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New "Socially Responsible Banking" Ordinance Pressures Dayton Banks To Reinvest

dayton redlining map
Home Owners Loan Corporation
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In a process now referred to as "redlining," a federal agency called the Home Owners Loan Corporation gave neighborhoods grades that signified whether they were secure areas for investment. Many banks refused to make loans in the red and yellow areas.

“Redlining” is when banks in lots of U.S. cities refused to make loans or provide services in some neighborhoods—often low-income neighborhoods with high populations of immigrants and African Americans. The practice was officially ended in 1977, with a federal ban known as the Community Reinvestment Act that also encouraged banks to reinvest in poor areas.

But now some cities are saying those regulations are not doing enough: New York, Seattle and Dayton are among the cities that have passed their own ordinances to push banks to invest in low-income neighborhoods and avoid predatory lending.  

A banking desert

In the car next to an overgrown park, in the Westwood neighborhood on the west side of Dayton, I try to find the nearest bank branch. My phone can’t detect anything nearby, and there’s a reason: A PNC branch closed in the area in 2013, and now this is what’s called a banking desert.Donna Preston, who’s hanging out on a stoop nearby, confirms.

“I’m not mobile, I don’t have a vehicle, so it is kinda hard to get to banks,” Preston says. The isolation makes things kind of tricky for her business. “I do hair for a living. I have a business called Donna’s Soft Touch Braids.”

She takes the bus to her credit union, but she runs the business mostly in cash.

“Economic development is just not occurring”

West Dayton is like a lot of neighborhoods around the country—it’s seen bank branches pull up and leave.

“It used to be, the bank down at the corner was owned by the guy who lived on the next corner or the next block,” says Kery Gray, the Dayton city commission’s chief of staff. He says it can be hard for a city to convince banks to stick around. “Now, they’re owned by these big corporations that are based in cities outside this state, sometimes outside this country.”

Katy Crosby, who heads the city of Dayton’s Human Relations Council, says the lack of banks feeds into other problems in neighborhoods.

“The small business development is just not occurring, economic development is just not occurring,” Crosby says. She’s been working with banks in the area to encourage them to open up branches and do education with older residents about how to make use of online banking resources, but the process is slow.

An antidote to disinvestment?

Dayton’s new socially responsible banking ordinance is simple: It tells the banks that if they want Dayton to deposit city funds with them, they’ll have to show that they’re investing in low-income neighborhoods, and complying with requirements under the Community Reinvestment Act.

“Banks are not utilities, they’re not charities, they’re businesses,” says Rob Rowe with the American Bankers Association. “They’re created and established as business organizations.”

He’s worried that a variety of ordinances from different cities creates unnecessary hoops for banks to jump through.

Dayton will need to get people like Rob Rowe on board, though the ordinance, like those in other cities, is really just evaluation guidelines as opposed to actual regulations that could compel banks to behave a certain way.

Still, Jesse Van Tol is hopeful. He’s with the National Community Reinvestment Coalition, an organization that wrote a template for these city ordinances.

“It is a law that over years and decades will make a difference,” he says. “And I think you see that in the historic impact of a lack of investment.”

He gives Ferguson, Missouri as an example of that lack—it was redlined, and for decades whole black neighborhoods were blocked from banking services like home loans.

“The same is true with many neighborhoods in Baltimore,” he says. Most of West Dayton and parts of East Dayton were also redlined, and continue to see the consequences of under-investment and disinvestment, particularly in the wake of the Recession.

After Commissioner Dean Lovelace pushed for the ordinance, Dayton City Commission passed it unanimously, with Commissioner Joey Williams abstaining due to his connection to the banking industry. Fifth Third Bank, which is currently where the city has its main contract for deposits, didn’t respond to a call, but the bank won’t be immediately affected by the ordinance; it’s later, when the city renegotiates its banking contracts, that the new guidelines will be a factor.

The socially responsible banking ordinance goes into effect May 22.