The report, A UK Banking Disclosure Act: From theory to practice, uses the experiences of Community Reinvestment Act (CRA) and Home Mortgage Disclosure Act (HMDA) in the US to assess the major benefits—and risks—involved in requiring bank transparency.
While US advocates have for decades used detailed reporting data from banks to advance community investment goals, current reporting requirements for UK banks are less detailed:
- Data are not broken down by geographic area or characteristics of customers
- Data do not include the number of applications and the associated outcomes
- Data are not broken down by financial institution
The authors note that without these data, it is impossible to determine if banks are discriminating against certain communities and people of color when making lending decisions. The authors recognize that requiring disclosure enhances financial institutions’ knowledge of their service area and incentivizes them to invest in what the UK calls “deprived communities.”
The authors also identify the arguments similar to those heard in the US against requiring disclosure—that disclosure is expensive, does not produce practical data, and threatens the privacy of consumers.The US experience shows, however, that collecting and making public CRA and HMDA data (without disclosing personally identifiable information) leverages significant investments that benefit lower-wealth communities and aids advocates and regulators in enforcing fair lending laws.”
The report concludes with three recommendations to better understand lending patterns in underserved areas in the UK, which the authors believe will maximize benefits while minimizing the cost:
- Banks reporting small business lending to the 2 percent most deprived electoral wards should disclose these data in existing corporate social responsibility reports. This would provide insight into how banks are serving these areas with limited cost.
- The Better Banking Association (BBA) should publish the total number of loan applications and results, in addition to the already planned publication of small- and medium-sized business deposits and lending, by postal code. The BBA should publish industry-wide data on mortgage applications, loans, and personal bank accounts, by postal code. (BBA already provides this data in other categories of financial services.)
While Woodstock Institute would have supported even stronger banking disclosure requirements for UK banks, it believes that the UK report will help strengthen support for such policies in the UK and in other countries. Woodstock Institute welcomes the opportunity to work with colleagues in other countries to advance economic security and community prosperity, especially for lower-wealth persons and communities of color.