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Study: Black Consumers Are Paying an Average of $20 More Just to Open a Checking Account

Discriminatory Banking

Black consumers have to keep a larger share of their paycheck deposited to avoid fees compared to their white counterparts (Getty Images)

Something as simple as opening a checking account at a local bank could prove more costly for Blacks and Latinos, according to a New America report published this week.

It’s more expensive for minorities for obtaining loans from megabanks like Wells Fargo and Bank of America, who’ve faced fines discrimination in the past, but a Thursday report by the Washington think tank found that it can also cost non-white consumers more for the most basic of banking services, The Washington Post reported.

The nation’s largest banks have been called out for such discriminatory behavior, but it’s the small, community banks that are still getting away with it.

” … If we care about racially disparate patterns in costs and fees and want to eliminate those in the financial system, our oversight has to include small and community banks where these practices are prevalent,” Terri Friedline, a professor of social work at the University of Michigan and co-author of the report, told the newspaper.

Researchers found that community banks in majority-Black neighborhoods require an average minimum opening deposit of $81. Meanwhile, in largely white neighborhoods, the minimum deposit is $61.

Maintaining a checking account in Black neighborhoods also tends to be more costly, as community banks mandate an average minimum balance of $871 to avoid fees, the report states. The minimum drops to $749 in Latino neighborhoods and falls even further in white neighborhoods to just $626.

These expensive minimums can prove problematic for Black and Latino consumers in the long run, who tend to earn less than their white counterparts. The new report notes that checking accounts typically serve as entry into the economy — however, higher minimum balance requirements essentially leave Black and Latino people with less economic power by tying up a larger share of their funds.

“The average white consumer needs to keep just 28 percent of a paycheck deposited to avoid a fee or account closure,” The Washington Post reported, citing the report. ” …For African-Americans, it’s 60 percent, and for Latinos 54 percent.”

Study co-author Jacob William Faber pointed to the nation’s history of residential racial segregation as a possible factor in worsening discriminatory banking practices.

“It’s another example of how segregation inflicts costs on people of color,” said Faber, a New York University sociologist. “We have this very limited understanding of what racism and discrimination is. “We are almost always thinking about a person burning a cross, or discriminating against someone in a job interview. But arguably more damage is done in communities of color by the way society is set up. It’s normal day to day practices.”

“Regardless of intent, you have this disparate impact that itself is discriminatory,” he added.

Friedline and Faber surveyed a random sample of over 1,300 small banks across the U.S. and juxtaposed the results against the racial and income demographics of their respective communities. Their findings didn’t indicate that any one bank discriminated against Black consumers by charging them more but simply that banks in Black and Latino communities tend to charge more on average than banks in white neighborhoods, according to the paper.

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