Wall Street Pretends to Champion Racial Justice as it Undermines Civil Rights
Wall Street banks say they care about racial justice. But they fight tooth-and-nail against measures that would promote fairness and equity.
A Trump-appointed federal judge in the Northern District of Texas sided with the industry last week when he issued a preliminary injunction to temporarily block the updates to the Community Reinvestment Act (CRA) finalized by regulators in October. Meant to encourage lending to underserved communities, the CRA faced legal challenge earlier this year when banks claimed the agencies overstepped their authority. Fed Vice Chair Barr defended the rule update last week, noting that Congress “left it to the banking agencies to make sure that CRA kept working over time.”
The decision comes on the heels of a lawsuit attempting to stop the CFPB from issuing fair-lending guidance. And there’s another to keep the agency from collecting small business lending data, including demographic information about loan applicants and recipients.
After a flurry of racial equity pledges in 2020, banks have seldom followed through on their racial justice commitments. In October 2020, JPMorgan promised to create 40,000 new Black and Latine homeowners over its 2019 level, but in 2021 only underwrote 122 mortgages for Black homebuyers and made fewer home loans to Latine buyers. Last August, Rep. Ayanna Pressley probed bank CEOs on these commitments. At a hearing last month, she said: “There has been little-to-no progress” in changing culture and internal policy at banks.
Americans for Financial Reform’s Caroline Nagy highlights the sheer hypocrisy. She writes:
Wall Street and the big banks should be held accountable for their actions, rather than their hollow proclamations. When banks seek to undermine civil rights by suing to overturn the updated Community Reinvestment Act regulations or anti-discrimination guidance in small business lending, they are telling us that they do not truly value racial justice or eliminating inequity and systemic racism in the financial system. We should remember this truism the next time they try to pretend that their highest value isn’t profit above all else.
BANKING AND FINANCIAL STABILITY: When You Give a Firm a Bank – Commercial Real Estate
CONSUMER: Overdraft – Fifth Circuit Lawless – Junk Fees – No Free Money – Gamers
PRIVATE MARKETS: Insurance – Private Equity and the Emergency Room – Private Equity and Concierge Care – Private Equity’s Market Share – PE Goes for Pets – Other Private Markets News
CRYPTO: Tokenization
HOUSING: A Home Loan Scheme
CLIMATE AND FINANCE: Bankrolling the Climate Crisis – Climate Disclosure – Climate Rules for Wall Street?
Feedback? Reach us at afrnews@ourfinancialsecurity.org
BANKING AND FINANCIAL STABILITY
When You Give a Firm a Bank.
The FDIC has launched a probe into whether the Big Three asset managers – BlackRock, Vanguard and State Street – are sticking to the role of passive investors. BlackRock and Vanguard both hold more than 10% of the shares at several banks, the threshold beyond which an entity is considered to have a controlling interest and a limit that would normally require regulators’ approval to cross. But, “regulators in effect exempt the biggest asset managers from a host of onerous banking rules,” WSJ reports, including the 10% line, as long as these money managers remain passive. FDIC board member Jonathan McKernan wants his agency to do more to ensure the Big Three “are not leveraging their stakes to exert influence over FDIC-regulated banks,” he says.
Commercial Real Estate.
Commercial real estate loans could cause financial instability as more than $900 billion come due in 2024, on the heels of a rough 2023. Last year’s regional banking crisis, along with the near-failure of NYCB, are contributing to an already rocky outlook for the year, with some analysts warning of another regional banking or municipal finance crisis.
CONSUMER
Overdraft.
AFREF and 143 organizations submitted comments backing the CFPB’s overdraft rule. The coalition urges the agency to set the benchmark at $3, rather than $14. Said AFREF’s Amanda N. Jackson:
“Individuals who frequently experience overdrafts often resort to costly loans from payday lenders and loan sharks to pay their fees, trapping them in cycles of debt. This proposal would not only help bridge financial gaps but impede the bank’s ability to use overdraft fees as a tool to exacerbate wealth disparities to the detriment of Black, Latino, and low-income bank customers.”
Writing for OtherWords.org, AFREF’s Brian Carss notes: “These late fees are not based on any sort of need for the bank. The CFPB found that banks take a fee almost five times greater than the cost to the bank of a late payment.”
Fifth Circuit Lawless.
A Trump-appointed judge, citing the absence of ties to the region, sent a lawsuit against the CFPB’s credit card late fees rule originally filed in the Fifth Circuit to the DC Circuit. Then the Fifth Circuit Court of Appeals grabbed the case back late Friday and ordered the DC Circuit to “disregard” the case. Can one circuit boss around another?
Junk Fees.
Nearly 90% of constituents in battleground districts, voting blocs where residents are “closely divided” along ideological lines, say they would support congressional action to ban junk fees – the hidden, unexpected fees that companies tack on to transactions, like service charges on concert tickets – according to polling by Navigator Research.
No Free Money.
A new report from the Center for Responsible Lending provides deeper insight on the true cost of earned wage access (EWA) to consumers. EWA often leads to employees paying excessive fees to access their own money. Overdrafts on consumers’ checking accounts increased 56 percent after using a pay advance product. In 75 percent of cases, an employee has to take out another loan the day after making a repayment, trapping them in a harmful cycle.
Gamers.
The CFPB released a report last week about the financial and privacy risks involved in video games, especially concerning virtual currencies used in games. Many find it hard to differentiate between real and fake currencies and report scams involving such currencies. Gaming companies provide little support when harm is experienced. And they collect data on consumers’ purchasing habits. Young children have accidentally racked up thousands of dollars on parents’ credit cards, as games lure them into buying virtual money with real money without any fail safe.
PRIVATE MARKETS
Insurance.
AFREF and 29 allies urged the Centers for Medicare & Medicaid Services to stop inappropriate Medicare overpayments to insurance and companies and financial institutions. With estimated overpayments ranging as high as $140bn annually, the wastefulness undermines the program’s financial sustainability. The group advises CMS to revise the way it pays out so that financial actors can’t game the system and to increase the coding adjustment for the plans that most abuse the risk adjustment system, among other recommendations.
Private Equity and the Emergency Room.
The Homeland Security and Governmental Affairs Committee requested information from three private equity megafirms – Apollo, Blackstone and KKR – to determine whether private equity involvement in emergency rooms has harmed patients. Interviews conducted by committee members revealed “substantial concerns” related to patient safety and care, staffing, unlawful retaliation, anticompetitive practices and improper billing at private equity-owned hospitals. Last week, NBC estimated that over 40% of emergency rooms are overseen by for-profit health companies backed by PE.
Private Equity and Concierge Care.
Some nonprofit hospitals in Florida have begun offering concierge physician practices, a service that essentially lets some patients skip the line to access care sooner and more easily by paying annual fees that can exceed $4,000. When the practice emerged a couple of decades ago, the first places to adopt it were private equity-backed. Critics argue that concierge services ensure access only for the wealthy, while jacking up healthcare costs for others.
Private Equity's Market Share.
Researchers at Cal-Berkeley looked into the market share of private equity in various medical specialities in several areas of the country. They found that, for example, 40 percent of urology practices in the Philadelphia area are private equity owned. Overall, they found that in 120 markets, PE had at least a 30 percent share of ten different specialties practiced. They note that PE ownership is often opaque and called for the FTC and other regulators to step in.
PE Goes For Pets.
Vets across the country are broadcasting warnings about the role of PE in their field, with one vet stating she was feeling pressure from management to make a certain amount of money off every appointment. Some states prohibit non-vet ownership of vet clinics, and consumer advocates are pushing other states to do the same. PE boosted its presence in the field amid the rise in pet ownership during the pandemic; the business is attractive as most clinics are small and privately owned.
Other Private Markets News.
BREIT-urns. Last year, spurred by investor demands for their money back, Blackstone Real Estate Income Trust paid out more ($2.8bn) than it generated ($2.7bn).
Discounted. Institutional investors are selling more of their private equity stakes at discounts.
Are You Not Entertained? The private equity firm Silver Lake announced it would acquire the entertainment company Endeavor, majority owner of TKO Group Holdings, the company that includes UFC and WWE. Endeavor agreed, giving it a $13bn valuation.
CRYPTO
Tokenization.
The NY Fed will join six other central banks and the Bank for International Settlements in a test to determine whether tokenization – recording assets on a blockchain – increases the speed and integrity of payments across borders, Bloomberg reports. International payments are usually hampered by time zones, differing legal and regulatory requirements, and varying tech levels.
HOUSING
A Home Loan Scheme.
A class-action lawsuit has accused mortgage lender United Wholesale Mortgage (UWM) of conspiring with brokers to burden borrowers with excess fees and costs. Nearly 9,000 loan officers across the country sent UWM more than 99% of their mortgages in 2023. UWM maintains an “All-In” policy, which bars any broker who conducts business with the lender from shopping around from its rivals, as well as a “Lock-In” policy that prevents the broker from shopping after a mortgage is locked in at the beginning of the loan process.
And: A hybrid news-outlet-cum-hedge-fund called Hunterbrook, an entity designed to place trades based on its scoops, shorted the lender before it published an investigative report on UWM that ultimately led to the class-action. Hunterbrook is a new experiment in news gathering, backed by investors.
CLIMATE and FINANCE
Bankrolling the Climate Crisis.
According to a new study from Topo Finance, in the seven years after the Paris Agreement on climate was signed in 2015, the world’s 60 largest banks provided $5.5trn in financing to fossil fuel projects. Thanks to this financed pollution, if U.S. financial firms (banks, asset managers, insurers) were their own country, they’d have the third-largest emissions in the world, after China and the United States itself.
Climate Disclosure.
Under the pressure of legal challenges, the SEC has paused the implementation of its climate disclosure rule, saying it would be “vigorously defending” the validity of the rule.
The Union of Concerned Scientists argue that the SEC’s watered-down climate disclosure rule barely clears a low bar, bowing too much to industry complaints. While the new rule is an improvement, they say that the SEC has failed to set a standard that will truly help investors.
Climate Rules for Wall Street?
U.S. regulators have blocked a push for the Basel Committee on Banking Supervision to require lenders to disclose how they plan to meet their climate commitments. Chair Powell has argued that it isn’t the Fed’s place to set climate policy, even though advocates like AFREF have urged stronger steps to tackle climate financial risk.