Toronto’s Black population could once again have its own financial institution if a trio of African Canadian organizations can muster enough community support to get the proposed Pan-African Credit Union off the ground.
Although the proposed institution is not exclusive to people of colour, the goal is to provide an alternate banking organization that better serves the Black community in the Greater Toronto Area, and eventually, the rest of the country, said Adaoma Patterson, president of the Jamaican Canadian Association, one of three entities behind the project.
“It’s a lofty goal,” Patterson said. “Well overdue, though.
The group has set an ambitious target for the credit union to open within two years.
“We hope that we can get through all of the stages to launch by the summer of 2021,” she said.
The main aim is to provide financial services to Blacks who have been traditionally under-served or un-banked, she said.
“People have been asking for it for a while,” she said. “This piece was the next logical step.”
While families will be the core of the credit union’s membership, making investments in Black-owned businesses is also key, she said.
“The community has always talked about economic empowerment,” Patterson said. “It enables all of the other conversations when you have that economic ownership.”
Running a credit union isn’t unfamiliar turf for the JCA, which operated one, that puttered along before it folded in the mid-1990s.
The Star reported on the demise of the organization in 1995.
Prompted by concerns for members, the Deposit Insurance Corporation of Ontario, which insured individual deposits up to $60,000, assumed control of the Caribbean Canadian African (Ontario) Credit Union on Aug. 31, 1995. Continuing operating losses were cited by the Ministry of Finance, according to Bill Foster, an insurance corporation vice-president, who replaced the board as administrator of the organization.
“This credit union has no reserves and is in a deficit position. Its liabilities exceed its assets,” said Foster at the time.
A lawyer for the former board members said, in early August, 1995, that the only problem was the credit union had spent money anticipating $750,000 in funding from the government and had only received $370,000 of it.
Plans to revive the credit union started to regain some life in 2016, after Patterson assumed the presidency of the JCA.
“We were tackling a lot of other things, but it seemed like the financial institution piece was missing,” she said.
Patterson soon discovered that the JCA wasn’t alone in championing the return of a black-focused financial institution. The Lions Circle African Mens’ Association, also had an interest in establishing a credit union of its own.
It made sense to join forces, she said.
The idea started gaining steam, after the Canadian Black Chamber of Commerce, which launched in 2019, joined the partnership. A steering committee, including people from financial backgrounds, has been meeting weekly, in recent months.
Andria Barrett, president of the Black Chamber of Commerce, said she often fields complaints from small business owners about difficulties in accessing financing from traditional banks.
“I’ve heard countless stories from Black business owners, who have made some money, but can’t get a business credit card or a loan, so we have to create our own,” she said.
Still in its infancy, the group is gathering feedback, via an online survey, to test the community’s appetite for the kind of financial institution they want.
Once the survey closes in March, there will be a clearer indication of whether the concept has enough backing to move forward.
“We have been working towards getting regulatory approval,” Barrett said. The chamber is hosting Rod Phillips, Minister of Finance, next week Thursday, to talk about this and other economic issues.
“We’ve been going to different locations and actually promoting the survey,” she said. “The response has been good overall.”
Patterson said early research revealed a daunting road ahead, as “not many cultural credit unions are being approved in Ontario.”
Provincial regulators must be convinced that a sufficient cohort of people will put their money into such a scheme.
It’s one of the very reasons the former credit union failed in the 1990s.
“You have to show that people are actually willing to put some money into this as a startup,” she said.
In addition to providing financial services, the new credit union will offer financial education on topics from budgeting to wealth-building, Patterson said.
Entrepreneur and philanthropist, Denham Jolly, is already hailing the potential advent of a credit union as a way to break the financial chains holding back the next wave of entrepreneurs.
“It’s not easy for a Black person to get financing of any nature,” said Jolly, renowned for starting Canada’s first Black-owned radio station FLOW 93.5.
He said Black people have long struggled to walk into a bank and “be taken seriously.”
The former credit union, which went under in the 1990s, had a business plan that required it to hold $5 million in assets by 1997, wrote Cecil Foster, a journalist, author and scholar, in an opinion piece, printed in the Star, in 1995.
Jolly bemoans the missteps that led to the demise of the former credit union, but said that’s water under the bridge.
“I would like to be on the board of governors,” Jolly said about lending a hand on a new credit union.
Foster wrote about efforts by the Black Business and Professional Association and the JCA to to save the old credit union, including a membership drive to get more Black groups and individuals to open accounts.
Barrett said the past will help to guide the current application.
“We see the need and we learn from history,” she said.
Oana Branzei, associate professor at Western University’s Ivey School of Business, said there is a persistent disadvantage minorities, especially those of colour, face, and it holds them back from things such as business startups.
“It is not as severe as the U.K or U.S, but it’s certainly a problem,” she said.
Branzei said specialized credit unions are a catalyst for people of colour to bank in a dignified way.
“When this is a movement from within the community, it feels right,” she said.
Branzei said rejecting a community-driven effort, given the discrimination that has taken place, will be politically hard to do.
It seems as if everyone’s got a side hustle these days. More than 40% of Canada’s millennials have worked in the gig economy over the past five years, according to a study from the Angus Reid Institute, and although they’re bringing in extra cash, their side hustle can be a hurdle to qualifying for a mortgage.
Taylor Little is the CEO of Neighbourhood Holdings and noted that more than one-third of their borrowers now identify as gig economy workers, all of whom have turned to alternative sources after being denied traditional mortgage financing. More traditional mortgage lenders look specifically for stable income streams, making qualifying for a mortgage near impossible for non-salaried employees.
Increasing unaffordability in major urban markets (and even that’s expanding beyond the long-time hotspots of Toronto and Vancouver to areas like Montreal) is coinciding with a decreasing ability for a growing demographic to get a conventional loan. At the same time, people aren’t seeing their incomes grow at the same rate as their housing costs.
There are also more opportunities now for entrepreneurship. People are not only looking for additional income, but for ways to capitalize on preferred skill sets or to engage in more flexible work arrangements. The lending challenge is dealing with multiple income streams that can be based on contract, project, season, or a combination of factors.
Some lenders are changing how they approach self-employed borrowers, but many lenders, particularly banks, are still looking at the challenge of reconciling the non-standard income stream with the framework they have to make lending decisions.
“There’s no doubt a lot of work is being done to change things, but for now, the gold standard for bank lending is to have a T4 showing steady income or six months’ worth of bank statements so you can show regular deposits,” Little said. “If you don’t conform to that, the banks have a really hard time wrapping their heads around making you a big loan.”
Little noted the irony of thinking about concentration risk in a loan portfolio versus borrower income; for a borrower with a steady salaried income, there is 100% concentration risk to their job. If that person loses that job, it goes from 100 to 0, whereas for the gig economy worker, it might go from 100 to 80, with a likelihood that they will quickly fill that gap. Borrowers are looking to diversify their income sources for any number of reasons in the same way that lenders attempt to diversify their funding sources.
“From our end, it’s definitely an area where we can help on the alternative side,” Little said. “We are not originating tens if not hundreds of billions of dollars of mortgage per year. We’re in the hundreds of millions, and because of that, we can build our own systems and look at a borrower’s application more holistically. That’s given us that flexibility to serve this part of the market.”
Around 40% of Neighbourhood Holdings’ borrowers are self-employed, Little said. He sees their role as helping borrowers buy time; they get a short-term mortgage but as they pay off their interest-only loan, they’re working with a mortgage broker to help reframe their situation and income to fit into a bank’s box.
Brokers might even want to make the extra effort to market to self-employed individuals because in many cases, these people are unable to walk into a bank and walk out with a mortgage because they’re often shut out by the banks at first glance. Changing expectations and figuring out a plan to get to their ultimate goal takes time. There’s work that borrowers can do, Little said, but it doesn’t happen overnight.
In actuality, Little said, the credit quality of their borrowers is pretty high, and they’re often some of the best types of borrowers that a lender could ask for.
“It’s not criminals and deadbeats . . . these are some of the scrappiest people that you probably want to lend to. They have three different income sources, or four, and these are people that if, if one contract goes away, they’re good at finding another,” Little said.
Rep. Ayanna Pressley says she is “thrilled” that the House of Representatives passed her bill to reform the credit report system, though the legislation’s future in the Senate is unclear.
The House approved the Comprehensive Credit Reporting Enhancement, Disclosure, Innovation, and Transparency (CREDIT) Act on a mostly party-line vote Wednesday afternoon.
Pressley — who has championed often-arcane financial reform bills during her first term in Congress — says the legislation would address a “fundamentally flawed” system that can impede upward economic mobility in a country where “our credit reports are our reputations.”
“When credit reports determine where you can live, work and how much you will have to pay for everything from a car to a college degree, consumers deserve a system that ensures equity, transparency and accountability,” the Massachusetts congresswoman said in a statement. “American families are finding themselves trapped in cycles of debt, simply for trying to afford basic needs like healthcare and education.”
She also later tweeted about the landmark day.
The Comprehensive CREDIT Act includes measures to make it easier for the estimated 20 percent of consumers who have a “potentially material error” on their credit report to seek corrections; limit the use of credit scores for employment purposes; expand the opportunity for student loan borrowers to improve their credit scores; restore credit to victims of predatory agencies; ban the reporting of debt incurred from “medically necessary procedures” and delay the reporting of other medical debt; shorten the time that most adverse credit information stays on a report from seven years to four years, and from 10 years to seven years in the case of a bankruptcy; and bolster the Consumer Financial Protection Bureau’s oversight of the industry.
According to CFPB data, the watchdog agency has received more than 326,000 complaints against credit reporting agencies since 2012, which accounts for nearly 22 percent of the total complaints filed during that time period.
According to Pressley’s office, the Comprehensive CREDIT Act comprises tenets of several other bills introduced by fellow members of the House Financial Services Committee. However, the Boston Democrat authored the student loan-focused section of the bill, which would:
Student debt has become an increasing burden for students in Massachusetts. A study in 2018 found that the average debt load for Bay State graduates increased by 77 percent between 2004 and 2016, faster than in any other state in the country except Delaware. According to Pressley’s office, more than 855,000 borrowers owed a total of $33.3 billion in student debt last year in Massachusetts — and nearly 100,000 are behind on their loans.
“Even if we wipe out all student debt tomorrow, the devastating impact on consumers’ credit would remain for years to come,” Pressley said in her speech. “For that very reason, we must give folks a real chance at recovery and repair.”
The bill passed the Democrat-controlled House by a 221-to-189 margin. With the exception of two moderate Democrats who joined Republicans to vote against the legislation, the vote was divided by party lines.
For the legislation to proceed any further, Democrats will likely have to wait until at least another election. Sen. Mitch McConnell, the Republican-controlled Senate’s majority leader, has repeatedly ignored the hundreds of bills passed by House Democrats.
Massachusetts state lawmakers have also recently proposed new protections for student borrowers in the wake of relaxed federal oversight under President Donald Trump.