Lessons Learned from Special Purpose Credit Program Negotiations

In the wake of the murder of George Floyd, many American corporations made pronouncements and commitments to racial justice and many Americans engaged in soul-searching regarding police brutality, anti-Black violence and ongoing disparities in access to education, employment and social and financial services.

Those searching in earnest for solutions to systemic discrimination and racism plaguing our society might have reflected on 1) the critical importance of key civil rights laws including the Community Reinvestment Act (CRA), the Fair Housing Act and the Equal Credit and Opportunity Act (ECOA) and 2) the reality that our efforts to date have not been enough to redress past wrongs or mitigate the ongoing challenges of overt racism and implicit bias.

More than three years after corporations made headlines for committing to invest in racial justice initiatives, social justice advocates are noting a troubling lack of transparency regarding whether those pledges are being honored. Additionally, there are signs that enthusiasm and courage among corporations to publicly advocate for racial justice are diminishing, including the nearly 32 percent slowdown of monetary contributions since 2021

The work of racial justice is far from over. As just one example, the homeownership gap for Black borrowers is essentially the same today as it was before the Fair Housing Act was passed in 1968. Instead of reverting back to the status quo, financial institutions must make good on their commitments and embrace racially conscious solutions to address past wrongs as well as continuing wealth disparities among marginalized communities. 

Rise Economy has embraced and prioritized Special Purpose Credit Programs (SPCPs) as one vehicle for providing redress and advancing BIPOC wealth creation. SPCPs are tools for banks and other lenders to remedy established lending disparities by crafting and refining loan products with more favorable terms to better meet the needs of underserved borrower groups while remaining in compliance with fair lending laws. Lenders have been permitted to offer SPCPs since 1976 when Congress amended the ECOA, which prohibits discrimination in certain lending transactions, to authorize the establishment of such programs

SPCPs and Rise Economy: Negotiations and Lessons Learned 

We are proud to have negotiated eight SPCPs with financial institutions: three with U.S. Bank; two with BMO Harris; one with First Citizens Bank; one with Banc of California; and one with Silicon Valley Bank. Some of these SPCPs are focused on promoting homeownership, some on small business development, and one is designed to build the capacity of affordable housing developers of color. Other SPCPs were in existence in some form at the time of our negotiations, some were already being considered by the banks we engaged, and some were newer ideas to banks that nonetheless committed to develop a program. Additionally, negotiations were conducted alongside partners like the National Community Reinvestment Coalition and the Greenlining Institute.

Rise Economy members were actively involved and urged banks to adopt these programs in every instance. Over 200 advocates from over 120 Rise Economy member organizations participated in Community Benefits Agreement (CBA) negotiations that resulted in SPCP commitments, and nearly 50 Rise Economy members participated in the ensuing meetings with banks to discuss their SPCP product design, underwriting, outreach, marketing and implementation plans.

For a list of our CBAs, click here. For our new fact sheet on SCPCs, click here. Further, other banks have committed to SPCPs outside of negotiations with Rise Economy, and some have agreed to meet with us to discuss their SPCPs.

We commend all of the banks that commit to these important programs. And we thank all of the CBA banks for agreeing to discuss their programs with Rise Economy and our member organizations. During these several discussions, some key themes and learnings emerged:

  • A great start, not a solution. Community groups view SPCPs as a meaningful opportunity for banks to close racial, ethnic, gender and other wealth gaps. They are not a panacea and there is much that financial institutions can and should do to advance racial equity and fairness, but the commitments to impactful SPCPs are a strong start and reflect well on a financial institution’s commitment to racial justice.
  • Borrower-based, not neighborhood-based.  Rise Economy members felt most strongly that SPCPs should be borrower-based so that the most historically impacted households and communities can be effectively reached. SPCPSs must identify the particular borrower groups meant to benefit, not the demographics of the neighborhoods to be served. To date, most of the SPCPs of which we are aware target particular neighborhoods, such as majority-minority neighborhoods. But such an approach, however well-intentioned, presents gentrification and segregation concerns, as non-targeted borrowers may avail themselves of the program, and existing residents of neighborhoods of color are prevented from using the program to move from a neighborhood of color to a white neighborhood if they so choose. 
  • Transparency builds trust. Periodic and comprehensive data reporting on the disaggregated race and ethnicity of borrowers served through a SPCP will be necessary to assess the success of a SPCP. Financial institutions should meet with community partners, nonprofit groups and residents to share data and discuss SPCP results. Engagement and data sharing by banks with community groups builds a sense of common purpose and trust with community groups and their clients and constituencies.
  • Make SPCPs “special”. An SPCP must be a good product that is less costly, more accessible and/or provides greater benefit than any existing product offered by the institution. It also has to be a competitive product so that it will work in target communities, including high cost areas of California, and will be more attractive than other products on the market. As Rise Economy members have queried, banks must be able to answer the question, what makes this Special Purpose Credit Program special?
  • Partnerships build success. Strategic partnerships are also critically important. To ensure success, financial institutions must establish relationships with BIPOC real estate associations, community based nonprofits and religious institutions in order to reach and gain the trust of the community they want to serve. Afterall, SPCPs would not be needed if banks had strong reputations and good will in communities of color.
  • Fund nonprofit partners. In addition to committing substantial resources to implementing and funding an SPCP, financial institutions should also prioritize funding for relevant nonprofit groups that work in and with targeted communities, that can bring borrowers into the program, that are trusted resources in the community and that can help ensure the program will achieve its goals. 

Rise Economy will continue to advocate for all banks to develop borrower-based SPCPs.

We look forward to continuing dialogue with SPCP banks to ensure these products meet community needs, provide a benefit and new customers to the bank, and most importantly, serve the statutory and moral purpose of remedying past wrongs.