End of Redlining Doesn't Mean Red Ink

Bankers are finding that denying credit to poorer communities isn't just illegal, it's bad business.

By Mike Hofman |  @mikehofman   | 
 

Fast Money

It took a public brouhaha, back in 1990, to coax Bank of Boston into lending to inner-city businesses. After a Boston Federal Reserve study accused the bank and its Massachusetts competitors of denying credit to poor minority neighborhoods--so-called redlining--Bank of Boston hastily created a special "community" loan unit to quell the public-relations maelstrom.

Ironically, that unit, First Community Bank, is now hailed as a profit center; it made $10 million in 1995. Bank spokesperson Karen Schwartzman rushes to insist that economic opportunity, not damage control, was the driving force all along. "Part of banking," she says, "is finding and entering markets that are underserved. In this case we focused on a market that was dramatically underserved in the 1980s, and we moved in to fill it. It shouldn't be any big surprise that we were able to make a profit."

The news is doubly ironic given recent revisionist criticism of the Fed study's methodology. The critics suggest there was no statistical proof of racial discrimination in the first place.

All of this is academic to Judith and Hipolito Marte of Lawrence, Mass., whose Pueblo Market, located in a Hispanic neighborhood, was destroyed by arson. They were turned down for credit by three banks after the fire. Bank of Boston's new commitment helped them obtain $340,000. Recently, business has been so good that the Martes plan to open a second location.

"I can't believe we're back in business, to tell you the truth," says Judith Marte, beaming. "Bank of Boston was very, very proactive to my needs."


Mike Hofman

Mike Hofman was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City.


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