Rev. Ira Acree, pastor of Austin’s Greater St. John Bible Church, is all too familiar with the experience of being failed by large financial institutions. Now, he’s part of a multi-faith effort to get a credit union to the community.
Acree often tells young people the story of a parishioner who spent 27 years in the same building — only to be priced out when new property owners jacked up the rent. Can you imagine if she spent those years paying into her own property, rather than someone else’s, he asks? This, he tells them, is why you should pursue homeownership.
But more than a century of discriminatory lending practices in areas such as Chicago’s West and South Sides, where Black and brown people were pushed or chose to live, hasn’t made it easy.
Continuing practices
Discrimination in lending is not just a practice of the past.
In 2021, the Woodstock Institute found that at the middle-income level, Black applicants in Chicago were denied four times as often as their white counterparts.
A year earlier, reporting out of WBEZ and City Bureau revealed that 68% of dollars loaned for housing purchases went to majority-white neighborhoods; just 8.1% and 8.2% went to majority-Black and majority-Latino neighborhoods, respectively. They found lenders invested more money in Lincoln Park than all of Chicago’s majority-Black neighborhoods combined.
Acree, who is also a co-chair of the Leaders Network, a West Side social justice and faith-based group, experienced a struggle with lending firsthand. He bought multiple properties in 1990, then decided 10 years ago to sell one of the homes, and purchase another.
But big banks wouldn’t help.
“It was like pulling eyeteeth to secure a loan,” Acree said. “I personally know the pain and humiliation of being redlined against. I was able to navigate around and find a community bank that would work with me.”
Michelle Collins, strategic advisor for The Leaders Network and a former community development banker, said discriminatory lending exacerbates distrust.
“As a community development banker, what I learned is that some people right here in the community, they don’t feel comfortable,” Collins said. “They don’t even try to have a relationship [with a bank], because they feel like, ‘people are going to look at me a certain way’ or ‘I’m ashamed of my credit,’ or whatever it is.”
The disproportionate awarding of loans intensifies the racial homeownership gap by keeping the capital needed to invest out of reach.
In 2021, the Chicago City Council passed the Lending Equity Ordinance, which increases transparency and public input in selecting the city’s banking partners.
“If you want to do business with the city of Chicago, you need to be making efforts to serve Black and brown communities,” said Sarah Brune, director of public policy for Neighborhood Housing Services. “Banks should be analyzing who is being denied, look at the demographics of those applicants and say, ‘Are we seeing trends here?’ And identify what they can do about those trends.”
Lack of financial institutions
Communities of color don’t just face discrimination in banking – it’s often also hard to even find a bank in their neighborhood.
A 2021 Brookings Institution study found that since 2010, the number of banks in majority-Black neighborhoods throughout the country decreased by 14.6%. JP Morgan alone shrunk its branches in these neighborhoods by 22.8% between 2010 and 2018.
Without banks, it’s hard to access capital and accumulate savings in the first place.
“So many times, you have banks that are not willing to reinvest to develop the communities where they do business,” said Collins. “It’s important that people [can] be in the community where they live [and] be able to walk over, get to know people, and it’s right there, a resource. You don’t have to go outside. It’s right here for you.”
Instead of going to a bank where they may not feel welcome, Collins said some people may decide to visit a currency exchange or other non-bank institutions, which may be regulated differently or not safe.
Predatory lending
The Illinois Attorney General’s office describes predatory lending as a practice that “involves deception or fraud, manipulation of a borrower through aggressive sales tactics, and taking unfair advantage of a borrower’s lack of understanding about loan terms and conditions.” This includes making loans the borrower cannot afford.
If someone needs quick access to capital to pay their bills, for example, they may seek out a payday loan from somewhere like a currency exchange or a title lending company rather than a bank.
In exchange, the loan often comes with high interest rates and exorbitant fees, which can make paying back the loan difficult.
“It’s like walking in an economic minefield. You’re just walking, you’re just moving and mobilizing, but you’re damaging yourself because you can never get ahead,” Acree said.
In 2021, the Illinois legislature passed the Predatory Loan Prevention Act, which capped the annual percentage rate on consumer loans at 36%. According to the Woodstock Institute, consumers saved more than $600 million in interest and fees on these loans by 2022.
Reclaiming the power: community organizing and credit unions
In an effort to financially empower community members, some leaders are working to bring more, and better, banking options to Austin.
The Leaders Network Financial, which is part of the Leaders Network, is partnering with Great Lakes Credit Union to open a full-service branch in Austin, which Collins said will likely open in March. Services will include home loans, car loans, business loans and certificates of deposit, among others. A temporary branch is already open three days a week.
Collins pointed out that the branch will offer financial counseling and literacy, and an opportunity for relationship banking, which will be crucial to building the community’s trust as a financial institution. The goal? To provide community members with a “financial partner” — someone with your best interest at heart to help improve your credit, show you loan options, or find grants to help with closing costs, for example.
“You need a financial partner, you need a relationship, and I don’t think it’s wise to wait until you have a need to establish a relationship with a financial institution,” Collins said.
Self-Help Federal Credit Union, which opened last year, is also looking to fill in gaps in banking and create financial opportunity for the historically underbanked West Side.
Collins and Acree hope new banking opportunities will facilitate more homeownership in the area and build wealth for families who were previously denied opportunities to do so.
“Buying a house is not for the faint of heart. I mean, it’s a major decision, a big step. It takes discipline,” Acree said. “But if you’re willing to make the sacrifice, I’m telling you, I promise you, you’ll be smiling in the end.