Black banks struggle to survive
Liberty Bank and Trust CEO, Alden McDonald.
By Patrice Gaines, Urban News Service
Leah Chase recalls a time when she couldn’t get a loan from a white-owned bank to expand her now-legendary New Orleans restaurant.
“I remember my husband going to a bank we used for years,” said Chase, 93. “When we went to get a loan, we couldn’t … This was in 1957, and we wanted to make the restaurant bigger.
“Then Liberty Bank came along,” said Chase, referring to the Black-owned Liberty Bank and Trust, headquartered in New Orleans. The Chases got a $150,000 loan from Liberty to remodel their Creole eatery, Dooky Chase’s Restaurant. Chase has 15 employees today, “sometimes more,” and has fed “the Jackson Five, Duke Ellington, the Freedom Riders … President George W. Bush and President Barack Obama.”
“We were able to visit the president of the bank,” Chase said of her first experience with Liberty. “We could never do that before. It was unbelievable.”
Ironically, while the number of Black-owned banks dwindles, studies show that Black consumers could benefit greatly from the personalized services that these banks still offer. There reportedly were more than 130 banks owned by African-Americans between 1888 and 1934, according to the Federal Deposit Insurance Corporation (FDIC). There were 48 in 2001. Today, there are 22.
But while Chase remains faithful to Liberty, which operates in eight states, generations of younger Black entrepreneurs and potential bank customers do not share her loyalty to Black-owned banks, or any bank.
An FDIC report last month found that half of all African-American and Latino households are disconnected from the formal financial system, compared to one in five white households. This means Blacks often pay more to cash checks, buy money orders and conduct other transactions. Studies and legal victories demonstrate that major financial institutions regularly discriminate against Blacks.
The Consumer Financial Protection Bureau (CFPB) and the Justice Department found that Fifth Third Bank discriminated against Black and Hispanic borrowers receiving auto loans. “Fifth Third charged borrowers higher interest rates because of their race or national origin and not because of the borrowers’ creditworthiness or other objective criteria related to borrower risk,” according to a Justice Department press release.
An American Civil Liberties Union (ACLU) report last year found that between 2007 and 2011, Black households had higher foreclosure rates, but these consumers also had more costly, riskier loans.
In spite of a long record of discrimination by many major financial institutions, Blacks still hesitate to support Black-run banks, said Michael A. Grant, president of National Bankers Association, the trade organization for minority and women-owned financial institutions.
“We found out a lot of African-Americans with good credit will go to majority banks and, if turned down by all, they come to us. They should come to us first. History shows if your credit is decent, you have a better chance to get a loan from an African-American bank. They will counsel, take more time with their customers.”
Personalized service always has been a staple at Liberty. “You are not part of a procedure,” said Alden McDonald, Liberty’s CEO and president. “Our procedures are flexible enough to make things work. When someone is coming to buy a house, we sit down with them to make sure they know what they are doing. Most customers we loan money to have credit ratings under 700.”
A credit score above 700 “suggests good management,” according to Experian credit reporting agency. Some lenders raise interest rates dramatically for customers with scores of 699 or lower.
In Detroit neighborhoods, where a flurry of renovations goes on, McDonald said Liberty even helps people make wise decisions about contractors.
“Contractors have gone in and taken advantage and given high prices and left people in a hole,” he said. “We applied what we did in Katrina. We helped people realize the amount of money they needed to renovate was something they could afford. We even bring someone in construction to help them price out the work on the house before they get a contractor, so we can see if the contractor is really telling them what they need. We monitor the process. It costs us more but we are doing what we need to do to make sure people don’t get in trouble, so we get our money back.”
Chase recently sent her granddaughter to Liberty Bank.
“She is remodeling a house,” said Chase. “The president showed her what to do, how to get the loan. You feel there is somebody who has your interest.”