Are minorities less valuable to banks? For some time now, financial institutions have seen minorities and the poor drift away from traditional banking. Way back in 2012, a report by the FDIC published these startling numbers: 8.2% of all U.S. households (almost 10 million) are unbanked. 21% of blacks are unbanked 22% of foreign-born non-citizens are unbanked Nearly 23% of households with unemployed members are unbanked Of households that make less than $15,000 per year, 28% are unbanked Yes, more and more minorities and poor households are shying away from traditional banking and finding other places to keep their money and cash checks. They're opting instead for pawn shops and corner stores to cash checks and mattresses to store money. But why? Maybe it's because of their own personal financial histories. Maybe it's a fear of fees and interest. Or maybe they can sense the disdain that many banks seem to hold toward them. Although banks have denied that they discriminate against minorities in any way (it's illegal) the practice is well-documented in nearly every major U.S. bank. It shows up in every kind of interaction that banks have with minority customers, from customer service to interest rates. And it can cost minority customers dearly. Here are the five ugliest side effects of bank discrimination against minorities and how they hurt these groups: 1. Bad service and products for small business owners Small businesses are the backbone of any community. So what happens when minority small business owners get a subpar level of service and products from banks? To understand how the treatment of minority business owners by banks differs from the treatment of their Caucasian counterparts, a trio of business school professors decided to hold an experiment: they sent a group of Caucasian, African-American, and Hispanic entrepreneurs to banks to inquire small business loans. They even dressed them in matching outfits. The results, published in the Journal of Consumer Research, were eye-opening: "White business owners got better and more encouraging service, according to a new paper describing the study in the Journal of Consumer Research. Bank employees were more likely to tell them about loan terms and fees and more likely to offer help filling out an application. Bankers were more likely to ask minority entrepreneurs about their personal finances and less likely to offer the black and Hispanic mystery shoppers a business card." Whether consciously or subconsciously, banks seem to give minority business owners short shrift, eyeing them with suspicion instead of as a potential partner. 2. Subpar products for minority customers Banks often have a different set of products inexplicably set apart for minorities than they do for their white customers. Case after case has shown that banks actively steer minority customers toward these products and steer white customers away. A lawsuit was recently brought against M&T Bank by the Fair Housing Justice Center in which the Center sent a group of South Asian, African-American, Hispanic and white testers to M&T's loan office in New York City to inquire about getting a mortgage for a single-family home or condominium. All were female and posed as single without children. As these testers interacted with M&T loan personnel one major difference became clear in how the white testers were serviced in comparison to the minority testers. M&T Bank's Get Started Program is "limited to homes located in 'majority minority" neighborhood (more than 50% minority population) or in low or moderate-income areas." When loan personnel mentioned this program to white testers something peculiar happened: "[W]hite testers were discouraged from applying for a Get Started mortgage. In one instance, a loan officer told a white tester, "I highly doubt you're gonna buy in an area where you're a min...more minority than majority." And this isn't the only-or the biggest- story of this kind. In fact, the practice of banks aiming inferior products at minorities was one of the driving forces behind the sub-prime mortgage crisis that fueled the financial meltdown of 2008. In 2011, the Justice Department went after Countrywide Financial for steering 200,000 minorities into subprime mortgages with higher interest rates based on their race between 2004 and 2008. Bank of America, who purchased Countrywide, settled out of court for $335 million. In 2012, the Justice Department went after SunTrust Mortgage after reviewing 850,000 residential mortgage loans and concluding that SunTrust had exercised racial bias against its minority customers. SunTrust settled out of court for $21 million. That same year, Wells Fargo was charged with steering 4,000 minorities into sub-prime loans, even though they qualified for better loans, and then jacked up their interest rates. Wells Fargo insisted that they "treated all of its customers fairly" but settled for $175 million. Do banks really push inferior products at their minority customers, even when they qualify for better ones? For the resounding answer, you need only look to the headlines of the last seven years. 3. Smaller loans with higher interest rates for minorities Banks' discrimination of minorities isn't just about bad customer service. Eventually, it comes down to some very real economic impacts. In a 2012 MarketWatch survey of loan data from U.S. banks, these banks were found to be charging minorities 3.3 times more than other borrowers: "Citigroup Inc. issued loans to African Americans with rates 3.38-times more than other borrowers in 2011. Wells Fargo & Co. charged 2.28 times more, while J.P. Morgan Chase & Co. loaned out at rates 2.21 times higher. African Americans borrowing from KeyCorp, owner of KeyBank, saw rates that were 1.7-times higher." Despite solid credit histories and finances, minorities will walk away with exorbitant interest rates and fees that leave them with monthly payments that anyone would be hard-pressed to make. What exactly does this process look like in real-world situations? The M&T lawsuit includes this shocking story from its female testers: "[M&T]'s loan officer advised a Hispanic tester with a higher annual income, more cash, and a better credit score than a white tester that she would qualify for a home price of $100,000 less than the white tester and a loan amount of $125,000 less than the white tester." This story is followed by this doozy: "In another test, [M&T]'s loan officer provided the white tester with detailed information about condominium and cooperative apartment prices she could afford, while telling the African American tester that she was not yet ready to purchase an apartment even though the African American tester stated that she had a higher annual income, more savings, and a higher credit score than the white tester had stated." Of course, the biggest shame in all of this is the chilling effect it has on minorities' economic mobility. For the same quality of housing, minorities will be charged a significant premium compared to their white neighbors. And that difference can be large enough to make what should've been attainable now unattainable; house payments that would've been manageable, unmanageable. From banks that claim in taglines and mission statements to be all about helping people reach their dreams, these policies and decisions make it clear that banks might be interested in the success of only one race in particular. 4. More dilapidated properties in minority neighborhoods Bank discrimination doesn't stop with loan officers and underwriters. Banks have been known to neglect foreclosed homes in minority-majority neighborhoods, a problem which got much worse during the Great Recession. In one example of this, Bank of America, already under investigation for discriminatory practices, had a complaint filed against them in 2013 for leaving their foreclosed homes in bad repair in neighborhoods where minorities made up the majority. Those who filed the complaint the Department of Housing and Urban Development examined 116 bank-owned properties in Memphis, Atlanta, Denver, and other metro areas and found: "Bank-owned homes in black and Hispanic neighborhoods were roughly twice as likely as those in white neighborhoods to show visible evidence of neglect and decay, such as broken windows and overgrown lawns." 5. Fewer bank branches in minority neighborhoods As one final evidence of bank discrimination toward minorities, banks routinely expand their presence in predominantly white neighborhoods but reduce their numbers of branches in minority neighborhoods. Earlier this summer, Chase Bank surreptitiously began pulling their branches out of African-American neighborhoods in Indianapolis. This leaves the 30% of Indianapolis blacks that bank with Chase to search for another financial institution and greatly reduces their banking options in neighborhoods already low on options. A deeper dive by one Indianapolis journalist into Chase's branch locations, comparing branch locations with those areas deemed as "Black majority tracts" by the U.S. Census, discovered the following: "Of [Chase's] 53 branches, only nine are located in Black-majority census tracts... Several sources tell me Chase plans to close another city/county location, in an area with the third highest percentage of Black population of any Chase area. That would mean Chase would be closing a third of their branches in Black-majority neighborhoods. Reducing banks in neighborhoods with high concentrations of Blacks smacks of blatant racial red lining." Fortunately, in the Indianapolis example, African-Americans still have credit unions, which they use in higher numbers than they do Chase. Other minority neighborhoods aren't so lucky, as minorities with fewer options are forced to use less reputable and often more expensive options like payday lenders and pawn shops. Minorities just aren't as valuable to banks as whites are The discrimination of banks toward minority groups points to one inescapable fact: whether as organizations or as individuals, banks do not value minority consumers as highly as they do white consumers. What's most troubling about this is that this devaluing is not based on any kind of financial analysis, but on soft, backward, prejudicial ideas about minority groups. Fortunately, although many of the banks in the U.S. have exhibited these discriminatory tendencies, many minorities are finding success with online banks, where they find the color of their skin is less of an issue. Read rating based reviews from real customers and our analysts here at bestcompany.com.
Banks go to great lengths to appear trustworthy and totally on the customer's side. Everything from the friendly tellers to the slick marketing materials built around concepts of dependability and faithfulness is designed to give you a "we're-here-for-you-and-we've-got-your-back-no-matter-what" kind of vibe. Unfortunately, this perception is often not in sync with the real motives of the people running the banks (sub-prime mortgage crisis, anyone?). And often, banks' efforts to widen their profit margins take them into direct conflict with their customers' well-being. Our latest example of bank greed and misbehavior being dragged into the limelight is Wells Fargo, whose employees ordered credit cards without customer approval, opened unnecessary accounts for customer, and even forged customer signatures. Why? Because these employees were promised incentives for getting as many new accounts as possible. How they did it wasn't a big concern for bank leadership-that is until the LA Times released an expose on the bank's fraud. Since the discovery of this fraud, more than 1,000 employees have been dismissed, the bank has been fined upwards of $185 million, and, just this week, Wells Fargo's CEO was forced to undergo a verbal flogging before the U.S. Senate Banking Committee. Fortunately, in this case, the damage to customers themselves was minimal. Customers who hadn't actually ordered credit cards or requested to have new accounts opened could simply work with Wells Fargo's customer service to have those closed. But in past banking snafus, customers have paid dearly, often while banks got off scott-free. This definitely applies to big bank transactions like mortgages and other loans, but the same is also true for all of the terms and conditions that often go unnoticed when you create a checking or savings account with a bank. Going into these more minor transactions unaware can cost customers in the long-run, so it's a good idea to know which ones to look for. Here are five tips that can keep you from paying more than you bargained for on your next checking or savings account. Disregard them at your own peril! 1. Make sure you understand their fees Fees of the overdraft and insufficient funds variety are a big business of banks. In fact, a report by the Consumer Financial Protection Bureau found that a whopping 61% of banks' checking account revenues come from these fees. With a revenue stream this sweet, you can bet that banks are going to be sheepish about bringing it up when you open a checking account. In fact, you might not even know they exist until the first one hits. "Consumers make the mistake of not thinking clearly about how they're going to use a product, and how a fee structure would interfere with their intentions," says banking expert Dani Zabala. "Financial officers make the mistake of not bothering to explain it to them so as not to interfere with a sale." Zabala also warns that these fees last as long as your account is open with the bank. For bank employees who probably won't stay with a branch of the bank for long, your long-term financial health is not top of mind. And remember, banks want you to pay these fees-at least, it's in their best interest. That means the responsibility to know and understand the fees and penalties attached to the savings or checking account you're interested in rests squarely on your shoulders. Before you sign up, ask the bank employee questions and don't stop asking questions until you have a firm grasp on the fees you could potentially be paying down the road. 2. Make them address cases of fraud If you haven't had your bank account hit by fraud in the last five years, consider yourself lucky. A report from Payments Cards and Mobile found that in 2012 alone Americans lost $1.57 billion thanks to debit card fraud. Fortunately, most banks are pretty cool about clearing these situations up-and not at your expense. But you have to bring it to their attention. Rarely will they call you to let you know that fraud has occurred on your accounts. Much of the time, banks are ignorant to instances of fraud, but sometimes they are actually part of the problem. Investigations have revealed that some banks have known that fraud was being perpetrated by untrustworthy Internet retailers, but because they benefitting from the fraudulent transactions, they turned a blind eye to it. In the end, the Justice Department found that the bank in question had knowingly allowed unscrupulous merchants to commit debit card fraud over two million times, taking more than $100 million from customers' accounts, without doing a thing to stop it. Whether fraud is happening under a bank's roof intentionally or in ignorance, most banks need a nudge from the customer to give these cases the attention they deserve. The experts' advice: if you see an unexpected charge on your debit card, don't keep it to yourself. Call your bank's customer service line, bring it to their attention, and demand action. 3. Go with a credit union instead It's true that credit unions are businesses that want to make money, just like traditional banks, but a number of factors make them a fairer and safer place to keep and manage your money. These stats speak for themselves. Recent numbers pulled by the National Credit Union Administration this past summer found that the average rate on a 36-month car loan from a credit union was 2.66%; the same loan from a bank averaged 5.13%. The same study discovered that the average bank-issued credit card had a 12.71% interest rate; those issued by credit unions averaged 11.64% interest. Because credit unions tend to be local and closer with their communities, they tend to be more lenient/cautious when doling out banking fees. They also tend to be much better to work with on loans. "While no lending institution is going to be careless with loans, community-based credit unions tend to be easier to deal with than megabanks," says Stacy Johnson from MoneyTalkNews. "Lending decisions are more likely to be made locally with more flexibility. 4. Keep an eye on those maintenance fees Most people are familiar with the dangers of overdraft fees, but we often overlook maintenance fees. These often show up as monthly or annual fees, and it's easy to forget they're coming, especially if you're under the illusion that your checking account was free. The plus here is that, if you keep your account balance above a certain amount, the maintenance fee is usually waived. What makes these fees especially dangerous, however, is how their rules on minimum balances tend to change over time, often without you being informed of these changes. Banking guru Bob Sullivan explains: "The minimum balance can be raised from $1,500 to $2,000, for example, with little notice." He then recommends that customers, whenever possible, make a conscious effort to keep their accounts well above what you think is minimum balance amount, $500, $1,000, or even more. "With savings rates so low, the cash won't do you any good in savings anyway, so just put $2,500 in that $1,500 minimum balance account and pretend it's not there," says Sullivan. "You are buying insurance against the occasional fee (and against overdrafts). If it saves you one fee, you will have "earned" more than anything else you could have done with that money." 5. Avoid savings accounts Sullivan mentioned this above, but it's worth repeating: savings account are a losing game. Because the Federal Reserve interest rate is currently at an all-time low and holding, interest rates on savings accounts are also extremely low, to the point that inflation is actually higher. "The result for consumers is earnings on bank deposits that don't even keep up with inflation," laments Megan Elliott at CheatSheet. "If your nest egg is sitting in a savings account, there's a good chance you're actually losing money." Elliott recommends turning to credit unions for higher savings rates. It's not guaranteed, but it's probably a better option than shopping for savings accounts at the national banks. You Have Options Luckily, when it comes to banking, you still have plenty of options. Your best first step is to educate yourself about each bank's policies and practices. Then, once you've found a bank or credit union you're comfortable with, stay on top of incidents of fraud and those practices that will cause you to be fined by the bank. A little vigilance in this area is an investment that could reap big rewards in the future. How do the biggest banks stack up to one another in terms of service and offerings? Visit our Banks Reviews page to read reviews from real customers.
When looking for a bank to open an account with there are other factors to consider besides how large a bank is or how reputable the bank is. Let's talk about what other factors can help people make good decisions on banks. Location & Usability When it comes to choosing a bank people usually look for banks that are close enough to get to. In a world so fast pace a close ATM location is something that needs to be convenient for most to get to. If you are the type of person that is on-the-go finding a bank with good location might not matter as much. With the world going so mobile you should research if a bank has good online service, usability for you and easiness to access, deposit or transfer funds online. What kind of person are you? Would you rather talk to somebody face-to-face or just operate online? In my opinion, it is good to look into both. No matter what kind of person you are it is always good to have the bank you choose close to where you live or work, and be very user friendly online. Service Needs First of all you consider how responsible you are with your funds. Almost all banks offer the same types of service and most fit to many different needs. The choice for you may not matter what bank you choose, but what service you need. You probably wouldn't be researching what bank to invest in if it was such an easy choice. Consider This: What type of account(s) do I want to open? Will my history be a problem? Is their customer service friendly? These are questions you need to ask yourself. You may consider looking at user reviews or calling/visiting a bank for answers. Knowing if you feel comfortable with them is a decision only you can decide. Fees In our ranking criteria for banks here at bestcompany.com, we didn't layout the price of each fees and compare because each bank's policy varies enough that it is not something that we can universally differentiate for customers. Each of us is different. It is important however, to learn what fees banks they have for their services. Do they have an overdraft fee? What is it? How does it work? Look for small fees, researching can show you that even small fees can start to add up. Wise advice is don't be caught continually paying the bank to use them. Let's consider some small fees that banks may have. Overdraft fees Low balance fees Monthly maintenance fees Paper statement fees Wire transfer fees debit card fees and others You can't avoid all these fees. Most banks will have fees. The main thing to understand is how you operate? What is best for you? A bank may have a low balance fee, but if you are using the bank for savings and you don't dip into it. Then that may not be a problem for you. Another scenario could be that the bank has paper statement fees, teller visit fees and check fees. And you know that you are the type of person that would typically interact with a machine for your bank use and those fees may not be a problem. So consider how you operate financially. The Bottom Line The importance of using a bank is real. Many of you could be new to banking and may not want to open a bank account. You should understand the security value behind banking and investing benefits once you have generated enough money. Banks are established, help track funds and good for convenience. If you are new to banking understand what you need to qualify to open an account. All of the information banks need to get you started will comply with federal laws and so don't be alarmed. Just remember to stay alert, do your research and become an expert.