Can the city of Chicago push major banks to correct their dismal lending records in Black and Latino neighborhoods? Some Chicago aldermen hope to try this week with a cautious ordinance that relies on greater transparency to get banks to lend more equitably across all neighborhoods.
Pending full City Council approval Tuesday, the so-called Equitable Lending Ordinance would impose new data transparency requirements on financial institutions the city banks with, known as municipal depositories. It would also mandate annual hearings on the issue of lending equity to ensure progress is made in closing the lending gap.
Mortgage lending is a critical way money moves into communities. A lack of lending deprives neighborhoods of desperately needed investment and locks residents out of home ownership and an ability to build wealth. Gaps in wealth between white and Black households are wider than they were in the 1960s.
“Access to an affordable home mortgage is essential to achieving the dream of homeownership, but for generations, that dream has been out of the reach for millions of families of color,” said Anthony Simpkins, president and CEO of Neighborhood Housing Services of Chicago, as he testified before the Council’s Finance Committee Monday.
“In Chicago, only 30% of African American families and 40% of Latino families own their homes, compared to over half of white families,” Simpkins said, adding that it’s a national problem. Across the country, Simpkins said, Black applicants are denied home mortgage loans at a rate three times higher than white applicants.
NHS helped draft the ordinance that passed out of committee by unanimous vote Monday, a year after a joint WBEZ and City Bureau investigation exposed banks’ gaping race-based lending disparities. The analysis, which looked at seven recent years of home purchase lending, found that major banks like Chase, Bank of America and Fifth Third Bank invest 25, 30, even 40 times more in Chicago’s white neighborhoods than they do in Black or Latino communities.
That investigation was the catalyst for this ordinance, Ald. Harry Osterman, 48th Ward, told WBEZ. Working with local housing organizations like NHS and the Woodstock Institute, a lending watchdog, Osterman said he wanted to find a way the city could keep banks accountable for their lending practices.
“It’s long past time we change this,” he said.
“To see that communities on the West Side and the South Side — that residents who wake up in Chicago can’t get loans like people in my [North Side] neighborhood — it’s just really infuriated me,” said Osterman, who also serves as chair of the Council’s Housing and Real Estate Committee.
Osterman was the only alderman to vote “no” on approving this year’s municipal depositories and was snubbed by bank executives earlier this year when he held a hearing where aldermen heard testimony from Chicagoans with excellent jobs and credit ratings — including City Treasurer Melissa Conyears-Ervin — who couldn’t get a loan in the city’s Black neighborhoods.
Conyears-Ervin created a working group within her office to address this issue and is looking for a way to widen the pool of financial institutions applying to hold city money, including community banks and credit unions.
“We just want to continue to work on ways to help smaller institutions come to us and say we want to be a municipal depository,” Conyears-Ervin said. “Because if we can do that, and we can invest in these institutions, we can put more money into the communities and that’s what we want to do.”
Keeping the lending issue out in the open
Because municipalities are barred from creating any laws that would effectively “regulate” banks, the ordinance does not explicitly require lenders to change their behavior or invest in neighborhoods they’ve neglected up to now.
Instead, it directs the city to post each bank’s annual lending record neighborhood by neighborhood on its data portal, showing information like loan amounts, down-payment amounts, interest rates and fees for each loan originated, as well as loan denial rates.
All that data is already reported by banks to the federal government under the Home Mortgage Disclosure Act and is publicly available, but it can be hard to access and compare across Chicago neighborhoods and across time.
The proposed ordinance would also require the City Council to hold an annual hearing on banks’ lending records before approving or renewing their designations as municipal depositories.
A recent inspector general report found that while banks currently turn over reams of information to the city about their lending records as part of the application process to become municipal depositories, an uncoordinated and lax designation process means even lenders charging predatory interest rates can still be approved to work with the city.
“The public hearing component of this issue is absolutely critical,” said Sarah Brune, director of public policy for Neighborhood Housing Services of Chicago.
“We’re going to have to keep the issue out in the open, keep it consistently in the public dialogue … and help people understand how much it really impacts people’s daily lives, and their ability to build generational wealth,” said Brune.
In addition to providing lending data, banks would have to provide an annual racial breakdown of their staff, something that’s already required of many companies that do business with the city in order to fulfill minority hiring requirements.
Horacio Mendez, president and CEO of the Woodstock Institute, says this data point is particularly important given the current focus nationally on diversity and inclusion.
“People want to go into a branch and see people they either know, or feel like they can trust the person that they’re talking to,” Mendez said.
Part of a nationwide trend
Other cities have implemented what are known as “responsible banking” ordinances — local rules aimed at keeping financial institutions accountable where they write loans. Cleveland was one of the first, implementing a law in the early 1990s.
After the 2008 financial collapse and the subsequent housing crisis, several large cities implemented laws pressuring banks to invest more in low-income neighborhoods.
But the courts have sided with banks when they determine local ordinances veer into what might be considered “regulation.” That’s why Chicago’s ordinance is limited in what it can require of banks and why the ordinance only concerns municipal depositories.
“Most banks are regulated at the federal level,” said Brune. “And so what we’ve done here is really an ordinance that increases transparency in the issue of mortgage lending, and in the process of the city deciding who it does business with.”
The New York Bankers Association filed a lawsuit against the city in 2013 when its city council passed a law creating an oversight board charged with collecting lending data from banks that hold accounts for the city. Banks that failed to divulge information about their home and small business loans or that failed to lend in low-ncome neighborhoods could face losing their status as a municipal depository. But a federal judge ruled the city was attempting to regulate these banks by “publicly shaming” them into compliance.
“That just doesn’t fly,” Mendez said. “Banks already have regulators.”
Mendez said that’s why his organization worked with housing groups and Osterman to mirror ordinances passed in other cities that don’t force banks to give Chicago any more than what they’re already required to submit to federal regulators.
“So we wanted to make sure that if we asked for anything new, it was going to be stuff that seemed reasonable,” he added, saying the diversity breakdown of branch staff — which is already required under federal employment law — is the only data point that makes Chicago unique.
Banks are skeptical
No banks were present for the Finance Committee’s hearing on the ordinance. Randy Hultgren of the Illinois Bankers Association predicts the ordinance will backfire.
“This ordinance creates more hurdles within an already daunting application process, which could further discourage small, community banks and minority-owned banks from applying and working with the city,” Hultgren said in an email.
He said Illinois bankers want to improve mortgage access in Chicago, “particularly among Black and Latinx Chicagoans who continue to face disparities.”
But he said that requires more than changes from banks and pointed to greater community investment, reforms to federal mortgage regulations and the property appraisal system, and job and education opportunities for “future homeowners.”