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Amid Skepticism, MN Banks Respond to Calls for Change

The Community Reinvestment Act of 1977 made all "redlining" practices illegal. But observers say minorities still face unfair obstacles in accessing capital. According to a 2017 report from the Federal Reserve, black-owned businesses are twice as likely to be rejected for loans. (Adobe Stock)
The Community Reinvestment Act of 1977 made all "redlining" practices illegal. But observers say minorities still face unfair obstacles in accessing capital. According to a 2017 report from the Federal Reserve, black-owned businesses are twice as likely to be rejected for loans. (Adobe Stock)
June 16, 2020

MINNEAPOLIS -- Racial disparities in Minnesota were getting more focus before the police killing of George Floyd. Black entrepreneurs hope the increased awareness raised by national and worldwide protests will turn the heads of larger banks so communities of color will see more investment.

A number of bank presidents in Minnesota have issued statements pledging to help end any systemic racism within their sector. Kenya McKnight, CEO of the Black Women's Wealth Alliance, said regional banks do well helping nonprofits, but she said there's not enough direct help for black business owners.

"I just feel like there's a lack of value that some of these larger institutions have on our cultural market," McKnight said. "They look at the businesses and they go, 'Is it a viable business?' And the viability of it is based on the broader market. And the broader markets are determined greatly by the dominant culture."

Unlike home loans, where the financial system also has a history of discrimination, banks say regulations prevent them from collecting the racial background of business loan applicants. They point to high grades they earn under the federal Community Reinvestment Act, which urges banks to invest in low- to moderate-income communities.

But McKnight said the act doesn't do enough to spur investment in black neighborhoods that have struggled to build wealth.

Making a Pledge

Jeanne Crain, CEO of Bremer Bank, said there's no denying the nation's banking system has a history of redlining, a practice now considered illegal due to federal laws such as the CRA.

Locally, Crain said her company has made strides through partnerships with organizations such as Habitat for Humanity in serving minority communities. She added the Bremer's board has a presence on the Metropolitan Economic Development Association, which supports businesses of color.

Moving forward, Crain said Bremer is establishing a plan that includes increased investment in businesses owned by historically underrepresented groups. And they plan to identify ways to better serve areas where they have lacked a presence in the past.

"I'm very interested in trying to understand how Bremmer determines a geographic presence that really speaks to and leans into serving black-owned businesses," Crain said.

Despite its "outstanding" rating under the Community Reinvestment Act, their most recent evaluation noted Bremer has only two branches in low-income communities in the Twin Cities.

Digital Presence is Not Enough

McKnight said in North Minneapolis, where she's based, having only a small handful of banks in the area prevents black residents from accessing useful information about loan criteria. Though banks may offer multiple options online, she said, it can be difficult for business owners to navigate the process by themselves.

"[The banks] need a marketing campaign to talk to businesses about the services they provide," McKnight said.

She added images and marketing inside the branches could better reflect the communities in which they're located so as to make customers feel welcome.

Jermaine Toney, assistant professor of economics at Rutgers University, has studied banking access issues in the Twin Cities. He said the lack of services opens the door to non-traditional options that can leave black residents in a never-ending cycle of debt and prohibit them from building wealth.

"Payday loans, auto-title loans, check-cashing institutions," Toney said.

Economists have repeatedly cited these kinds of lenders as contributing to a system in which the accumulation of generational wealth becomes near impossible in black communities.

A number of studies have shown that even when black business owners meet the criteria for a loan, they are still denied at higher rates or are approved for smaller loan amounts than white applicants. A 2017 report issued by the U.S. Federal Reserve showed less than 47% of loans applications submitted by black business owners got approved.

Long-term Accountability

Another of the larger bank chains based in the region, U.S. Bank, said it has made investments in areas lacking economic infrastructure, and they intend to do more in light of growing demands for racial equality.

Like Bremer, U.S. Bank touted its "outstanding" rating under the Community Reinvestment Act. But the bank also received a "D+" grade in the Economic Opportunity Report Card issued by the NAACP. That report, from 2011, praised U.S. Bank for having diversity in its governing body and having a solid presence in African-American neighborhoods, but said the chain needed more diversity in its overall workforce, not just at the top.

U.S. Bank officials have pointed to recent investments made by the bank in communities like North Minneapolis - including a $50,000 grant to Camdentown and Houston White Men's Room earlier this year to support entrepreneurs and small businesses.

But like Bremer, U.S. Bank is also making a public pledge to enhance its work for communities of color. Bank President Andy Cecere said, "If we are truly going to draw strength from diversity, we have to do better. We have to create opportunities that bridge gaps, that generate economic prosperity, and that allow people to achieve their potential."

But economists like Toney say all stakeholders, including residents and local governments, need to ensure banks follow through on these commitments, or he said, black communities will continue to question the promises of American economic mobility.

Mike Moen, Public News Service - MN