Minority Banks See Clients Through Tough Times
MICHEL MARTIN, host:
I'm Michel Martin, and this is Tell Me More from NPR News. Coming up, we'll talk about why housing prices are falling, who benefits, and who doesn't. But first, we want to talk about the color of money, how the banking crisis is affecting communities of color. The federal government is pouring billions of dollars into the nation's major banks. But what about the banks in the neighborhoods that these giant institutions don't serve, the minority-owned banks and credit unions that focus primarily on African-American and Latino communities, groups that often have less access to credit to begin with?
We wanted to know how these institutions are faring in the credit crisis, so we called Bill Cunningham. He's the chief executive officer at Creative Investment Research. It follows minority banks. We also have with us Luis Pastor. He's the chief executive officer of the Latino Community Credit Union. He's in Durham, North Carolina. Welcome to you both. Thanks so much for speaking with us.
Mr. BILL CUNNINGHAM (Chief Executive Officer, Creative Investment Research): Thank you very much.
Mr. LUIS PASTOR (Chief Executive Officer, Latino Community Credit Union): Thank you.
MARTIN: Now, Bill Cunningham, let's just set terms. When we use the term minority bank are we talking about minority-owned banks, or banks that serve primarily minority communities? And how many of them are there?
Mr. CUNNINGHAM: Well, actually, we're talking about both now. The definition used to be, for minority banks, 51 percent or more of the common stock owned by African-Americans, Asian-Americans, Hispanic-Americans, Native Americans, or women. Recently, the federal banking regulators changed that definition to include additional banks, banks that primarily serve minority communities but that - where 51 percent or more of the common stock is not necessarily owned by minority groups.
MARTIN: And how many of these are there?
Mr. CUNNINGHAM: There are 229 women- and minority-owned banks in the country.
MARTIN: Is that a lot?
Mr. CUNNINGHAM: No. Actually, there are 8,384 banks and thrifts in the country totally. So, it's a very small percentage, relatively speaking.
MARTIN: What importance do these institutions have to the communities that they serve?
Mr. CUNNINGHAM: Well, traditionally they were the first source for capital, especially in the African-American community. Because recall, at the turn of the century, certainly up to about the 1960s, African-Americans could not go to a regular bank to get any type of financial services so...
MARTIN: Could not go.
Mr. CUNNINGHAM: Could not go. So, there were a number of story - black banking franchises, which served the needs in those communities. So, they're quite important from that standpoint, historically. Of late, their importance has declined somewhat as the larger financial institutions realized - the Bank of Americas and Citigroups of the world - realized that they could make money in these minority neighborhoods that they had previously redlined, that they had previously excluded from the provision of financial services.
MARTIN: Luis Pastor, tell us about your institution. Who do you serve?
Mr. PASTOR: We're a communities(ph) member credit union, which means that we mainly serve low-income individuals. To be a low-income financial institution you need to be 51 percent, or 51 percent plus one low-income. In our case, we said 97 percent low-income individuals. Being a Latino in North Carolina probably means, in most cases, being an immigrant. So, we serve new Americans, low income, that don't understand, don't know how the system works. So, our institution is focused on - in providing financial services, in providing financial understanding, financial education that you need to receive when you come to this country to make smart decisions.
MARTIN: Now, how long has your institution been around?
Mr. PASTOR: Eight years.
MARTIN: Eight years, and what do you offer that perhaps a big - bigger bank does not?
Mr. PASTOR: Well, we - we have few differences with - in approach. As you, kind of, understand by my accent, English is not my first language. It's my second. So, Spanish is the language that we usually use. And every - it's human nature, everybody prefer to do business in your first language. So even - you come here, even if we learn to speak English, you feel more comfortable when you understand the environment. So we - all of our employees are bilingual. Most of our employees are immigrants, and we understand the mentality of somebody coming to this country with different expectations. And this is helping us to reach our community, our market.
MARTIN: I would imagine that perhaps there's a bit more education going on, a bit more hand-holding than might be the case in another institution. You might have - take more time to walk somebody through the process of setting up certain accounts. Would that be right?
Mr. PASTOR: Yes. Yes, and that's - but there is nothing wrong with that. I don't think this is just an approach that we should take with immigrants. This is approach we should take with anybody that has hold before a bank account. This is something - and when you don't do that is when you have this mess because people buy produce that they don't know, they don't need or they - this produce are not good for them.
MARTIN: If you're just joining us, you are listening to Tell Me More from NPR News. I'm speaking with Luis Pastor and Bill Cunningham about how the banking crisis is affecting minority financial institutions. So, Mr. Pastor, how - what about you? Your - the credit union where you work has been in place for eight years.
Mr. PASTOR: Yes.
MARTIN: Have you noticed - what's been the effect of your institution - on your institution - of the current credit crisis? For example, are your customers having a harder time getting car loans or getting mortgages?
Mr. PASTOR: Not with us. To give you an example, I read yesterday in a magazine that one out of 10 mortgages are getting - being paid late right now. You know, our credit union is one out of 300. So, even serving 97 percent low-income individuals, we are able to help them to stay in their houses. And it's not because we provide extension in payments and other useful tools to keep people in their houses. It's because we do their - why we do a different approach in educating them before going into their houses. Because our goal is not just to give them a loan. Our goal is to help them stay in their houses and create wealth.
MARTIN: Well, you know what?
Mr. PASTOR: Beside that...
MARTIN: What I'm guessing then is perhaps it's that - I want to ask Bill Cunningham this question - that perhaps the issue - the reason that you're getting paid is that people are in houses that they can actually afford. That they have financial instruments that they can actually afford, instead of ones that they cannot. So, Bill Cunningham, I want to ask, one of the driving forces behind this current credit crisis is this whole question of the subprime mortgages. How exposed are most minority institutions to these kinds of mortgages?
Mr. CUNNINGHAM: Not very. I mean, they were very good. You know, I want to pick up on one point about the language barrier being an important rationale for making the case for minority-owned financial institutions. If you look at the growth, the Asian-American financial institutions and Hispanic institutions in California, Texas, and Florida have increased dramatically over the course of the past five years. That's because there is a rationale from a language perspective to seek out to do business with these institutions. Now, with respect to subprime lending, the minority banks did not get involved in subprime lending. They are traditional lenders, you know, making the 30-year, fixed-rate types of loans that they keep on their books. So, they didn't get involved in creating these products that they would then securitize and sell off and you know, really look to maximize revenue. They will...
MARTIN: So because they're holding onto these loans they didn't have any incentive in pushing loans onto people that they couldn't pay.
Mr. CUNNINGHAM: That's exactly...
MARTIN: Because they would actually take the loss.
Mr. CUNNINGHAM: That's exactly right.
MARTIN: Have many minority banks gotten any of this bailout money?
Mr. CUNNINGHAM: Well, there have been some minority-owned banks that have received money from TARP, the capital purchase program. We've listed on our blog this week, in social responsible investing, the banks that have. About one percent of the $156 billion has gone to minority-owned banks. Now, when you break that out, African-American banks have been underrepresented with respect to receiving TARP capitals. Matter of fact, only one African-American, Broadway Savings and Loan in Los Angeles, has received capital from the Treasury. They received about nine million. So, nine million out of $700 billion in funding...
(Soundbite of laughter)
Mr. CUNNINGHAM: Has gone to African-American institutions. Now, there are a couple of Asian institutions, East West Bank in California, a Hispanic institution, Banco Popular in Puerto Rico, which recently got 900 million. So, again, it's been about one percent of the funds that have gone to minority institutions. We think that's low, especially given the track record that these institutions have in reaching out and serving the community in a responsible manner.
MARTIN: Mr. Pastor, I understand that just yesterday you opened up a new branch in the Charlotte area.
Mr. PASTOR: Yes, we did.
MARTIN: While other banks are closing, people - closing down and laying people off. How is this possible?
Mr. PASTOR: Well, as I said before, we serve 97 percent low-income individuals, and this is a great time. If you want to sell to low-income people, this is a great time to - there are many of us around. We feel that, in this moment, the answer is not closing the doors. It's opening doors. It's - we need to give opportunity to individuals to buy their houses. It's a good time if you want to buy. There is a lot of houses for sale. You can negotiate with realtor. You can negotiate with previous owners. You need a place that can trust you, that can understand you, that can look at your eyes and tell you, we're going to be with you for the next 30 years. So, let's do this thing right and let's understand each other.
MARTIN: And Bill Cunningham, finally. We only have a couple of minutes left. You said at the beginning of this conversation that some of these minority institutions, minority-owned and minority-oriented institutions have - are less important in these communities in the wake-up effect. That the big institutions are now lending in these areas where they had not been previously. But we still see in a lot of communities the only source of - financial source of credit - like payday lenders and things of that sort. Do you think that the current financial environment suggests that there might be more opportunity for these kinds of institutions that seem to have lost their - they are less, or at least aren't as prominent as they had been in the past?
Mr. PASTOR: Yes. One thing that we said in a recent article in Black Enterprise Magazine was that we anticipate that, certainly the African-American institutions that are on the ball - and several of them are - will start to increase their advertising, will start to increase their outreach, to pick up some of the customers that are leaving these large financial institutions that did not serve them well. So, we certainly think there is still a rationale, certainly a reason for having minority-owned financial institutions in those communities. Because again, as has been shown by this crisis, the big institutions did not serve those communities well. And by extension, they did not serve the nation well. Because we're going through this crisis currently.
MARTIN: Bill Cunningham is the chief executive officer at Creative Investment Research. He was kind enough to join us in our Washington D.C. studio. I should mention that Creative Investment Research follows minority banks, minority-owned and those that primary serve minority communities. We were also joined by Luis Pastor. He's the chief executive officer of the Latino Community Credit Union. He joined us from member station WUNC in Durham, North Carolina. Gentlemen, thank you both so much for speaking with us.
Mr. CUNNINGHAM: Thank you very much.
Mr. PASTOR: Thank you.