Circa the summer of 1976. The place: the Washington Hilton Hotel, the same where a few years later there would be an assassination attempt on the life of former President Ronald Reagan that fortunately failed. The event: the American Bankers Association’s (ABA) Operations Convention. Witness to the event representing his banking employer: Yours truly. Just for the record: I had more hair and it was darrker. Don’t we all?
The Operations Convention of the ABA was attended by the banking folks who make sure that your checks and money get where they are supposed to go and no place else. Approximately five hundred bankers from all over the nation were sitting enjoying lunch, getting fatter and listening to the keynote speaker of the moment. That is a problem with keynote speakers: they get paid but no one remembers their names after a while so I don’t recall who it was. Do you remember the name of your school graduation speaker? No problem with me. Give me the dough and forget the spelling of my name. I would not be offended.
As we finished listening to one more of those presentations and tried to leave the large banquet hall to attend several workshops we were shocked to find that the doors had been locked from the outside by a group of community activists who had placed red ribbons around the doors and would not let go until they had an opportunity to sit down and discuss their community economic grievances with the president of the ABA.
Why, would you say, did these folks resort to such severe tactics to talk to the top banking honcho? The answer, not curiously unconnected to the red color of the ribbons placed around the doors ,was the alleged practice of “redlining” by most of the banks represented there. This term, so we know what we are talking about, was a name given to the common practice by bank officials and risk managers to circle certain areas of a map of the city where they conducted business with red ink to indicate that the folks who lived there, worked there or did business there were excluded, “redlined” so to speak, from banking services. And interestingly enough, it happened also that those disqualified folks were typically living In the inner cities, were minorities or elders who could not afford to move out and follow the white flight to the suburbs.
To make the bad case worse, banks were willing to accept deposits from those residents or their local or state government institutions, but when it came time to lend the money back to them, well, that was much different. I think you get the picture and these community activists were not a happy bunch at all. The end of the story was, of course, that the president of the ABA talked to them and we were allowed to return home to our honeys. No one was arrested or hurt. The entire episode had been a public relations campaign on the part of the activists to deliver a message to us not to continue to do business as usual.
And not only did the bankers listened, but so did the Federal Reserve Bank, the Federal Deposit Insurance Corporation, the State Bank Commissioners and Congress. The result was the 1977 Community Reinvestment Act (CRA) that forced banking institutions to leverage their financial relationships with their neighbors or face numerous penalties and prohibitions to open new branch offices or expand and merge. As a result of that law many community groups sued large banks and won and the face of bank credit in the United States changed forever. What we see today in this new crisis is the same face, different features.
Of course, my life changed as well. As soon as I returned and told our Chief Executive Officer about my unpleasant hostage experience and the non-business mood of the activists in the convention hall he decided to appoint a bank vice president to the newly created job of Community Reinvestment Officer. Yes, you guessed right: it was me. For the next several years I spent many hours of my professional life meeting folks who had one or another beef against the banking system and, I hate to admit, were quite correct in their position.
It is not difficult to see what was going on. Minorities did not have easy access to banking facilities. If you were getting Social Security your money could not be deposited in your banking account because you could not afford one. The Social Security would have to mail you a check, thus delaying collecting your meager pension or risking theft of the check from your mailbox or, in the best cases, cashing the check in a check store that would charge oppressive fees. Older folks got a triple whammy: small pension amounts to begin, late check cashing and high check cashing fees. It may have been called social, but as far as security was concerned it was a joke.
Those were the lean years. Credit was scarce and banks had to pony up with new services to regain the confidence of their constituents. “No-fee” checking accounts for retirees and minors; low interest loans for home ownership and car loans. The computer credit “expert programs” that made automatic decisions on credit based on programmed discriminatory practices had to be modified to the point where a computer rejected application for credit had to be passed on to a human to review the reason and in many cases reconsidered. And most important, no redlining. Whether you lived in a poor neighborhood, were a single parent, that was no reason to deny you credit. And if you had no paycheck to prove your income, having a cash job would be sufficient. At that point things started to move on.
We will return in our next issue to consider the next phase of the crisis. In doing so we will try to explain the difficulties in solving this crisis.
But that is, for now, my point of view. In the meantime, have a great holiday season.
By Paul V. Montesino, PhD, MBA
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