Lend to those with low credit scores to lift downtrodden neighborhoods

America stands at the door of historic change, and banks will have a key role in this change.

Faced with the triple threat of a global health pandemic, an economic crisis and a 400-year-old social justice reckoning for Black Americans, the nation will undergo a reset into 2021.

To get it right, there needs to be opportunity for all. In order for this to happen, we need more than a stable government setting standards and strategies that stimulate growth. We also need changes to the American banking system.

No developed country has evolved without the banking sector tied at the hip of smart growth and smart bets. This time around the U.S. will need the banking system to broaden its historic outreach.

This means going beyond the traditional choices of the well-known actors, as every big company was once a small one. Because even giants like Bank of America and JPMorgan Chase were once pioneered by founders who centered their businesses on funding entrepreneurial dreamers, then entered the field of competition.

This highly regulated sector will need help to reimagine itself to broaden its opportunity in today’s climate, while remaining respectful of its limitations. Here’s just one proposal.

America has seen several high-profile shootings and deaths involving Black Americans by police. On May 25, George Floyd, who lived in a low-credit score community, was killed by police. These devastating incidents involving Black Americans are more likely to occur in low-income, sub-700 credit score neighborhoods.

The fear displayed by easily alarmed police officers and others outside these neighborhoods, including bankers, cannot continue if we truly want a strong economy that confronts, not scurries, from hardship. Addressing this gap means deploying empowered bankers who already have the ability to offer smart lending capital in conjunction with a community financial coach, aimed at 500+ credit score communities for new homeowners, small businesses and entrepreneurs to uplift struggling neighborhoods and boost jobs. To quote my friend and CNN contributor, Van Jones, “nothing stops a bullet like a job.” And, typically, 700 credit score communities don’t riot.

I recently wrote to the Federal Financial Institutions Examination Council to consider supercharging the Community Reinvestment Act so bank compliance focuses more on boosting credit scores to 700 or more across America.

It is a fact that underserved communities in the 400-500 credit score range, regardless of race, pose a credit lending risk to banks. But it is also true that some of our greatest strivers, dreamers and entrepreneurs in the making came from these same communities. And there are already developments underway, including partnerships between banks and credible nonprofits, to help boost the scores of people who need it the most.

For example, HOPE Inside network is made up of bank, community partners and expert financial coaches who work in partnership to deliver financial education and counseling to their surrounding communities. Through this network, participants were able to raise credit scores on average by 54 points in six months, and 120 points in more than 24 months. This new model helps banks reimagine their internal client incentives and lending systems to reward advancement for their customers.

There is an access gap for Black and Brown folks when it comes to lending and credit scores. A 2017 Urban Institute study found that in 50 out of 60 cities, nonwhite areas had median credit scores that were 660 or lower, most of which are subprime (600 or lower).

This means that it’s hard for nonwhite America to get a decent home loan below a 680 credit score, and especially a small-business loan if the borrower’s credit score is below 700. The continuing problem for minority Americans is their difficulty accessing mainstream banking and financial services, as they struggle to get capital on good rates and terms.

A recent Citi report showed that racism against Black America over the past 20 years alone has cost the nation $16 trillion in lost GDP. As we work to get America back on track during the current recession, more lending to minority small businesses to help generate jobs could equate to an additional $5 trillion in GDP in the next five years if the racial gap is closed, the Citi report said. That's enough to pay for the federal coronavirus stimulus response expenses.

My prescription here is simple.

The FFEIC should enhance CRA incentives, along with other targeted regulatory supports, to encourage American banks to focus on a centralized goal: the raising of credit scores by 100 points in a 24-month period for consumers in underserved ZIP codes across the nation.

Credit scores goes hand in hand with consumer and community financial education. And those who become educated stay that way for a lifetime.

Secondly, American banks need to laser-focus on the same goal: marry credit score improvement initiatives with the timely layering of lending capital. Simply put, this means increasing homeownership, creating jobs and delivering a sustained means of social justice through economic equality.

Societies do not collapse from the top down, but from the bottom in, as I’ve previously noted. And we have to enroll the “bottom” 100 million Americans in the fight for their own aspirational success in order to revive the nation as a whole and how it is positioned globally.

Editor’s note: Parts of this op-ed were derived from John Hope Bryant’s book, "Up From Nothing: The Untold Story of How We (All) Succeed."