JPMorgan Chase has started collecting data on the race and ethnicity of some borrowers, a deviation from the norm in US banking, as part of an effort to deliver on its promises to do more for the community black after the police killing of George Floyd.
After Floyd’s murder in 2020, JPMorgan pledged to spend $30 billion by the end of 2025 to close the racial wealth gap through initiatives like $14 billion in mortgages and loans to small businesses for black and Latino communities.
But measuring the effects of such initiatives is difficult, according to bank executives. In most cases, asking a customer’s race or ethnicity for loan purposes is illegal. The Equal Credit Opportunity Act (ECOA) of 1974 prevents lenders from collecting, recording or considering a person’s race, national origin or other protected characteristics – with certain exemptions for lenders trying to better serve disadvantaged borrowers.
JPMorgan, the largest U.S. bank by assets, has invoked some of those exemptions to launch new programs after public encouragement from regulators.
“We are excited to be able to measure our progress on how the projects we invest in specifically serve Black communities, developers and small business owners,” said Kevin Goldsmith, Managing Director of Development Tax Credits. community at JPMorgan.
In January 2021, the bank’s mortgage division launched a so-called Special Purpose Credit Program (SPCP) that awards $5,000 per customer to help cover closing costs and down payments for homebuyers, in the part of an objective to increase home ownership among minorities.
JPMorgan said it also provided more than $221 million in project financing to Black-owned or Black-led affordable housing developers out of a total of $500 million in financing to the sector last year.
Under SPCP programs, lenders are allowed to collect data on protected demographics as part of the loan application process and offer special interest rates to certain groups. For-profit organizations such as banks are required to develop a written plan and demonstrate that the program benefits a group that might otherwise be denied credit or receive it on less favorable terms.
Although SPCPs have been around for years, they have rarely been used by banks, according to several industry sources. There are no official statistics on CPCPs as they are not officially documented by any regulatory body. But regulators and legal sources say more banks have approached them for advice on setting up such programs in the past two years.
The main reason banks have shunned SPCPs is regulatory uncertainty, said David Stein, a lawyer at Covington and Burling who advises financial services groups on regulation.
“Regulators. . . historically were unwilling to provide informal advice on specific programs, and lenders were really on their own,” Stein said, adding that banks could be found in violation of fair lending laws if a SPCP was found to be deficient.
JPMorgan was previously hesitant to use the programs, but the bank is now “trying to be innovative and use all the tools we have to support ourselves and underserved communities” after the events of 2020, Goldsmith said.
There is evidence that historical disparities in lending persist despite laws such as the ECOA. According to a study by the Federal Reserve, black business owners with good credit are half as likely to receive all the financing they seek from traditional sources than white-owned entrepreneurs with similar scores.
“There’s a story of black business leaders starting out at a disadvantage, and the [special] funding helps fill the gap,” said Adrian Washington, founder of Neighborhood Development Company (NDC), a Washington DC-based real estate group that has received a $15 million investment from JPMorgan as part of its new program to black developers.
The Consumer Financial Protection Bureau received dozens of comments from industry and consumer groups calling for greater clarity on SPCPs in response to an ECOA information request in July 2020. Since then, regulators and agencies including the Fed, Office of the Comptroller of the Currency and the Department of Justice have issued statements encouraging their use and welcoming questions from lenders.
The CFPB has worked more closely with lenders on SPCPs in recent years, but banks have had the autonomy to set them up on their own for decades, said Frank Vespa-Papaleo, the agency’s senior deputy director. , fair loan.
“If institutions want to improve lending in certain areas, they have the tools to do so,” he said. “There is of course some risk, but that risk always exists with any deployment of any product, program or service; and there is also a risk in doing nothing.