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The Bank of Jim Crow

Critics say Charter One is the poster child for the industry's ugliest practice.

By Sarah Fenske 

Homegrown Charter One is a Cleveland success story. One of the nation's 30 largest bank holding companies, it trumpets its wealth in its annual report: 419 branches and $33 billion in assets.

Yet there's another side to Charter One, contained in figures that won't make the pages of glossy reports. They show the bank's home loan rejection rate for black Clevelanders soaring high above the rate for white applicants. In 1999, the latest figures available, the bank denied low-income blacks refinancing loans at a rate of 73.9 percent. For low-income whites, the rate was just 45 percent. The rejection rate for high-income whites dropped to 12.5 percent; for high-income blacks, it sat at a stunning 42.8 percent.

Ask community reinvestment activist Paul Bellamy, however, and he'll tell you that Charter One's rejection rate isn't even its biggest problem. He points to data indicating that not only does the bank deny loans to large numbers of blacks; it seems to target black neighborhoods with a special division, called Charter One Credit, that offers high-interest loans. These loans can cost the average customer $50,000 more than a regular mortgage over 30 years.

The record is particularly perplexing, considering Charter One's success in taking deposits from minority customers. In Ohio, the bank ranks sixth in total deposits, but it is first in predominantly minority neighborhoods.

That makes Bellamy angry. "They take in community deposits, pull the money out of the cheap-price loans, and come back with high-priced stuff, and that's all. It's the classic separate and unequal treatment. Charter One is the poster child for this phenomena."

For all Bellamy's passion, it's not a sexy issue. Titans of government and media have preferred to focus on the issue of predatory lending, with its made-for-TV drama. The subtleties that separate a good interest rate from a bad one and a black neighborhood from a white one are more insidious than juicy. Consider this statistic: In northern Ohio, Charter One Bank pulled just 2 percent of its customers from heavily minority census tracts. Charter One Credit pulled 14 percent. The disparity might not seem dramatic. Yet to even it out, Charter One Bank would have to service an additional 1,367 minority-tract customers with prime loans.

To Bellamy, the disparity seems like a return to the days of Jim Crow: two water fountains, two mortgage lenders.

"There's always been a separate financial system in this country for the poor and minorities. What Charter One is doing is just the newest version of it," he says. "And surprise, surprise, the black community ends up paying another black tax."

In 1995, Charter One forged an agreement with Mayor Michael White's office. Among other things, the company promised to study the feasibility of putting branches in the northeast and southeast parts of the city. At the time, it had only two East Side branches, compared to seven on the predominantly white West Side. Six years later, the bank has yet to open a new East Side branch.

Charles Bromley, executive director of Cleveland's Metropolitan Strategy Group, pulls a sheaf of maps from his desk and lays them on the table. Some show the city of Cleveland. Others show Greater Cleveland. Census tracts with 40 percent or more racial minorities are striped gray. Areas where Charter One does a high level of home lending are green. Areas where the bank originates few loans are beige, with a full range of shades in the middle.

"We've got green in Westlake and Independence and Solon," he says. "Now look at Bedford Heights and Warrensville Heights." The map shows a high minority presence -- and few Charter One loans.

Maps of the city are even starker. White neighborhoods, like Kamm's Corners, North Collinwood, and Old Brooklyn, show Charter One's high market share. Neighborhoods like South Collinwood, Glenville, and Union-Miles show almost nothing.

Bromley thinks these maps are the key to the case against Charter One. He believes Charter One's record is so abysmal, it rises to the sins of the Chevy Chase Federal Savings Bank during the 1980s and early '90s. At that time, the Maryland bank received less than 6 percent of its applications from African American neighborhoods. In 1992, the U.S. Department of Justice charged it with a practice known as redlining, in which banks refuse to make loans in certain areas. Chevy Chase agreed to provide about $140 million in special financing for minority neighborhoods and to open branches within them.

The government's case set a precedent. For the first time, a bank was targeted not for rejecting blacks, but for failing to market to them. "To shun an entire community because of its racial makeup is just as wrong as to reject an applicant because they are African American," Attorney General Janet Reno said at the time. "Some neighborhood banks may turn away blacks because of their race, but other neighborhoods may not even have banks to which blacks can turn."

The Department of Justice website still includes maps from the case. Bromley's maps for Charter One in Cleveland look nearly identical: Branches are concentrated in white neighborhoods, with the exception of the integrated Slavic Village. Mortgage and refinancing market shares drop in nearly every census tract with a strong minority presence. "It's the same issue as Chevy Chase," Bromley says. "The maps even look the same."

But Bromley notes one key difference. "In Chevy Chase, they basically ignored the black neighborhoods. With Charter One, they serve them with Charter One Credit and through the brokers. It's a new twist to what's going on. They're saying, 'Okay, we have to serve these people, but we'll do it with the extra fees and the premiums for the brokers.'"

Charter One officials declined to be interviewed for this story, but in letters and published reports, they have conceded that Charter One Credit customers have credit ratings almost equal to conventional customers. They also confirmed that brokers for the high-interest division charge extra fees for their work.

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