Chicago fails to flex its muscles to end predatory lending practices, audit finds

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Chicago continues to deposit millions of dollars in taxes at banks that engage in predatory lending practices because the Finance Department is not using the tools at its disposal to stop it, an internal audit revealed Tuesday.

Banks referred to as “municipal custodians” have long been accused of investing far more money in predominantly white neighborhoods than in communities of color.

These discriminatory lending practices have made it more difficult for African Americans and Hispanics to obtain mortgages, business loans, or home improvement loans. This has perpetuated a wealth gap and historic divestment in the southern and western neighborhoods.

The most recent study documenting these inequalities was conducted by WBEZ-FM (91.5). It showed that banks loaned 12 cents in black neighborhoods and 13 cents in Hispanic neighborhoods for every dollar loaned in white neighborhoods.

In order to promote “diversity, inclusion and equity” in lending, the Chicago “Responsible Banking Ordinance” requires banks receiving city deposits to submit detailed information about their lending practices.

Retired Inspector General Joe Ferguson checked the city’s process for appointing so-called “municipal custodians” to determine whether the city’s goals were being met.

The audit found “rigorous collection” of information required by law, but “no substantial assessment” of that information.

The Ministry of Finance “identifies potentially predatory loans” and follows up with banks to inquire about “specific conditions underlying” these loans. But the department has “never refused to designate a bank as municipal custodian on the basis of such lending conduct.”

“Without carrying out an in-depth assessment of each bank seeking designation,” the audit said, the finance department “cannot identify demographic disparities in banking activities. Banks could then continue to lend unfairly across Chicago as the city continues to partner with them. “

Even after the finance department used a request for proposals to identify eligible banks, the entire city council does not regularly vote on this city custodian ordinance.

The fact that the finance ministry, city treasurer’s office and city council “failed to coordinate their efforts” to meet the city’s goal of encouraging fair banking practices further hampers the process.

“The three entities operate largely in isolation and the Board rarely designates custodians. … This lack of coordination has hampered serious discussion of alternative banking options, ”the audit said.

“For example, the finance ministry, city council and treasurer’s office have all separately expressed interest in allowing credit unions to become city custodians. … Without a coordinated effort, the initiative failed to gain traction.

In a press release accompanying his audit, Ferguson said the Responsible Banking Ordinance is where “the rubber meets the road, but for a car we’ve always kept it parked.”

He added, “Without proper valuation measures and procedures in place, there will continue to be racially and geographically inequitable income and lending practices.”

The finance department responded to the audit by promising to “share information relating to predatory and fair bank lending” and to work with city treasurer Melissa Conyears-Ervin to “determine what information it will request from banks at the future “.

Additionally, the finance department is working with the treasurer’s office to update the 2022 bidding process and form an assessment committee to ensure banks meet these requirements. He has already created a working group to “explore alternative solutions” to credit inequalities.

Ald. Harry Osterman (48th), chairman of the city council’s housing committee, said the audit “shows what many of us already know” – that there is “a lot of work that we need to do as city ​​”to put Chicago money in its mouth is.

“We just took a census. Parts of our city have lost a large population and part of our city has grown. Part of that is access to capital and access to loans. It is a historic divestment. The lenders were involved in that, ”Osterman said.

“Look at the home sales that have increased in the last five months and the loans that are part of it. Are those in the communities that need it most in Chicago? Or are they on the north side? It must be fair. It has to be in the communities we hold dear that need help.

Earlier this year, the finance committee delayed a vote that would have designated 13 banks as municipal custodians to increase pressure on banks to start lending to Chicagoans and black and Hispanic businesses, invest in the South Side and West neighborhoods. Side, and get them to attend a hearing on their lending practices.

It did not work.

Eight banks declined the invitations: Associated Bank; Bank of America; Citi Bank; Fifth Third Bank; PNC Bank; American Bank; Wells Fargo; and Wintrust. JP Morgan did not respond, Osterman said.


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