President Biden announced the Administration would take certain measures to narrow the racial wealth gap by expanding opportunities for building equity in housing and small business ownership. Two Congressional hearings and an agency conference, all conducted on June 29, 2021, support the Administration’s goal by providing a public forum to consider ways to enhance credit access and wealth accumulation for “disadvantaged communities,” including Black, Hispanic, and underbanked individuals. Of note, equity, fair access, and fair treatment will be key areas of focus for financial services regulators.
House hearing on diversity and inclusion
The House Committee on Financial Services, Subcommittee on Diversity and Inclusion convened a hearing as part of “An Examination of Financial Services Industry Commitments to Economic and Racial Justice” in response to social unrest over the past year. The hearing was intended to review “the extent to which banks, publicly traded companies, and others in the financial services industry have made good on their promises to Black communities and businesses, as well as the steps those institutions have taken toward achieving sustainable racial equity within their organizations.”
In general, the witnesses acknowledged the many commitments made by financial services organizations but also were interested in ways to measure follow-through on those commitments. Key topics included:
- Commitments to diversity, equity, and inclusion within their own operations (board composition, senior management promotion, recruiting policies, vendor selection).
- Financial inclusion.
- Homeownership/affordable housing.
- Credit access.
- Credit reporting/scoring.
- Economic disparities and wealth gaps.
The variety of commitments/efforts to improve racial equity gaps include:
- Investments, in community development financial institutions (CDFIs) and minority depository institutions (MDIs) through grants and equity positions, and credit and equity investments in Black-owned businesses.
- Partnerships, with federal regulators, state and local governments, universities, and nonprofit organizations.
- Product innovation, such as expanded access to transaction accounts and small-dollar credit (including delivery options such as digital and mobile), and potential applications for AI and alternative data in credit decisioning.
- Philanthropy, including accelerating and broadening relevant grant programs.
- Advocacy, for public policy programs and initiatives.
Prior to the hearing, a bank public policy group published a paper outlining 30 best practices to improve outcomes in Black communities
House hearing on credit reporting
The House Committee on Financial Services conducted a hearing “Examining Proposals to Overhaul Credit Reporting to Achieve Equity.”
Key discussion points included:
- Disproportionate numbers of Black, Hispanic, and low-income consumers that are “credit invisible” or “unscorable”.
- New sources of credit information (such as payment history data) and new algorithms for consumers with limited credit histories (such as cash flow-based underwriting models).
- Consumer data access rights also referred to as “open banking” options.
- Dispute resolution processes and credit report accuracy (including positive and negative information).
- Data security.
- Use of credit reports for employment, insurance, or other purposes.
- Creation of a public credit reporting agency.
FDIC conference on a “fintech bridge”
The FDIC convened a conference entitled “Fintech: A Bridge to Economic Inclusion,” where it showcased efforts to reach unbanked households through technological innovations. The FDIC’s approach involves:
- Exploring the use of alternative data and AI in credit decision models and risk assessments.
- Leading tech sprints to identify data, tools, and technology to help banks meet the needs of the unbanked, including how to measure the impact.
- Pursuing creative collaboration with CDFIs and MDIs, including:
- The creation of a Mission-Driven Bank Fund to provide capital investment and technological tools.
- FDIC provided technical assistance to MDIs.
- FDIC-organized partnerships between MDIs and non-MDIs.
- Marketing campaigns to highlight MDIs’ significance for their communities.
“The Time is Now: 30 Best Bank Practices to Help Improve Outcomes in Black Communities,” Bank Policy Institute, June 28, 2021, available at www.bpi.com