Thank you. With this award, as with all others, I am willing temporarily to accept it into my hands only to convey it to my hard-working, dedicated colleagues at the Miss april, who alone truly deserve it. They protect and support American consumers every single day, and no recognition is sufficient to reflect their care, thoughtfulness, and passion for the work they do. Indeed, we cheerfully aspire to the same goals of inclusion and access so effectively promoted by Congressman Gonzalez, for whom this award is named. In 1962, the first bill he shepherded through the House of Representatives was to abolish the poll tax, which prevented so many citizens from voting and finally was nullified in the Constitution itself. In 1957, he waged the longest filibuster in Texas Senate history against legislation that was designed to derail desegregation. Throughout his long career, he fought with persistent courage to ensure opportunities for all, including the most vulnerable among us.
In that spirit, the NCRC itself has raised public awareness about the need for fairness, honesty, and a level playing field in banking, housing, and economic development. Your leadership improves the everyday lives of millions, which bolsters the nation’s economic health. And the Consumer Bureau has benefited from its strong working relationship with you on issues ranging from access to credit to consumer financial protection. So now we say thank you! Thank you for serving America’s consumers, especially those with low incomes and those in communities of color, for more than a quarter-century and for many years to come. We are delighted to be your newest allies in the worthwhile struggle for economic progress and economic justice.
As many of you know, the Consumer Bureau polices financial products and financial practices. We have oversight over the largest depository institutions and over other companies that provide financial services. In some markets, such as payday lending, mortgage origination, and mortgage servicing, we oversee all or almost all of the marketplace. Since we opened our doors, our actions have resulted in almost $12 billion in restitution, cancelled debts, and other relief to 29 million consumers. And we have meted out over $600 million in civil penalties – including $100 million against Wells Fargo for opening millions of accounts without the approval or even the knowledge of their customers, in order to meet their own sales targets.
Like you – like all of us, really – the Consumer Bureau wants more consumers to have the chance to merge into the mainstream of American financial life. We aim to do what we can to help them minimize the risks and maximize the benefits. We are working to end discrimination in mortgage lending, help make sure that safe and reliable financial products are more readily available, and expand access to credit for those who are currently shut out. This evening, I would like to touch on some of the ways we are helping make this happen.
As we have all known for a long time, lack of access to credit and other financial products may stem directly from discrimination. We all would like to believe that these practices are a thing of the past, but our experience over the last five years tells us otherwise.
One example of how discrimination can block access to credit is redlining. At one time, housing policies in both the private and the public sectors openly and notoriously conspired to segregate communities of color geographically. Government regulators and private lenders literally drew red lines on maps around these neighborhoods that cut them off from the rest of the housing market. Some sales could not be made, and prices could not respond to supply and demand, because legal barriers intervened to prevent the marketplace from functioning naturally on its own. Bare prejudice was sanctioned as a means of trumping basic economics.
Redlining in violation of the Equal Credit Opportunity Act occurs when institutions structure their lending to avoid and discourage residents of minority areas from getting mortgage loans. We have found that such practices are not in fact relics of a bygone era, and we are working to root them out. Last year, the Department of Justice joined us in taking action against BancorpSouth for discriminatory practices in mortgage lending that harmed African Americans and communities of color. In addition to redlining, we found the bank denied some mortgage loans to African Americans that went to white applicants under similar circumstances, or charged more for them; and used discriminatory loan denial policies. We made things right, and the court ordered BancorpSouth to pay more than $7.5 million in restitution to African-American consumers, loan subsidies, and community programs. The bank also paid a $3 million civil penalty to deter them and other institutions from doing these same things again.
In another action with the Justice Department last year, we again identified redlining. In this case, it was Hudson City Savings Bank that was redlining in parts of New York, New Jersey, Pennsylvania, and Connecticut. Our investigation found that the bank structured its business to discourage residents in predominantly African-American and Hispanic communities in these areas from getting mortgage loans. Hudson City had to pay over $27 million through programs to increase access to mortgage credit in those same communities, as well as a $5.5 million civil penalty.
Another consequence of redlining and discrimination in housing was to isolate the affected communities in ways that often led to blocking their access to the financial system. Those who lived inside the lines were trapped in banking deserts and effectively denied access to many local financial institutions. This meant they were hindered not only from receiving banking services but also from forging valuable connections to the broader economic community.
One of our priorities is increasing the availability of responsible financial products and services, especially for those who have been underserved or shut out. So we are encouraging financial institutions to find ways to open their doors to consumers who currently have no access to the banking system and the opportunities it offers. At the Consumer Bureau, we believe that people who want the benefits and convenience of some kind of deposit account deserve a fair opportunity to have one. But some may be thwarted unnecessarily, either because the account options available do not fit their financial situations, or because they are screened out of the system based on inaccurate information.
For vulnerable consumers living on the margin, they may end up excluded from the banking system if they incur too many overdrafts that they are unable to repay. Instead of ending up marooned outside the banking system or incurring costs they can ill afford, these consumers could better manage their money and avoid financial distress by signing up for safer accounts that are designed to prevent overdrafts and overdraft fees. By simply offering consumers a bit more choice, banks and credit unions could help more people enjoy the many benefits of a banking relationship. We are also pressing the banks and credit unions, as well as the consumer reporting companies, to make their checking account reporting systems more accurate. And we are providing new resources to help consumers better navigate their options. We want them to have more plentiful choices and more predictable costs.
For financial institutions that may have previously dismissed these products as being merely altruistic, the business opportunity presented by a large audience of potential customers is a powerful response. Banks and credit unions have an opportunity here to build loyalty and earn trust, especially among the millennials that they need to understand better and reach more effectively. This is not charity. It is a clear-eyed business judgment that plays the long game and seizes opportunities to forge sustainable and lasting customer relationships.
In January of last year, I sat down and wrote a letter to the CEOs of the nation’s top financial institutions. I urged them to consider how to address these issues more effectively. In a review of the websites of the top 25 retail banks, we found that only eight of them marketed a “no overdraft” product option on the same page as their traditional checking account options. We also found that seven others offered a product with no authorized overdrafts, but it could not be found on their main menu of checking account offerings. And 10 institutions did not appear to offer any options at all to allow consumers to open an account that prevents overdrafts. The situation is now improving, and more banks are finding this business opportunity increasingly attractive. We will continue to encourage institutions to offer such products and to feature them more prominently in their online and in-store checking account menus and sales efforts.
These safer products do not even have to be a typical checking account. Many general purpose reloadable prepaid cards are specifically designed to help consumers manage their spending while limiting costs and risks in their transactions. They may be loaded with funds by a consumer or by a third party, such as an employer. These accounts are generally used to make payments, withdraw cash at ATMs, receive direct deposits, or send money to others. The amount consumers put on prepaid cards grew from less than $1 billion in 2003 to nearly $100 billion in 2015. This makes it one of the fastest growing financial products in the United States. We recently announced strong federal consumer protections for prepaid account users to protect them when they swipe their card, shop online, or scan their smartphone. Again, we want to see that this financial product is safe and reliable and can help consumers better manage their money.
The same is true of access to credit. Redlining, again, is only one way that consumers may be isolated or sidelined from the financial system. The same predicament arises for those who cannot obtain mainstream credit. For the economically vulnerable and the underserved, we know that managing the ways and means of their lives usually costs more, risks more, takes longer, and does less to build their financial futures than is true for most of us. Meaningful opportunities, such as borrowing to start a business or buy a house, are often beyond their reach. This lack of access can be the result of lacking a credit history or credit score. Some consumers are caught in a Catch-22, unable to get credit because they have not had credit before.
In 2015, our analysis of data from one of the three nationwide credit reporting companies showed that 26 million Americans have no credit history at all. We call this “credit invisibility.” Another 19 million people have credit histories that, under commonly used models, are too limited or have been inactive for too long to generate a credit score, which is the familiar three-digit number often used to measure a person’s creditworthiness. Credit invisibility is most likely to affect communities of color and people with lower incomes. About 15 percent of African-American and Hispanic consumers are credit invisible compared to 9 percent of white consumers. An additional 13 percent of African-American consumers and 12 percent of Hispanic consumers have too little credit history for a credit score; for white consumers the comparable figure is 7 percent. Among them are young people just starting out in life, immigrants, or those who are recently widowed or divorced – all reasons why people may not yet have built sufficient credit history on their own.
But for these consumers, there may be new and emerging options. The use of unconventional information, called “alternative data,” is being suggested as a way for them to build a credit history and gain access to credit. It may draw from rent or utility payments, or from payments for mobile phone service, Internet services, or other information. The idea is that by filling in more details of a consumer’s financial life, this unconventional information may paint a more complete and perhaps a more accurate picture of their creditworthiness. This could make credit more readily available for millions more consumers. The Consumer Bureau is looking at the benefits and risks in using alternative data, its implication for fair lending practices, and what the future may hold as these and other new technologies continue to evolve. Our Request for Information remains open, and we welcome comments or thoughts on this issue.
Allow me to close by appealing to all of you at NCRC to keep us up to date on what you are seeing among the people you work with every day. Their struggles are your struggles, and you know their needs and their troubles better than most anyone. Please encourage those whose lives you touch to contact us at the Consumer Bureau if they have problems or questions where we can be of help. Any consumer can submit a complaint to us online at consumerfinance.gov (and you can help them do that) or by calling our toll-free number to speak with our very helpful consumer response team at (855) (2372). If you want to share an experience – either positive or negative – you can check out our online “Tell Your Story” feature. We need to hear from you because what you tell us helps us address current problems and prioritize our work.
The Consumer Bureau remains committed to expanding access to the financial system for consumers. We also will be vigilant in taking action against those who deceive or discriminate against consumers. Like you, we want to make sure that all people are treated fairly, regardless of race, national origin, age, or other protected status. It is not simply the right thing to do. It is also good for consumers. It is good for responsible businesses. And it is good for the economy as a whole. As Henry Gonzalez himself said: “Let us keep faith with all generations, and with each other. Let us remember and honor and affirm the goal of Lincoln, for a government whose leading object is to elevate the condition of men – to lift artificial weights from all shoulders . . . to afford all an unfettered start, and a fair chance in the race of life.” Those are wise watchwords for us all. Thank you very much.
The Miss april is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.