Just Economy Conference – May 6, 2021
Few mainstream financial institutions have adequately or equitably met the needs of low-income, low-wealth and historically marginalized communities and many institutions have pricing models, structures or delivery methods that result in negative outcomes for underserved communities. But what is a fair price, interest rate, or fee? In this moment, when there is a heightened sense of urgency for financial and economic inclusion, this question and more will be considered during a facilitated conversation between financial justice advocates and mission-aligned bank practitioners. This panel discussion – with representatives from RSF Social Finance, Beneficial State Bank and the Center for Responsible Lending – will explore potential solutions that may be helpful in informing how mainstream financial institutions address these pressing questions.
Speakers:
- Charles Elliot, SVP, Consumer Lending Manager
- Casey Johnson, Manager, Lending, RSF Social Finance
- Peter Smith, Senior Researcher, Center for Responsible Lending
- Quinn Williams, Associate Director, Equitable Bank Standards Program, Beneficial State Foundation
Transcript
NCRC video transcripts are produced by a third-party transcription service and may contain errors. They are lightly edited for style and clarity.
Williams 01:15
All right, welcome. Today is April 21, and you’re watching their pre recording of the beginning of our sex technology huh? I’m so excited to be here as a part of the NCRC conference, BSF and NCRC have worked together on a few transformative projects, where NCRC has helped us to incorporate racial equity into our standards for banks, one section of which is products and services. And I work together, we struggle on a few issues, and today we’re here to talk about one of those issues we’re still grappling with. But before we jump in, I’ll tell you a little bit about our standards work. equitable bank standards are collaborative and shared resource that provide a measurable pathway for banks to achieve social and environmental impact. The resource portion of our standards work is to collaborate with social impact bankers, finance experts, economic justice advocates, and academic researchers to understand how to create and measure standards around bank impact. The field building portion is to take our continuous improving standards and have them one day adopted industry wide. Standards are broken into five categories, governance, operational practices, corporate citizenship, lending and investments and products and services. Today we’re here to talk about products and services. Excellent. Today’s question, how might the banking industry support historically marginalized communities? Next slide. Freedom is not enough. 400 years is systemic racial injustice have had real economic consequences that result in an uneven playing field today. People of color in the US have been systematically stripped of land, homes, wages and humanity throughout the course of our history. Lies and stories are strategically told by people with power and notice the game more power, resulting in implicit bias and explicit bias that we all live with today. As a result of all this, people of color still earning lower wages, getting charged higher prices, and being provided less information, and assistance in choosing financial services. When our credit systems rely equally on collateral, capital, credit scores, lower debt, and years of experience, people of color are systematically placed as higher risks. These risks mean higher cost loans, or denial, causing folks to turn to predatory lenders. Either way, the price is not fair. equal treatment for people at unequal starting points. What are account minimums, service fees and penalties are left to discretion, bias results in higher requirements and higher costs for people of color. Today is our opportunity to think creatively of how to about how to truly address fairness and pricing. As most of you know, financial health is made up of a few key factors, income and costs wealth and credit. Well, 400 years of racism has led to lower incomes and wealth for black folks, which leads to a denial of affordable credit and somehow being charged more when you have less money to begin with. And the next slide is just another representation of the equity image we all know. So I’ll give you a moment to take a look at this. Next slide. This slide please those disparities, and the format lenders know so well, the credit memo, we are collateral, capital,character, capacity and condition. Next slide. And finally, we have entrepreneurship as a wealth creation tool. This is business owners create wealth for themselves, their families and their communities. But black households have been denied the building blocks for wealth that allow access to the business capital needed to build a thriving business. solutions to these disparities have been individually focused in the form of financial education and credit repair. BASF believes the banking industry must also focus on system solutions that do more than ask folks to adjust to the way things are. But ask us to adjust how we set up our systems to truly support people of color by offering more than just what they could have gotten elsewhere. Determining what is fair pricing, not just better than predatory is key to actually providing fair pricing to everyone, but particularly people of color, who are more commonly paying more. So to help us with this conversation, we have Casey Johnson with RSA finance, Pete Smith, with Center for Responsible Lending. And Charles Eliot would benefit to stay bank. So to start us off our conversation, I want to ask you all, if you were to create some standards for lending and deposit taking institutions, when setting fair pricing structures, what would they be? But before you answer the question, please introduce yourselves. And you can take yourself off mute now. If you want to happen when Casey goes, you can start us off
Johnson 07:47
at the perfect. So hi, my name is Casey Johnson, I’m with an organization called RSF social finance. So we’re a nonprofit financial intermediary, we bring together a community of about 1600 investors, donors, and about 100 borrowers. And together we’re driving financing solutions for these values impact driven social enterprises across the US. And I specifically I sit in our relationship development team. So I’m both bringing in new borrowers to RSF helping to support the financing structures like we’re talking about today. And also supporting a portfolio of existing borrowers helping them to just navigate the highs and lows of being impact centered businesses. Quinn, you asked a little bit about a standard for all of this. And, you know, I think the first step just to reflect on what you shared with us today is not a standard, but it’s necessary for us to get there is just for us as financial institutions to own our impact and to own our power. Black and Brown communities have been systematically excluded from and exploited by our country’s financial systems from the very beginning and all through to today. So just in order to move forward first and foremost, I want to name that harm. And we have to commit the power that we have, which is immense to wielding towards healing, or at the very least, you know, towards building a just financial system. So, specifically, you know, thinking about fair pricing standards. I think a really simple model to help inform this conversation is don’t take more than you give. So the purpose of finance and its very best is to just meet individual and societal goals, right? We’re in the business of capital of pairing together capital holders and capital takers, seekers to create economic opportunity. And so, unfortunately, in practice, I think like the finance industry gets a little mired and more short term profit maximizing goals. We have Those high interest rates was accruing fees. And commonly we’re extracting more from our clients than the benefit that we’re offering. So back to that motto, don’t take more than you give, it just calls for a reframe it requires us to give up that crutch of risk return assumptions. And you know, instead think about our pricing within with an expanded definition of risk, which is to include like the risk to our borrowers, if our products fail them. And I would definitely encourage you to check out the comments, they just have a really beautiful framework and principles for non extractive finance and they’re walking the talk, maybe glassnote. Just to be clear, like, I’m not necessarily suggesting that bank banks can’t profit off of communities of color, although I do think it could be argued, usually. But there’s a McKinsey and Company study to point to that calculated that closing the racial wealth gap would result in an additional four to 6% GDP, that’s over a trillion dollars by 2028. And so I’m suggesting, actually that they should profit off of communities of colors success, and not off of their failure and extraction.
Williams 11:15
Thank you, Casey. Go ahead, go for it.
Smith 11:18
Hi, everyone. I’m Pete Smith from the Center for Responsible Lending. We’re a research and policy organization, affiliated with the self help credit union, and the self help Federal Credit Union. We’re based in Durham, North Carolina, we’ve got offices in Washington, DC, and here in Oakland, California, where I live. I’m a senior researcher here at the center. And I’ve been here for 15 years and seen a lot of ebbs and flows of good and bad products through the Marketplace. Thanks a lot to Quinn, for having me and to beneficial and ncrc for supporting this event. Your comments at the beginning were really insightful, and they do a great job and grounding this whole conversation. As far as crls work goes, you know, a lot of our work on pricing is from the angle of advocacy. We are affiliated with self help credit union. And so we do have partnerships with them. And we get to sort of think through the way their bank practices work. But more broadly, we’re thinking about the entire kind of ecosystem of pricing and products in the banking system. And we you know, we think, of course, that there’s transparency, there’s sustainability and pricing decisions. But we think about things in kind of a two part way. It’s not only about the pricing is about the products that are offered. Conversely, it’s not only about the product, it’s also about the pricing. I think, if there are some products where sort of regardless of the price, the structure of the product, is such that it is likely to create debt traps for customers and consumers. And that’s our primary concern, as advocates is preventing those kinds of traps. And those sorts of bad structures that are flawed from the outset. The same time. Of course, no product is invulnerable to pricing over pricing. So regardless of how responsible a product is, if it’s priced on fairly, it will be that will have a harmful effect on consumers. So yeah, I think that’s, that’s the best way to describe the way we think about it.
Williams 13:41
Thank you, and I’ll pass it to Charles.
Elliot 13:43
Yeah, thanks, Quinn. So Charles Elliot, I’m with benefice State Bank, not beneficial state foundation. So we are a for profit bank, and we are federally insured the FDIC. We are obviously closely affiliated, the beneficial state foundation and I’m a part of our consumer lending portion of the bank. A larger portion of the bank is our commercial lending group that does a ton of great work as well. But I the portion of our mission that I’ve internalized is really trying to continue to serve the underserved and provide access to credit. So a lot of that is what guides my work. And fairness is tough because as Quinn outlined. Technically risk based pricing is fair. You’re but when you look at when you outline everything that Quinn outline is like the the ramifications over time, that have negatively impacted groups. It’s like we need to work to go beyond fair pricing and work towards equitable pricing. And it gets a little murky in terms of consumer finance because technically if you you have to be cautious about Trying to do good and providing more than, like equitable pricing to a group and not in turn discriminated against another group in the process. So it becomes a little bit difficult, but it can be done. There are the framework exists within ecola as of 1976, to work on like special purpose credit programs or work with nonprofits to help assist in whether that be through credit enhancements or other things to try and have additional impact. And there’s actually work that we do with a beneficial state foundation for the clean vehicle assistance program to do something very similar to that to provide lower rate interest, lower interest rate loans for Evie finance vehicles, to borrowers as low as 500 FICO scores that do not mean, I’ll be able to get interest rates as low through this program if it weren’t for this partnership there. So I think for me, it really is just trying to get just beyond fair, because unfortunately, we understand that something can be considered fair or lender could be considered doing good in the community. And that just means that they’re not like charging users rates and above 36%, that’s a really low bar to get over. And as Pete said, there are just so many predatory lending and fee structures, whether it’s deposit side or lending side out there that it’s just just being better than the alternatives isn’t really enough at this point.
Williams 16:36
Well, thank you all for starting us off. And I also noticed that I failed to mention my full name and title. I’m Quinn when Davies Williams, I was beneficial say Foundation, and I’m the associate director over the equitable bank Sanders program that I mentioned earlier. move right into our next question. And I would love to hear a little bit more about how your institutions approach this question, if at all, particularly from Casey, about your organization, and, and from Charles’s beat as well afterwards.
Johnson 17:13
Cool. Yeah, I can dive in again, first. Um, and yeah, I think like Charles brought up fair is the hard word to qualify. And I think it’s also who gets to define what’s fair. So for RSM, one of the ways that we’ve come about approaching this question is first to, you know, put, put equitable pricing in the hands of our community decision making in the hands of our community, as opposed to you know, the decision making power of the markets or even like the financing institution. And so you know, back in the day, like many banks are SF based our pricing, when I say pricing, I mean, the interest rate we pay or investment return rate, we pay to our investors, as well as the interest rate that our borrowers pay, we used to base that on live bore, so the London interbank offering rate. And then back in 2009, we actually decided to in house this important work, and we developed our own benchmark, and it’s called RSF prime. So we’ve been doing this ever since. And, you know, instead of now having the market forces and put quotes around it dictate interest rates, we’re actually facilitating a conversation with all three sets of stakeholders sitting at the table visible to one another, engaging in direct and transparent conversation. So no investors, again, there are sources of capital, they have their interest return on the table as part of the discussion. RSF is the financial intermediary, our revenue share, which covers our operations that’s on the table. And then for the borrowers, the interest rate that they pay on their loan is on the table? And the question at hand in those conversations is, you know, what are your needs as a borrower? And how would any change in the interest rate whether up or down? How would that affect your ability to meet those needs? And the same question to investors, you know, your interest return rate, how is that going to affect your ability to meet your needs, same to RSF as an intermediary. And we host this conversation on a quarterly basis. So every quarter, we’re doing like a temperature check and getting a sense of our community’s needs and adjusting our SF prime according to those needs. And it’s just it’s astounding, you know, because like I’m sure we all feel how our culture is so caught up in dehumanizing the other. But when you sit down at a at a table with somebody, when you share a conversation about their needs, and their work and their dreams, it’s so hard to lean into that self maximizing principle that we’re taught. And I just, I haven’t been to a pricing gathering yet where a borrower doesn’t stand up and say, you know, actually had a really good year and I can afford to pay a little bit more. That means that you as an investor can bring more of your capital to the table and we can see Report more borrowers in this community. And the same thing, you know, investors say, Actually, I recognize that investment return doesn’t, doesn’t change my ability to meet my needs. So I can take less in exchange for you having you borrower having more flexibility around meeting your needs. And you know, the benefits. It’s beyond fair pricing. It’s also creating relationships, not just financial transactions. And I think one of the coolest things I’ve noticed is like, those relationships create so much more resiliency in our community than any kind of, you know, pricing standard wood from the transaction side. So that’s one thing we’re really proud of that are you what do you like to go for?
Elliot 20:52
Yeah, I can jump in cut Pete there on this one. Sorry. Yeah, so I think a lot of is is it tensional design for products and or services. And the pricing is obviously a massive aspect of that, and, but also servicing, and I think just trying to find ways, and Pete mentioned this in his intro, it’s, it’s not just like, it’s making sure that our products are set up to where people aren’t set up to fail. And we’re not trying to entrap them into something that they’re going to do, like, unable to make payments on or handle that debt. So we know whether I think we just have to continue to try and experiment and be on the cutting edge as best we can, even as a community bank, where we may not have the scale, or the investment into some of our own infrastructure to do some of these things. But going outside the box partnering with other like minded groups, like we ran a, almost a two year experiment with common sense lab out of Duke and we set up repayment, borrowers loan repayments to near their payment frequency from their income source. And during that time, 100% of the borrowers that were part of the experiment group, were able to pay current and may maintain current and out of the 1000 people that are in our sample, 17 people defaulted. But they’re all part of our control group. And just finding ways to set up not just our pricing, but also the servicing to align well. So it’s setting up people to prosper through the loan that they have. And that’s a big part of it for us, too, is just understanding that it’s not just how many people can we say that we’ve helped by extending credit, but what’s the impact of that credit on their life going forward, and making sure that we’re taking steps to measure that impact as well.
Smith 22:44
I love that common sense lab at Duke. They do such great work there. appreciate both of these answers. And, you know, appreciate Casey’s mentioning explicitly the kind of dehumanizing effect of effective the way the market can work. And just glad that we’re all here kind of pushing to get past that get beyond that in various ways. So that CRL and it self help credit union. You know, we primarily operate from a place of mission orientation. We’ve been the credit union has been around for 40 plus years, operating to serve communities of color, serve underserved communities provide fair and equal access to financial services CRL has been active for about 20 years a little bit more than 20 years. And we are focused on protecting that wealth. So, the self help side is working on creating wealth and we at CRL are focused on protecting that wealth. So we primarily operate from a place of mission orientation, of course, we live in the market, we do operate as a salient and solvent financial institution. But, you know, we also inform one another so both sides of the coin, both sides of the conversation kind of are active at all times. And so we CRL are, are constantly sort of gut checking our advocacy and our positions on the the financial experience and the lending experience that the self help side has and self help side is constantly gut checking, you know, is this practice fair? Is this practice going to have a kind of unintended negative consequence on our borrowers? Because that’s not what you know, we use one another to really inform and give us credibility and push forward the good work that both sides can do. And so I just think that that is a really excellent opportunity to improve both sides of our work. You know, we are we are data driven, both at self help, and it’s PRL we’ve got to started our kind of CRL work with a lot of very high intensity quantitative mortgage analysis, we’ve moved into, you know, a lot of different areas. And there are some areas where there’s a lot more data available, and some where there’s a lot less data available. But we do what we can to make strong data driven arguments. And then we kind of we fight with each other. And we have internal arguments about policy, getting everything, right. There’s a lot of really passionate people here. And a lot of people arguing in good faith for, for some different particulars on some of the policy standards. So there’s no one size fits all for us. But we do operate from a place of mission and data of
Williams 25:52
Oh, thank you. Well, so I’ll transition just a little bit. I know that when we were prepping, we talked about the two various perspectives that we have around consumer and small business. I know that Pete, you and Charles are both focused on consumer, you will CRL is consumer advocates. And you are as a consumer banker, Charles, I love that you all you both a question from your own perspective or organizational as well, here a little bit about some of those, those debates beat. But what are the most pressing issues facing communities as potential customers that the banking industry should prioritize solving? I start with up.
Smith 26:35
Yeah, so I think, for us, that there’s, there’s just a huge problem of income insecurity. But maybe even beyond that, a problem of income insufficiency. These are, these are things that we need the financial service to focus on. But we need more than just the financial services industry to focus on this, there are some issues that you know, can’t be fully addressed by financial services. Now, for the things that can be addressed by the financial services sector, you know, we need to take a critical eye on the products and the structures of the products that we put out there in the market. There are too many traps in and out of banking. So for banks, for instance, some folks get drawn in with fee based overdraft programs, this leads to a lot of accrual of greater debt, debt trap cycles, then people in fact, are, are kicked out of the banking system, because of these fee structures. You know, there’s a lot of kind of small dollar products that have structures that kind of can operate in the same in the same way. So just simply kind of clearing up the the minefield that awaits some folks on there kind of first entry to the traditional banking system would go a long way toward making things fair and addressing some of that income insecurity, at least not sacrificing so much of the income that people do have, you know, for specific issues, I think, defending the CRA, making mortgage credit available, eliminating fee based overdraft or, you know, sort of taking a critical eye on the ways in which it is harmful to folks and dangerous and can lead to debt traps. We’ve seen in the past year, the paycheck Protection Program, and some other small business relief programs that have started in good faith with the federal government. We’ve seen a kind of uneven layout, uneven rollout rather for those programs. And so we’ve seen throughout all of this communities of color, kind of bearing the weight and bearing the brunt of the of the abuse and not getting all the benefits to start with. So there’s, you know, there’s a lot of work for financial services to do. However, you know, there are there’s more work to be done beyond that. And, you know, I think there are some financial institutions who are in a kind of in a rush to sort of make more credit available or are overextending themselves perhaps and providing access that could be predatory. So we want to we want to kind of find that balance and calibrate properly between providing a lot of access providing a lot of credit availability, but but not going too far or making sure that we’re being responsible, so to speak with the products that we offer.
Elliot 29:56
Yeah, and I think I’m p brought up the PPP program and Obviously, we are actively in a pandemic still. And, you know, we’re 13 months in almost to the day, I guess in some depending on where you start that account. But the other on the consumer side, again, we’re which is my focus and a lot of what we do and what I do at VSP is auto lending. And we like there. We’re in a point right now, where for the most part, people’s credit scores have been preserved through in some ways, you know, the government stimulus did help. It was, I don’t know if anyone’s it was enough. But what came out definitely helped. We saw that in our own delinquencies internally, where when stimulus came out, delinquencies went down. But beyond that, I think one of the negative aspects of it is that depending on who you had your loan with, as a borrower as a consumer, there wasn’t any mandate, it was a lenders will let you set up how you want to do deferments for payments. I’m a BSB, we a lot of people do defer up to six loan payments on our vehicle. Other lenders didn’t offer any relief other lenders offered 90 day really things like that, we’re still actively allowing people to defer payments, and a lot of other wonders stopped at the turn of the new year. But the problem is like this pandemic is still not over, they’re still really high unemployment. So we’re just trying to manage through that whole thing. But it’s just a really opaque process, especially, and like it’s very easy on like the auto and inside to blame a car dealer. They’re easy target and waterways, they deserve a lot of the negative aspects of it. But to be fair, the financial institutions that are financing are completely implicit. In all of this, there are a lot of the negative practices are reinforced by the lenders, because it’s a means for them to compete with one another to win that business. And as long as lenders are complicit in these practices, the auto dealers are financially motivated, they’re not going to change. I think regular regulations, additional regulations help, certainly. But so just trying to BSB, we’ve acknowledged what we can do on the purchase side, and a lot of that is getting with a borrower before they go to a dealership. So it’s not dealer range financing, but it’s making them aware of what pricing they can demand and what they can finance themselves before they go. But so much of it already is a dealer range financing. So we try to get on the back end of that where we’re doing, working with partnerships to do refinances, where if someone’s already caught in a bad loan, where they’ve got a 2425 26% interest rate, we can refinance out of that debt. And over the last four years of doing this, we’ve been saving borrowers an average of 7% APR per on their new loan with us. So like we’re talking like, in some cases, cutting their interest rate more than half. But I think beyond just that, I think it’s like working on how we can target partnerships with within our communities where there’s already a need, where they’re coming to us. And we recently had something that we just launched this year, and I’m really excited about is we had a nonprofit out of the Southern California come out and reach out to us wanting to launch a program where they were able to work with a utility company here in California to install Eevee charging stations at their affordable housing communities. And then they wanted to assist their residents in obtaining financing for ATVs at fair rates. So we were able to work out a partnership with them as again, leveraging credit enhancement, to offer sub 6% rates to borrowers down to 500 FICO scores. So that is, I mean, just and they came to us with a need in their community, and then our just approach to try and meet that need.
Williams 33:55
Thank you. And for you, Casey, from rsls, finance, and finances perspective and your personal perspective. What are the biggest gaps right now that banks should feel for entrepreneurs?
Johnson 34:11
Yeah, I mean, the one that popped to mind for me, as I was thinking about this question, it ties back cling to the introduction you shared with us and the effects of systemic racism, one of which is that black families now have on average, about a 10th of the wealth of white families in this country. And so among a whole slew of outcomes, one of those is that black entrepreneurs don’t have access most likely to the same friends and family capital, right to get their businesses off the ground. And then to get them ready to join a debt partner like RSF or you know, another conventional financing partner. And so equitable lending practices, we just we have to account for that we have to realize that one size doesn’t fit all and that communities of color entrepreneurs of color in particular are going to benefit from a blended Capitol solution meeting them where they are. So at RSF, you know, one of the ways that we practice that and like live into that reality is what we call an integrated capital approach. So, as opposed to that one size fits all model, we’re using a whole spectrum of financial products and non financial, I guess, so that we can center a borrower’s needs in both the investment structure and the relationship. So, you know, in the financial end, it’s, we have a senior secured debt portfolio, not very generous in terms of the credit policy and what we’re able to do out of that risk profile. But what we do instead or In addition, is we raise philanthropic funds. And so these are what let us fill the gap between an entrepreneur’s needs and that more traditional credit policy that we have with the big portfolio. So these philanthropic dollars, they can do anything, it can be sub debt, it can be, you know, guaranteed a bridge, a lump sum, a lack of collateral, maybe it’s a grant for technical assistance, or some equity like product that this product, this philanthropic capital doesn’t care what somebody’s credit score is, doesn’t care where they’re coming from, it’s all about making up the gap so that we can put those entrepreneurs on the same footing, and level the playing field. Again, like we’ve talked about this in the last couple of things and claimed it, it’s about thinking about risk differently, too. So a lot of us as bankers, you know, our risk meters go off when we’re talking about under collateralized loans uncollateralized, God forbid, or, you know, early stage earlier stage enterprises and so in our heads are ratcheting up the interest rate and the pricing on those loans. And doing so perpetuates that systemic institutional racism, we’re higher rates are charged to borrowers of color. So at RSF, you know, because it’s philanthropic, we built our capital stack intentionally to allow to ourselves to be able to charge low interest rates on those products and services. We’re also not even all that concerned about the risk of losing principle on that philanthropic capital, we’re actually more concerned about the risk of not supporting that amazing entrepreneur who has an awesome idea and needs the support to get off the ground, and to build wealth for their communities. So anything just like to expand this a little bit, not everybody’s going to have that perfect capitalization structure, we’re still learning about what perfect actually means. But outside of the capitalization structure of any given institution, I think one of the coolest things that you can do is to collaborate as a financial institution and to recognize that there are already institutions who are grounded in like a place and a community and a culture and to support their work. So I know RSF has a couple of partners, I’ll just call out because they’re really amazing. Native American bank, you know, built off an understanding that tribes need banking services that understand their needs. And so for Native American bank, they understand the context and the culture. So to them lending into Indian country doesn’t look like risk, it looks like opportunity to lift up their community. And another shout out is runway if y’all haven’t heard of Jessica Norwood. But she asked the question, you know, what would it look like if the financial system loved black people? What would it look like if the financial system loved black people. And so runway provides entrepreneurs with early stage is we believe in EU funding, and its holistic business support. And it helps to bridge the racial wealth gap so that African Americans in their local communities can build wealth. And it’s just it’s incredible work. And so these folks are the ones who are really leading the way on fair pricing and filling financing gaps because they know their communities best and what they need. So I think the other thing for all of us things to keep in mind if you don’t have to do it all, but reach out and partner with the folks who are leading the way on this.
Williams 39:04
Thank you What a statement. What was the what would it be like its financial industry look like people? Okay, so for our last question, which is a great segue into it. So my screen over. So post Joyce floors murder, we have seen corporations and institutions pledging to take significant actions to address racial inequities and injustices in society, from corporations like Netflix and PayPal, putting highly targeted investments into black owned financial institutions to increase donations to HBCUs. And I went to Morehouse College. We also increased urgent urgency around black representation in C suites. With these and the guilty verdict or the in the murder of George Floyd. To me, it feels like we’re reaching a tipping point in corporations supporting black lives of people of color. And I just want to ask you all how do you see this moment in time? And do you have a sense that we will see success action or progress, especially from actors in the financial services sector in about two minutes each. I know that’s a lot to cover in that time. But that’ll be that’ll close this out for the pre recorded session. And start, yeah, the cohort, check it out.
Smith 40:19
This is a huge question. And I guess I’m a, I’m a person of hope. So I’ll just say I hope so. Beyond beyond that, you know, I hope hope for continued public awareness and public attention paid to all of this, all of these issues, you know, not only to the the banking specifics, but just the pitfalls of the current system that we operate in, you know, I think that it would be a, it would be a much better world with more diverse representative set of people in charge of our current system. But I still think of that it only as a waystation. Along the way, as a as a stop along the way. And I think there’s a lot of there’s a lot of reform work to be done in not only who represents the banking system, the financial services system, but how it works, and how it operates. In terms of the lenders, the borrowers, the consumers, the whole the whole set of people, I think we have the power to design a fair system for everyone. And it has to start, and I’m glad to see the early steps of it starting with representation. But I think it’s got to go beyond that. We need we need true equity. You know, we’ve seen deficits and disparities across hundreds of years. And even in the kind of 100 years of what we think of as banking in America right now. We we’ve seen the impact of poor and racism, racist, poor and racist decision making skill lists and intentionally poor decision making on communities of color. And in order to record reconcile those disparities, you know, we can’t just, we can’t just aim for fairness. And I think Casey and Charles were both alluding to this or we’re speaking to it directly. We can’t just aim for fairness, we need, you know, affirmative service towards communities of color. And if we’re going to do anything to correct any of these inequities, maybe we can’t correct these inequities maybe in the past, but we can, you know, we can work affirmatively in the future to make sure that people get not only what they need, but what allows them to thrive. So, you know, I think there’s a long, long way ahead of us a lot of work ahead of us. We’re only part of it. All of us here, only each one part of it. But I do have hope for the future. And I hope that we can continue to step forward on this path.
Elliot 43:03
Oh, yeah, sure. Yeah, sure. So I appreciate Pete and the hopefulness aspect for me, it’s, it’s tough, I was thinking about this. And I’m sometimes a pessimist in nature. And I think some ways it’s because it’s easier for organizations to just chalk up a social media when a manager perception, but then not take ownership of needing to address the actual change or do something. And I think that’s what it really boils down to, is that accountability, that we hold ourselves accountable to actually worked towards change and hold the organism, other organizations and our own organizations accountable as well, to not just try and get something out a tweet out there and get a bunch of likes, and then move on and never actually change anything. And within financial services like it, the reality is that there are CDF II banks that are considered good, and get good CRA ratings. And they, I’ve worked at one that ran a model that could project someone’s gonna default in six months and still make that loan. And, like, those are the actors that frightened me. And I think just hearing, you know, understanding that there are good actors out there, and maybe trying to take a little bit of the hopefulness aspect of peak is that acknowledging that there are good actors in finance, and that hoping that they’re working to tread an alternative path, it’s more regenerative. And I think it just comes down to accountability for ourselves and for others and making sure that we actually strive to do real change. Yeah,
Johnson 44:38
I’ve been like pinballing between these two also like, because on the one hand, like the talking about representation, we’re three white people from representing the baking industry, and that’s unfortunate fellowship is important, but obviously, it’s not everything and then it is it’s so much easier to be pessimistic because then it allows us to not have to change But you know, riding the wave of yesterday’s decision in Minnesota, and, you know, all of the hope that has been built over the last year, I do feel a little bit optimistic. So I’m going to at least share that side. Because I know like just reflecting for RSF, we’ve had to reckon with our own role in perpetuating systemic racism. And, you know, we’re a nonprofit, we mean, well, it’s not necessarily the headlines of racism and making that redlining, like whether blatant or subversive, or extractive facing for communities of color, but there’s so many quieter forms of racism in financial services. And so, you know, it’s having a predominantly white team, it’s especially like, at leadership levels and loan officers, it’s loan policies that at least implicitly mean that most founders of color are rolled out. And, you know, it’s loan docs that you can’t read without having a like an attorney, education, whatever that’s called legal background. And, and there’s just like, it’s a comfort with the status quo. And I also, though, have seen over the past, like four ish years with RSF, like, these realities have moved from the periphery and something that we could avoid to they’ve, they’re the center of our decision making on a daily basis now, and that’s because that’s a push, that’s because our community of our investors, and borrowers have brought this to us, they’ve pushed us to wake up to do more and to like, actually live into our values. So now, you know, it’s not perfect, but we’ve made a lot of progress. We’re tracking demographic information of our borrowers and their boards and their beneficiaries. We’ve diversified our board and staff are joining a community of banking peers to move their move our credit policies forward, I think beneficial, for instance, has a underwriting racial justice program that we’re participating in. That’s awesome. And, you know, like RSF has a smaller community. So I think we have a tighter feedback loop. But I have no doubt that base across the country are feeling this like tidal wave, pushing them to wake up and to actually show up. And I like, most importantly, I think I hope I it’s like truly becoming a question of relevance. Because there are so many financial institutions like community banks, the folks that I mentioned, like seed comments, and Native American bank and runway who are doing this work, who are connected to their communities who are like growing, and they’re ready to take up the space that they deserve. And so I’m hopeful that one way or another, you know, either the old horse or especially if we can welcome the new force into banking, I think we will see sustained action.
Williams 47:55
Thank you, friend for ending is there and we will shift over into our live portion for the last 15 minutes of it. Cool. All right, pulling everybody up. Cool. All right. Well, based on our questions, I have a few pulled up. So first off, Pete, can you tell us your thoughts on product services fees that should be started or worked on or eliminated? Sure.
Smith 48:25
Thanks, again, Quinn. I think three things jumped out at me for things that we could immediately work on within financial services. The first is pretty low hanging fruit. It’s bank overdraft programs, specifically fee based overdraft programs. These are high costs, fees that with only a small overdraft, perhaps even, you know, five or $10, or even $20, people are getting $35 fees that are paid back in an average of three days. So this is an extremely high extension of credit. And it’s not really commensurate with the risk that the bank is taking on, because the bank can immediately take back the assets as soon as they get back into your account. There are far better alternatives to this to where there’s a small line of credit, all it takes is 50 or $100, of a line of credit to make sure that those purchases are covered. It covers all the risk for the institution. And it makes for a much lower cost product for customers. So that’s one thing. We think that drains probably about $15 billion a year from Americans. That is a whole lot of money being taken from people that don’t have those means to begin with. Second, I think there’s an opportunity to do some lending and then an opportunity to be careful about what kind of lending we do on the small dollar side. Whether it’s an installment loan or a balloon loan, we think loans should be affordable. We think 36% is a very, very easy bar to meet. For loan products, certainly, we should have terms that allow loans to be paid back over time. And not all do in a lump sum. At that point, it looks more like a payday loan than it does another service that we’d like to think the mainstream bank, mainstream banks and credit unions would offer. You know, there’s a lot of detail, there’s a lot of state to state variation. But we think that there’s a set of good principles on which banks can offer responsible loans, even at a small size. Finally, affordable mortgage credit is not going to become less relevant anytime soon, we need to be partnering with FHA, we need to be partnering with other government programs to provide mortgage credit to people of color to African American communities, to Latino communities, to Asian communities. And we just need to be out there making sure that people have access in a in a world where not everybody has access to familial wealth or wealth passed down through generations, owning a home is still a very good way to build up wealth in and to build your circumstances that you can potentially pass on to your next generation. So I think that’s those are sort of three first steps
Williams 51:19
make up? So next question I have is how can founders and entrepreneurs share risk instead of entrepreneur shouldering and shouldering all the risk? And that’s for a case even Charles, can you tell us a little bit about the organizations are approaching? starving cases?
Johnson 51:36
Yeah, sure. And I mentioned this a little bit in our recorded session, you know, for RSF, the way that we think about sharing risk is diversifying our capital stack. I mean, I think for all of us banks, we need to assess, you know, your business model and how that’s tied back to fairness. Who are you making money off of? And what are the social impacts of those revenue streams, you’re being honest with yourself, you can probably find opportunities for racial economic justice within your business model, and then tie it back to your capital structure. So, you know, what are the sources of capital? And what flexibility do you have? If you don’t have any flexibility with those sources of capital? How can you supplement? or How can you partner with other entities that are better positioned to fill in the gaps for you, I am really excited about the ways that philanthropy is stepping up right now. So a lot of foundations that are, you know, activating their endowments, to be able to put MRI mission related investments, program related investments. Now being able to invest flexible capital, patient capital, also grants, you know, technical assistance grants, even for for profit companies, that’s going to hugely open up the opportunity then for banks to come in and do what they do best in a fair and equitable way. But to fill the capital stack of the entrepreneurs that they’re more comfortable with. So I really do think it’s about it’s about partnership, it’s about being, you know, expanding your toolkit as a bank.
Elliot 53:15
Yeah. And then just to kind of follow up on that, in regards, there’s a very specific question about 0% interest loans for businesses that meet either economic development or community development goals and beneficial state bank, we do not have that type of product, we do something that closest, like, the most similar thing that I think we that would be somewhat relevant is that we do community sponsorship dollars, we have a community sponsorship committee within the organization, and we receive requests from nonprofits within our footprint near our retail locations. And we review those and try to get the dollars back into the communities to support these nonprofits. So that’s like the closest thing we have to that, but not 0% loans at this time.
Williams 54:00
And the final question that I have is, can you all share your thoughts on increasing banking access, we saw in the chat, someone asked about public banking and postal banking. And I’ll start with beat, of course. Sure, I
Smith 54:15
love the idea of postal banking. I am a record collector, and I use the post office for almost everything. I love the post office, I would love to see them in charge of more things. But, you know, I think in a serious way that they have an infrastructure and they have an ability to serve Americans across geography, and it’s just something that we took for granted or didn’t take for granted. But we took as something that we assumed that everyone should have access to. And I think we may think of banking that way, but it’s not exactly that way. We’ve seen, you know, 5.4 million unbanked i think is the newest number from the FDIC in last year’s report. And, you know, we at CRL try to think about what’s pushed Those people away. And we’ve seen I’ve done a lot of work on overdraft over the years. And we’ve seen a lot of people get pushed out of the banking system due to overdraft and some unclear and confusing and very high fees. So I’d say, yeah, expanding banking access is terrific. Also not losing banking access is the other side of that me.
Williams 55:24
Casey or Charles, you have also this last question for the follow up or final thoughts.
Johnson 55:32
Just the only thing, add the pieces is, you know, be aligned incentives, postal services, you know, they’re based in our community, they’re members of our community. There’s, and as a public service, you have the incentive would be to serve people and not serving profit maximization. So I think that incentive alignment is really important, too.
Elliot 55:58
Yeah, and I think just, again, also fan of it in theory, in the standpoint of I think it would help kind of root out and create a really good competition for some of the most likely savory financial practices that exists in a lot of communities as well. So I think that in itself is one of the reasons why I’m a supporter of it.
Williams 56:16
Yes, and beneficial, say foundation is in strongly support and advocate of public banking, particularly, say public banking, local public banking. And we’ll go to our closing slides. information as well. And I saw a couple of questions, particularly that would be relevant for P and to reach out to other folks as well. Yes, and Charles also said in our chat, he that he would be happy to share his contact with a few other people that have questions related to behavioral science, and that that will be shared as well. And I just want to say thank you all to to the people that are coming, and then enjoy your evenings and afternoons and the last live as well. Yes, and for folks that want to know a little bit more about beneficial state and the bank standards, agro bank standards work, you can go to our link. This is a new few web pages that was launched actually today for this particular ad and that you all can go to and Jamie shared the link earlier in the chat as well. And yeah, that is the end for us. Thank you all for tuning
