By John Heltman
BALTIMORE — Even as the smoke was clearing from the riots that erupted in the streets of Baltimore late last month, policymakers zeroed in on the root causes of the unrest in the blighted neighborhoods that were most affected — lack of jobs, lack of opportunity, and a lack of investment.
Rep. Elijah Cummings, D-Md., whose district includes the epicenter of the unrest in west Baltimore, said during a forum in that city May 11 that the lack of traditional banking services in the affected communities is a key cause of the poverty and crime in those areas.
Citing recently-released data from the National Community Reinvestment Coalition demonstrating the paucity of bank branches in the blighted communities, Cummings said that those areas need more access to bank services if they are going to turn their fortunes around. Without them, communities turn to high-interest payday or car title lenders, whose practices can leave the borrowers worse off than if they had never borrowed at all.
"I am not suggesting that major banks move into these neighborhoods overnight," Cummings said. "My point is that the decreasing number of banks in these areas — and the increasing number of families being preyed upon by unscrupulous servicers — is a symptom of a much larger challenge."
If the answer to unrest and poverty is investment and commerce, how can policymakers encourage lenders — particularly banks — to put their investments in those places where it can do the most good? Some see reform of the Community Reinvestment Act as a potential answer, either legislatively or in its implementation by regulators.
Passed in 1977, the law requires banks to make loans to low- and moderate- income borrowers in the institution's "assessment area," defined as areas where the bank has its headquarters, branches or deposit-taking ATMs.
But Dory Rand, president of community advocacy group the Woodstock Institute, said the law needs to be updated to reflect how people bank in the 21st century. He said tethering "assessment areas" to a bank's physical presence in an area does not account for the fact that many customers conduct all their banking activities online, and some banks have no brick-and-mortar locations at all.
"When all banking was in bricks and mortar, that might have made sense," Rand said. "But now, when we're in an age of many internet-based banks that are not primarily brick-and-mortar-based, it doesn't make sense to still have their CRA obligations to serve low- and moderate-income communities defined solely by where they have buildings and ATMs."