Community Development Banking News
CDFI Banking: Industry, Policy, and Beyond.
A new report from the Filene Research Institute finds that Hispanics -- even those with a greater degree of formal education -- continue to face significant financial challenges. The report surveyed Hispanics who have received at least some college education. Of this group, 40 percent can be classified as “financially fragile,” meaning that they could not come up with $2,000 if the need arose within the next month. Half of credit cardholders in the group reported behaviors that could damage their credit scores and increase interest rates, such as paying only the minimum payment and paying late. The report also found a lack of financial literacy within the group, which was 20 percentage points less likely than comparably educated whites to answer questions on basic financial literacy correctly.
Democrats in the House and Senate have banded together around a regulatory relief bill for community banks. Democrats hope their bill will present a viable alternative to the broader Dodd-Frank reform bill proposed by Republicans -- legislation President Obama has already signaled he would veto. The Democrats’ package includes provisions to remove annual privacy notice requirements except when bank disclosures change and to extend the annual exam schedule to 18 months for healthy institutions under $1 billion in assets. The Republican bill, which passed the Senate Banking committee last month, would include many more regulatory relief provisions for small and regional banks including raising a key $50 billion Dodd-Frank threshold for enhanced prudential standards and mandating reforms to the insurance industry, the Fed and the FSOC.
Acting Assistant Secretary for Financial Stability Timothy Bowler will be leaving the Treasury Department in mid-June after leading the department’s wind-down of the Troubled Asset Relief Program (TARP). The TARP Capital Purchase Program currently has 30 banks remaining, down from 700 in 2008. Of these, two are CDFI banks. The CDCI portfolio contains 69 CDFIs, 29 of which are CDFI banks. Bowler assumed his role managing the portfolio after Timothy Massad left to be chairman of the Commodity Futures Trading Commission. Bowler has not yet confirmed any future career plans.
Beneficial State Bank and online alternative lender LendUp have partnered to bring a new type of loan to customers in California, Oregon and Washington. The new product, the Personal Builder Loan, is a responsible alternative to traditional payday loans. It is intended to help customers meet their short-term liquidity needs while building their credit. The product features higher loan amounts than typical payday loans, repaid over multiple months with payments reported to credit bureaus. "This is the next step in Beneficial State Bank's five year exploration of an alternative to predatory loans that is sustainable for both the provider and the borrower," explained Kat Taylor, Co-Founder and Co-CEO of Beneficial State.
In an interview, David Reiling, CEO of Sunrise Banks, describes how he built the bank's brand by working for the community and focusing on social impact. Reiling says listening was the key to Sunrise's success in helping underserved communities. For example, observing the popularity of prepaid cards among Minneapolis' Hmong immigrant community led Sunrise to introduce its own prepaid cards. “I used to pull up a chair next to bank teller lines and talk to people about their views and needs," Reiling says. "I walked around neighborhoods. I talked and I listened... Our business lines will always be held to two goals: financial sustainability and positive social impact. Everything we do reflects both.”
A recent MIT study has found new evidence of the critical role relationship banking plays in low-income communities. The paper found branch closures had a strong negative effect on small business lending in low income areas — even when other nearby branches remained open. After a branch closing, small-business lending within the branch’s census track declined by an average of 13 percent. The author writes that his findings could call into question the current approach to regulating bank closings and mergers, which often focuses on ensuring the area will be sufficiently covered by other local branches rather than preserving the information and relationships customers have built with the defunct branches.
The CDFI Fund is accepting proposals for new and innovative ways of expanding services in low-income and distressed communities as part of its newly announced Innovation Challenge. The goal of the Innovation Challenge is to finance the development of a method, model, tool or product that CDFIs can use to build capacity and expand CDFI investments in underserved target markets, especially in rural areas. Through the Innovation Challenge, the CDFI Fund will select a contractor to conceptualize, propose, develop and demonstrate new and innovative methods that will increase the capacity of CDFIs to provide financial products and services. The deadline for submissions is 2:00 PM ET on June 11, 2015.
The historic Masonic Theatre, located in Clifton Forge, Virginia, will be refurbished thanks to funding, flexible lending and expertise from Virginia Community Capital (VCC). Built in 1905, the Beaux-Arts style theater had been the oldest operating theatre in Virginia until it closed in 2010. The Masonic Theatre Preservation Foundation raised over $6 million from several sources to revitalize this grand facility. With this funding and additional financing from VCC, the theatre and an adjoining building will be renovated to include a 554-seat auditorium and community room for events. Dawn DeHart, VCC’s Senior Vice President, stated, “We are excited to be part of the team breathing new life into this theatre. VCC looks forward to seeing all the ways these new attractions help the community.”
Mechanics and Farmers Bank, one of the nation's oldest and largest African-American-owned financial institutions, is rebranding as part of a broader effort to attract a younger and more diverse customer base. The Durham-based bank will now be branded simply as M&F Bank. “We’re trying to attract a younger demographic, a younger customer base,” James H. Sills III, the bank’s president and CEO, said. “Sixty percent of our customers are 60 years old and above... The future for us is the consumer that is 35 to 55... We’re going to be actively seeking diverse clientele. We think that’s the key for this institution... We just can’t rely on the African-American community. We have to go after everybody.”
The CFPB and Department of Justice are taking a renewed interest in redlining, the practice of lenders discriminating against minorities within certain geographic areas. The two agencies have begun to use a more stringent screening methodology than other regulators and have become more aggressive in warning lenders that they are seeing potential instances of redlining. The new methodology examines disparities between peer institutions within groups defined by quantity of Federal Housing Administration lending. The CFPB has not yet taken a public enforcement action solely related to redlining, but has several open investigations of potential redlining. Of the 25 open fair lending investigations opened by Justice by the end of 2014, 10 were being done jointly with the CFPB. Among 18 referrals they received from other agencies during that year, 15 came from the CFPB.