November 4, 2024

Better Markets’ Work Addressing Racial Economic Inequality in Finance

We continue to see the structural inequalities embedded in our economic system, particularly the racial inequalities that have gone on for far too long and are too well-known by many of our neighbors and friends. There is no question that the economy does not work for most Americans, and it works even less for most minorities in this country. Communities of color continue to be deprived of economic and financial opportunities, which all but guarantee income and wealth inequality, perpetuating structural racism across generations.

For example, Black Americans have a very difficult time accessing capital and are, therefore, less likely to start small businesses and see them thrive; the unemployment rate for Black Americans is consistently higher than that for white Americans; and the wealth gap remains huge, as the typical Black family in the U.S. has just 15 cents on the dollar compared to a typical white family. Remarkably, that figure “has not changed all that much in generations,” as detailed in a terrific new book Fifteen Cents on the Dollar: How Americans Made the Black-White Wealth Gap. There are a lot of reasons for the wealth gap, but a key driver is a financial system too often focused on wealth extraction rather than wealth creation, which disproportionately targets and harms communities of color and continues to transfer wealth from the bottom 90% to the top 10%.

In the aftermath of the brutal murder of George Floyd in 2020, many Americans expressed a commitment to do more to combat racial injustice in our country. This included elected officials and regulators, and even financial institutions. The events of 2020 did lead to a long overdue conversation on race and inspired positive changes in some areas. But the truth is that four years later, there is still much, much more to be done to tackle racial economic inequality in our country.

While they haven’t done enough yet, the good news is that policymakers and regulators have the tools to take action and bring about positive change. Retaking and remaking the financial system from a predatory and often extreme form of capitalism into one that supports the real, productive economy is a critical avenue to creating broad-based economic and financial security, opportunity, and prosperity for all Americans. Importantly, ending discrimination in the financial industry – especially in the allocation of capital and the equal availability of other banking and financial services – is essential to closing the racial wealth gap and making the American Dream available to all Americans.

That’s what Better Markets exists to do: fight for a financial system that supports the real economy, jobs, growth, and broad-based wealth creation which provides more opportunity for everyone. To do this we must fight not just against discrimination, but against all wealth extraction, consumer and investor rip offs, dangerous high risk bank practices, CEO and executive compensation that incentivizes predatory practices, and threats to financial stability. To do that, Better Markets takes a holistic approach and is active across all the financial regulatory agencies plus the White House, Congress and the media (as summarized here), while taking a comprehensive approach to policymaking as mapped out in our Arc of Advocacy.

Quick examples of some of our activities at the various regulatory agencies include:

At the SEC, we have been deeply involved in defending an important disclosure rule issued by Nasdaq, a major stock exchange, which the SEC rightly approved. It requires companies listed on the exchange to disclose key information about the diversity of their boards of directors. The SEC’s approval is under industry assault in the courts, and the stakes are high. The decision is now on appeal before a very hostile court. If the court nullifies the rule, investors will be deprived of information they increasingly want and need to decide where to invest their money. Moreover, it will impede progress toward achieving greater diversity in America’s board rooms. Separately, with our allies we also urging the SEC, including directly in meetings with Chair Gary Gensler,to propose a human capital management disclosures rule that will require companies to disclose details on their human capital management.
At the banking agencies, we pushed the banking regulators over several years to modernize and update the Community Reinvestment Act (CRA). Following filing comment letters, supplemental filings, and numerous meetings at the Federal Reserve, the FDIC and the OCC, we also issued a letter to the three agencies critiquing the proposed final rule changes that do nothing to detect even textbook cases of redlining. We then summarized that extensive analytical work in a fact sheet we released publicly. Unfortunately, the agencies nonetheless finalized a weak rule that is not likely to work very well, reportedly in the hope that they would not be sued (a strategy we opposed). The industry sued anyway, and that suit is pending. Although it’s weak and not the rule we wanted finalized, we will be defending the rule in the litigation. We’ve also been long time advocates for higher capital requirements. Undercapitalized banks, crashes, contagion, recessions, and economic downturns—not more capital—are the threat and disproportionately hurt underserved communities and organizations that exist to support them. At the FDIC, we advocated for changing unfair rules that barred people with who had committed minor crimes or had older offenses from working in the banking industry. This work made important strides toward more equality in the treatment of high-powered bank executives who often engage in unlawful actions and are never punished and individuals seeking an entry-level position. It took years for Congress to change the law, which it did on December 23, 2022, by passing the Fair Hiring in Banking Act (FHBA). On November 14, 2023 the FDIC proposed a rule that would align the agency’s regulations with the FHBA, which we supported. The FDIC Board approved the rule we supported on July 30, 2024 thereby expanding job opportunities in the banking industry, particularly to minority communities who have been disproportionately hurt by the criminal justice system; these individuals do not endanger public trust and have fully paid their debt to society. We have also been pushing for common-sense improvements to the bank merger review process. In 2022 we laid out improvements that would go a long way to enhance the public interest and serve the convenience and needs of underserved communities while reducing the level of risk to the financial system. We continue to fight for reforms to the merger approval process at the FDIC and the OCC with advocacy for new rules and by shining a light on how proposed mergers such as between Capital One and Discover Bank will harm underserved communities.
At the Treasury Department, we’ve engaged with on issues of persistent racial inequality and the lack of financial inclusion, which included submitting a comment letter in support of the implementation of a new national strategy to address those issues, but more urgent impactful action is needed. We urged Treasury to dramatically increase and improve the operation of Minority Deposit Institutions (MDIs), require the use of alternative methodologies to expand access to credit for underserved communities, aggressively strengthen oversight of unlawful conduct by banks toward minorities, further diversity among both public and private leadership staff, and immediately enhance federal data collection efforts. Until banks stop being seen as hostile environments that must be avoided and instead as places where all Americans can access banking services and create wealth, we cannot stop working or claim success.
At the CFPB, in addition to supporting the nomination and confirmation of Chair Rohit Chopra, we have been supporting the agency against the relentless attacks it’s been facing because it has been so effective at combatting predatory and discriminatory practices. We’ve also met with the staff and participated in numerous rulemakings supporting the work being done on many important issues that disproportionately impact communities of color, such as payday lending.
At the CFTC, we have been advocating for a strong position limits rule, which can prevent speculators from driving up prices of commodities, such as wheat, sugar, bread, and gas and oil. When there is excessive speculation in the markets, those items increase in price causing grocery and gas bills to go up and picking the pockets of the most vulnerable Americans. At a time when Americans are having a hard time making ends meet, the CFTC must aggressively police the commodities markets to ensure that speculators aren’t causing pain at the kitchen tables.

While we engage in numerous other activities related to our racial economic inequality work, here is a list of some of the racial economic inequality-related documents we have created/distributed:

Legal

Reports

Comment Letters

Letters to Regulators

Press Releases

After our advocacy in support of the proposed rule, the FDIC took the long overdue step of expanding employment opportunities in our banking system to qualified individuals who have committed minor crimes or older offenses that do not endanger public trust and who have fully paid their debt to society.
Sidelining or Weakening the CFPB Will Hurt All Financial Consumers, But People of Color Stand to Suffer the Most
The Swearing in of Rohit Chopra as Director of the CFPB Is a Great Day for Consumers Confronting Abusive Payday Lenders, Predatory Banks, and a Broken Student Loan System
Federal Court Upholds Important Consumer Protections in CFPB Payday Lending Rule, But More Needs to be Done
Better Markets Statement on the Murder of George Floyd and Racism
Better Markets Applauds Ally Bank for Eliminating Overdraft Fees That Punish the Poorest and Most Vulnerable Americans
New Members of the Better Markets Board of Directors: NCRC Membership, Policy and Equity Chief, Climate Change Tech Executive Join the Board of Directors
If Justice for All Is to Mean Anything in America, the George Floyd Verdict Must Be Just the Beginning
Better Markets Teams Up with Other Advocates, Nonprofits on Issues Impacting Main Street
OCC’s Fair Access Rule Increases Risk, Threatens Consumers and Ignores Comments Opposing the Rule
Better Markets and Omidyar Network Team Up to Fight for Americans’ Economic Prosperity

Op-Eds & Blog Posts

During June 2024, Better Markets focused on areas where the financial regulatory agencies can take action to address racial economic inequality. You can find that work below:

Substack: It’s Time for the SEC to Act on Disclosures for Corporate Boards and Workforce Diversity (6/18/24)

Fact Sheet: The CFPB Is Making Progress On Economic Racial Inequality, But There Is More To Do (6/21/24)

Fact Sheet: Fighting Discrimination in Finance Starts with Ensuring Diversity at the Agencies That Enforce the Financial Laws (6/27/24)

Fact Sheet: Three Ways the Financial Industry Targets Minority Communities (6/28/24)