Democrats Back a Bank Bill That Could Hurt Black Homebuyers
When 67 senators voted on Wednesday night to weaken the Dodd-Frank Act and ease rules across the banking industry, they also made it easier for banks to discriminate against black borrowers.
A provision in the Economic Growth, Regulatory Relief, and Consumer Protection Act would exempt the large majority of mortgage lenders from key disclosure requirements that help the government identify racial discrimination and enforce fair housing laws. The provision would facilitate redlining, allowing lenders to deny loans to black homebuyers, while also giving lenders carte blanche to overcharge black homebuyers or steer them into the same predatory loans that exploded during the financial crisis, pushing countless families into foreclosure.
Yet this bill, which would widen the already staggering racial wealth gap, won support from more than a dozen Democratic senators, including members such as Tim Kaine, Mark Warner, Claire McCaskill, and Doug Jones who rely on black and Hispanic voters to win elections. (The bill is also backed by one independent, Angus King of Maine, who caucuses with Democrats.)
If not for the nearly unanimous support of black Virginians, for example, Sen. Mark Warner—a key advocate for the bill—would have almost certainly lost his re-election race to Ed Gillespie in 2014. Jones, a Democrat from Alabama, owes much of his unlikely victory in December to the unprecedented mobilization among black voters in the state. In the name of bipartisanship, these Democrats are backing a bill that harms the people they claim to represent.
Millions of Americans were devastated during the foreclosure crisis, but the heaviest burden fell on black homeowners. The difference was segregation. Despite the Fair Housing Act and other measures meant to break residential segregation, most black Americans remain cloistered in black neighborhoods with elevated rates of poverty, joblessness, and crime, as banks continued to discriminate against black customers in a less visible but still potent form of redlining. This kind of segregation does more than concentrate and intensify disadvantage—it creates captive markets, as consumers live at the mercy of a handful of providers. This is especially true for lending. “Residential segregation has always created dense concentrations of potentially exploitable clients in need of capital,” note Jacob S. Rugh and Douglas S.
Massey in a paper on the relationship between segregation and the foreclosure crisis.
With the rise of subprime lending in the 1990s, discrimination in real estate lending moved from traditional redlining—where blacks (and Hispanics) were denied loans outright—to predatory lending practices, where banks targeted black homebuyers with the most dangerous loans, saddling a large crop of underserved consumers with burdensome terms and undue risk. “[T]he United States was increasingly characterized by a dual, racially segmented mortgage market, one that was structured by the race of the borrowers and the racial composition of the neighborhoods,” wrote Rugh and Massey. These lending patterns deepened existing patterns of residential segregation and worsened racial inequality.
All of this bore a strong resemblance to the “contract lending” that defined segregated housing markets during the postwar boom of the 1950s and ’60s. Denied loans and blocked from most available housing stock, black families in rigidly segregated cities such as Chicago had little choice but to sign on to usurious schemes from unscrupulous real estate agents. Speculators would buy homes from whites—sometimes using the threat of impending integration to spur panic selling—drastically raise the price, and then offer the home to blacks “on contract,” where buyers made monthly payments without any claim on the house itself. If they missed a payment, the speculators would take everything a buyer had paid, evict the family, and set the home up for the next set of desperate buyers. Contract lending drained hundreds of millions of dollars from black communities at the same time that federally subsidized loans helped millions of white families build middle-class wealth and prosperity.
The combination of predatory subprime lending and the financial crisis had a similar effect, wiping out decades of growth and setting black families back a generation. A 2015 report commissioned by the ACLU found that, as a result of the recession, home equity for black Americans dropped by 12 percent, compared to 9 percent for whites, and projected black household wealth will continue to be substantially lower compared to their white counterparts.
Redlining continues to structure housing markets. A yearlong analysis from the Center for Investigative Reporting found that black mortgage applicants “were turned away at significantly higher rates than whites in 48 cities,” further entrenching racial inequality and contributing to the conditions that facilitate predatory lending.
Under the 1975 Home Mortgage Disclosure Act, banks were supposed to report borrowers’ races, ethnicities, and ZIP codes so that federal regulators could gauge whether lenders were engaged in discriminatory practices. But redlining continued, so lawmakers imposed more comprehensive reporting requirements under Dodd-Frank. Lenders now had to gather data about borrowers’ ages and credit scores, as well as interest rates and other information about loan terms. The Consumer Financial Protection Bureau was charged with analyzing the data.
The acting director of the CFPB, White House budget chief Mick Mulvaney, has stripped enforcement powers from the unit responsible for pursuing discrimination cases. But banks are still collecting the data, which is valuable in itself. The new banking bill would change that, obscuring the activities of smaller lenders and—if history is a guide—facilitating the practices that disadvantage black and Hispanic homebuyers and maintain vast disparities in wealth and opportunity.
The Senate Democrats who back this bill say they need a bipartisan accomplishment ahead of a difficult campaign season to show voters that they can “break through the partisan gridlock that has plagued Washington for too long.”
But there’s no inherent virtue in bipartisanship. It’s simply a means to an end. Some of the most destructive policies of the last 25 years—mass incarceration, welfare reform, and financial deregulation—were bipartisan accomplishments. The correct way to evaluate a bill is to look at what it would actually do. And we know that if passed into law, this particular proposal would help banks discriminate against black people.
Since Donald Trump’s election, Democrats have leaned in to rhetoric around civil rights and equality. “Our nation’s leaders need to call out racist and hateful speech, promote diversity, and work on ways to combat hate-based crimes,” said Tim Kaine of Virginia in the aftermath of white supremacist violence in Charlottesville. He was joined by his colleague Mark Warner: “The president has emboldened the few on the fringes. And his words have offended those of us who want nothing to do with racism and hate, in any of its forms.”
Racism is more than just bigotry and hate. It’s a structural force that shapes our economy as much as it influences our politics. It assigns differential value to human life and labor, marking particular groups as subordinate castes and opening them up to exploitation and expropriation. Housing discrimination and redlining are a case study in how race and capital accumulation operate together, with dispossession happening along racial lines.
Anyone serious about arresting the power of race cannot ignore the way banks and financial institutions have bolstered segregation and sowed the ground for continued racialization. Democrats, in particular, shouldn’t be working to make the problem worse.