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Scoring the Banks: The Community Impact Record Card as a New Tool for Measuring Bank Performance in Meeting Community Needs

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At a time when trust in our nation's banks is at a 40-year low, consumers need a way to feel confident that the bank they use is meeting their needs. They need the ability to comparison shop between banks to make sure they are bringing their business to the bank that offers them the best rates, speaks their language (literally and figuratively), and offers flexible and useful products that they can understand. This last point is an important one: tied up in the lack of trust in financial institutions is a frustration with banks over the level of transparency of their products and services. Consumers often do not know which bank is most suited to meet their needs, and have a hard time sorting through the fine print of complex account terms.

In order to help consumers choose between banks that serve their community, today, the City of New Haven will announce the release of its first "Community Impact Report Card" (CIRC), an easy-to-understand and easy-to-implement system for gauging whether local banks are meeting local needs and serving consumers adequately. The hope is that this report card will help inform consumers; provide feedback to banks so that they can improve the quality, accessibility and range of products and services they offer; and serve as a model for other communities.

Financial literacy and access to traditional banking services are prerequisites for wealth creation today and are critical to a resurgent American economy. We cannot restore the nation's middle class until all families, particularly minority families and those new to this country have access to and faith in the traditional banking system. We cannot grow our local economies until responsible small businesses, particularly minority-owned small businesses, have access to basic lines of credit that enable them to expand their services and hire local residents. To the extent that certain banks are already doing these things, this report sheds light on those strengths and informs customers about services and products that may be beneficial to their families and businesses. To the extent that certain banks are not yet meeting the basic needs of families and businesses, the report sheds light on those weaknesses and can be a tool to encourage banks to do better. This is not to say that banks are not involved in a host of community philanthropic endeavors. New Haven is a better community in many areas because of the philanthropic support of several of the banking institutions located within our borders. But that important work cannot be a substitute for engaging all residents in the most basic level of services.

CIRC is a system for scoring local banks on a variety of issues that are important to consumers, like the amount banks charge their customers to open and maintain accounts, the location of their local branches and ATMs, and the nature and extent of their home mortgage lending in the community. Point values are assigned to each category of information. For products and services, a high score -- usually three points -- was given to a bank if it went far in providing services the typical consumer would want: like offering checking accounts with low minimum balance requirements and at no fee. A weaker showing in a particular category would earn a bank a lower score in that category. With home mortgage lending, each bank that serves the New Haven community was measured against the lending practices of the other banks operating in the community. For example, by determining whether their loan denial rate was higher or lower than the median rate in the community, or their lending to blacks and Latinos was consistent with the practices of the other banks, we were able to determine whether each bank's practices were better or worse than those of its peers. The system assigned point values under each home mortgage category similar to those applied in the products and services categories.

Once point values were assigned for each bank based on how it fared under each category of assessment, those points were tallied to come to a final score, which is calculated based on a scale of 1 to 100, with a score of 100 points being the highest. In this, our first year of using the CIRC, banks serving the New Haven community ultimately scored between 74 and 53, which means that some banks did relatively well under our system, though it is hard to say that any bank did spectacularly. Given these scores, there is much room for improvement, for all of the banks.

Our hope is that as a result of the information gathered and the scores generated banks will take action to improve the range and quality of their products and services, as well as their home lending practices, where our analysis revealed a need to improve them. When we score the banks again using the CIRC system, which we hope to do annually, we hope all bank scores will improve.

The best part about the system: anyone can use it. We are making the scoring methodology freely available to anyone who wishes to assess the banks that serve his or her community. A detailed description of the system -- the categories, the point values -- is available here and here. Much of the information about products and services that is central to the system is available on line for nearly all of the banks. For other information, like the number of bank personnel who speak languages other than English, local bank personnel were extremely forthcoming in providing the information necessary to complete the scoring process. We also reached out to banks for comments after we finished the scoring process, and several responded with helpful, additional information. For the home lending portion of the system, there are a number of guides available over the internet that describe how to work with bank lending data made available through the Home Mortgage Disclosure Act which is the source of the home lending data we used for our system.

Our hope is that in creating the CIRC, consumers throughout the country will have an easy method for assessing whether, and to what extent, local banks are meeting the needs of local consumers. Armed with this information, consumers can comparison shop and bring their business to banks that score high using this system. But we also hope that banks, in turn, will respond both to their scores, and, more importantly, to consumer demand for better products and services. Consumer demand for banks that meet their needs, informed by an easy-to-access system, can only work to bring about better outcomes for consumers; improved banking services; and, just maybe, a better relationship between consumers and the banks that serve them. Such an outcome will be imperative to the economic success of our nation.