Fair lending has been a long-forgotten stepchild in the federal regulation of financial companies.
Despite massive evidence of discrimination in business, consumer and residential lending against African-Americans, it has been a long time since any banker has been sanctioned for bias in financial services.
President Obama proposed creating a new consumer financial products authority, includng the enforcement of the Community Reinvestment Act, the Equal Credit Opportunity Act and other new powers. These regulators will be moved from current banking regulators in the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Office of Thrift Supervision, National Credit Union Administration and Federal Reserve System Board of Governors. None of those agencies, mostly controlled by the banks which pay their fees, has put a premium on equal opportunity in lending.
Regulation was non-existent during the Reagan and both Bush administrations and weak during the Clinton years. Since most regulators came from banking jobs, it was equivalent to guarding the consumer chicken coops with sharp-toothed foxes.
The result was the sub-prime meltdown, which would have been eliminated with any kind of substantive regulation of equal credit statutes. Hundred of thousands of black and Latino mortgage holders had been sold a bill of goods. The result threatened to topple the entire banking system as last night’s Frontline program, Breaking the Bank demonstrated.
Bankers have howled about the proposal, which is perhaps the best endorsement it could get. New laws on credit cards, combined with the new authority, should help level the playing field which has been tilted so heavily towards bankers. Our annual State of Black Business reports chronicle the way that financial firms have kept credit from African-American businesses and neighborhoods. The only good thing about this meltdown is that now the rest of the country has had a chance to feel what it is like to have credit frozen.