Small banks, it seems, are faring much better these days than their larger conglomerate counterparts. There are a few reasons – and you might not expect on explanation, but rest assured, it has merit. How long can these big banks continue to operate playing by their own rules? And what, if anything, will finally be enough to rein in the bigger financial bodies? There’s a growing interest in these questions.
Small Banks Picking Up the Slack
Two years ago, when Bank of America announced it would be tacking on a $5 ATM fee for its consumers – and worse, it was only tacking it onto those “middle class” consumers versus those with considerable wealth, the out lash was not anything the bank expected. Soon, not only were Bank of America customers bailing for credit unions and smaller community banks, but customers who did business with all of the bigger banks in this country. Everyone was fed up. BoA, of course, rescinded the fees, but the damage had been done.
Every day – every single day – new lawsuits are being filed against big banks. Whether it’s mortgages that were wrongfully foreclosed on or accusations of criminal activities, there’s not a bank that hasn’t been affected by bad publicity – and it continues. As soon as one bank settles a lawsuit, either with the FCC, class action members or the Consumer Financial Protection Bureau, another suit pops up.
People are growing quite tired of arrogant CEOs. One need only look to Jamie Dimon for evidence. It’s expected he will face tough questioning over a series of blunders in the Chase camp this week. He’s not the only one, though – he just happens to be the most visible one.
All of these reasons, and many more, come together beautifully for smaller banks. Loan approval rates for small businesses by small banks increased for the fourth straight month. March proved to be quite successful as the approval rates sailed into a new high of 50.8 percent. When you contrast this with what the big banks are reporting, it really is impressive. Small business loans were down at those big banks. In February, the numbers were at 15.9 percent. In March, though, that number decreased to 15.7 percent.
Not only that, but these smaller financial institutions are taking a far more aggressive approach in their small business lending. Specifically, the SBA Express loan programs are really beginning to heat up. They don’t have to worry as much about the sequester, either and while the economy plays a big role in their decision making processes, it’s not nearly as much of a factor as it is with the big five banks.
SBA Loans Drop
Interestingly, credit unions approvals of SBA loans continue to drop. For the tenth month in a row, they reported a decrease. In February, the total was 45.9 percent and by March, it had decreased again to 45.5 percent. One school of thought is that because smaller community banks compete with credit unions, most consumers will approach a traditional bank first.
There’s a new problem for big banks, too. A new study shows that discrimination is seeping into the decision making process for those bigger entities. In fact, it appears as though being a white male has more advantages than we realized – they’re more likely to get a yes from the likes of Bank of America and Wells Fargo than their female and/or racial counterparts. Black women appear to face the worst of discriminatory policies. The study reveals discrimination is happening on the basis of both gender and race and it matters little whether it’s a mortgage application or a consumer looking to apply for a credit card.
The new study, conducted by the Woodstock Institute, reports female-headed joint applications are far less likely to be originated than are male headed joint applications. When it comes to loan to income ratios (LTI), female headed joint applications are a whopping 24 percent less likely to have purchase mortgages originated and nearly 40 percent less likely to be approved for refinances than those with males as the head of household. If you’re Latino or Asian and happen to be a woman, you too will discover a lot of hoops you’ll have to jump through – with no guarantees you’ll get an approval when it’s over with.
The fines are piling up, too – by the millions. One investigation cited in the report reveals one loan company was ordered to pay a $3.5 million settlement after an investigation revealed it had overpriced its loan products to non white borrowers.
BoA Forced to Pay Fines
You likely won’t be surprised by this fact: Bank of America was forced to pay the Department of Housing and Urban Development (HUD) because it was caught discriminating against a lesbian couple when they applied for a mortgage. While the numbers weren’t included in this particular report, those who apply for credit cards in person at their big banks might discover they’re not getting the kind of approval they believe their credit scores warrant. And if they were chalking it up as a coincidence, this new evidence could prove otherwise.
For those hoping to pass new financial laws that will rein in the big banks, these points certainly make the argument. These bigger banks have played by their own rules for years and despite efforts to force Dodd Frank and other regulatory laws into the spotlight, the financial institutions have been able to deflect them for the time being. That might soon change if two more Congressmen have their way. New legislation is being written now.
So what are your thoughts on these dynamics? Have you switched to a credit union or smaller community bank or do you feel better knowing you have a global brand handling your money? These are all important questions – and once we really begin to explore the truths, it could be the big banks ultimately end up with little of that power they’ve fought tooth and nail for in recent years.