SAN FRANCISCO – While many black communities still cope with the effects of the mortgage crisis and desperately need basic financial services, the nation’s black-owned banks are continuing to step up to serve those needs while struggling to stay relevant – and afloat – themselves, experts say.
Black-run banks took a bigger hit from the housing crisis than the banking industry at large, research shows, and they’ve struggled financially in recent years as the communities they serve have suffered higher-than-average job losses and home foreclosure rates.
At the same time, black Americans need expert financial services today more than any other time in history, some experts say. More than 53 percent of black Americans either have no bank accounts or are under-banked (meaning they supplement their bank account with alternatives such as check cashers) – nearly double the percentage of the population as a whole, according to the Federal Deposit Insurance Corporation.
Despite these sobering realities, the nation’s black-owned banks remain vigilant in their quest to thrive as financial institutions while continuing to serve the needs of the communities they serve and the economic interests of their depositors and stakeholders.
Black banks matter
Historically, black-run banks served African-American communities during an era when discrimination was common in financial services, experts say. Today, these banks function as engines for economic revitalization in the often-distressed communities they serve, even as they face an increasingly competitive industry that’s tough for all smaller banks.
Black-owned banks “have a human and historical connection to Reconstruction, when newly freed slaves had nowhere to go but these banks,” says Michael A. Grant, president of the National Bankers Association, a Washington, D.C.-based organization of minority-owned and women-owned banks.
“I believe the need for black-owned and black-run banks is greater now than it was before the recession. We’ve lost as much as 40 percent or more of the wealth in the black community since the mortgage crisis. A lot of folks are in dire straits,” Grant says.
“Some customers get turned down by mainstream institutions for business loans and mortgages, then come to black banks as a last resort – and get the loan.”
Needed access to services
The disproportionately high number of African-Americans who are disconnected from mainstream financial services is a target market for black-owned banks. Many of these consumers have no checking and savings accounts, and they often rely heavily on check cashers, pawn shops, payday lenders or other high-cost alternative financial providers, research shows.
Many black-owned banks are located in neighborhoods that other banks don’t serve, and the minority institutions provide access to safe and affordable bank accounts, mortgages and business loans.
One of the nation’s largest, OneUnited Bank, headquartered in Boston, offers these and other greatly needed bank services, including second-chance checking for customers who have been denied an account in the past, secured credit cards for those working on rebuilding damaged credit, and education for first-time homebuyers.
“To open a deposit account is only $10, so it’s very affordable,” says Teri Williams, the bank’s president.
OneUnited, which currently has four branches in metro Los Angeles, is also an Internet bank, offering better-than-average interest rates on savings and checking accounts. Its well-rated mobile apps are important in competing for African-American customers, who are more likely to use mobile banking, according to the Federal Reserve.
Support and stabilize communities
As community banks, black-owned banks have strong relationships with the neighborhoods where their customers live. Part of OneUnited’s mission is to make customers feel welcome, rather than intimidated, Williams said.
“The cities we serve are black and brown, and on the income side, many are people who are struggling,” Williams said. “We have people in their 50s and 60s who tell us they’ve never set foot in a bank. They didn’t feel welcome. They didn’t feel banking was for them.”
“They experienced [a time] when banks were redlining and not welcoming to them, because it happened during their lifetime,” she says, referring to the practice by financial institutions of mapping out neighborhoods where they would not offer services.
Although the practice was outlawed by the Community Reinvestment Act of 1977, scars from that period still exist, experts say.
“[Traditional] banks have a way of creating these huge physical locations that can be intimidating to someone who doesn’t have a lot of resources,” Williams says. “Is this place going to welcome my $100 paycheck or $50 savings account?”
By providing financial services, credit and a warm welcome, Grant says black-owned banks help stabilize the communities they serve.
“When people get a piece of the rock, guess what happens – crime rates in that community come down,” he says.
Jeanne Lee is a staff writer at NerdWallet, a personal finance website. She can be reached at firstname.lastname@example.org