy director and special counsel for the AFL-CIO. “And I can tell you it is impossible to do so without Home Mortgage Disclosure data.”
Discriminatory lending practices impact the net worth of minority households, contends Marc Morial, president of the National Urban League.
As Warren and Morial both note, decades of mortgage discrimination helped create a persistent wealth gap between white and minority families.
Congress should not be weakening but strengthening banking oversight, Morial added. “Information on housing discrimination in this country is not a burden,” he said. “It is part of what is essential in this nation’s commitment to fair housing in the 21st century.”
Curbing oversight of the banking industry is not progress. We can’t let up on the checks on financial institutions. If we don’t stay woke, we could see another financial crisis sooner rather than later.