Then Bob was sued for redlining, his bank was fined, and the boycott started. Disgusted, Bob retired from the banking business and left town. The bank teetered on for a few years until it was eventually gobbled up by a larger bank in the area.

Repeat the last sentence 7 times in 35 years, and today Bob's bank is Bank of America.

@rpm773: not exactly. redlining didn't really happen until megabanks entered the picture. more like, bob's board sold him down the river b/c megabank offered them 3x what their stock was worth.

take a look at why local banks are being bought out in this country. i guarantee you it is not b/c they are "teetering on". they are being positioned for takeover so a few louts can cash in on their community.

this sounds like a great idea, but you have to start constricting bank mergers if you really want community banking to revitalize itself. there is way too much money in m&a for small banks to resist the pressure of a buyout.

i mean, look at what the first use of TARP funds was - PNC buying national city! this is where banking is at today folks. you want to stop it? find a way to make being a bigger bank less appealing.

With a headline like "Crackpots Detail Insane Ideas For Banking Reform" one would expect that it was some new bill from the crackpots in congress.

I think my favorite part of this story is how Bob is still concerned with titles. I mean, I remember that part in "It's a Wonderful Life," where George Bailey lost his marbles because people wouldn't call him Vice President.

Of course, the awful thing is that this blog is trying to evoke George Bailey and George was probably the loosest loan officer in all of Bedford Falls. Heck, he wanted to give out affordable housing. To small business owners. Immigrant business owners. SCANDAL.

It's the local Bank Board President that realizes the profit and wants to do old George Bailey in...

Honestly - do these people forget how often that they ran this movie on television?

That blog lies in its lies!

As someone who actually examines banks, I see well-run institutions like this all the time. Albeit they are tiny and they are in small communities usually aptly named Pleasantville, but they do exist.

@Steve Pan: Pffft. Wow. I'm not quite sure how you jumped from a nostalgic article on the ways of community banking to "blame the poor inner city black people who are irresponsible and lazy."

I have a feeling you hold grudges, and maybe you should pursue a different outlet to vent then a Consumerist website.

@Steve Pan: Way to not be politically correct! You're just telling it like it is, right?!

Never mind that there were also lenders who convinced people who could not afford these mortgages to sign the contract. Never mind that those bad loans were sold to other banks and the original holders made big bucks off those sales.

Never mind there were lots of middle class people who thought they should take out equity loans that were too big so they could buy that new SUV and take a nice vacations.

Things went south for a lot of reasons, not simply "black people who are irresponsible and lazy." LOTS of blame to go around, so please go back to your bubble where the scary urban people won't come and change the complexion of your neighborhood, at least for a few more years.

Until Bob gets in trouble for being a racist sack of shit for not lending to minorities or outsiders...

Or Bob has his unqualified son Bob Jr take over the bank and run it into the ground...

(Admittedly, both of those happen with large banks)

@mac-phisto: Credit Unions.

I can just see the consumerist article:

Reader 'FunEmployed' wrote in to tell us about his problems with the local banker, Bob:

Bob doesn't need FICO...Bob doesn't need account statements. Bob just knows that you went to his neighbors wedding in a shirt you bought from his sisters thrift shop, and won't give you that loan. He took me aside and told me, quote, "Son there's no way I can loan you this money because you can't pay it back. If I have to foreclose on you, my name will be mud in this town…"

HELP!

@Steve Pan: I always suspected that gangster rap was secretly telling inner city black kids to buy a $200K house and then sell it for $500K to another black kid who then sells it to another black kid for an even $1M. Why does no one ever talk about how blacks are trying to take down our society through reckless speculation?

Also, can someone tell me just what the hell an "optimist club" is?

I don't see the fundamental difference between this idea and the proved, Nobel prize winning microcredit concept.

[en.wikipedia.org]

@mac-phisto: Either our local bank is being quietly taken over, positioning to be or decided adopting the crappy tactics of the big banks was a good idea. They have been gradually changing policies. When they get to the point of being taken over or behaving just like a big bank we will move everything left there over to the credit union.

If the credit union screws up massively I can actually get ahold of the CEO and ask him to fix it.

@EarlNowak: I think your right. Credit unions are the only format to keep community banks from being absorbed into mega banks.

@Haplo9000: Social club for business people to get together and meet each other. They usually do some sort of local charity events also. It is like the Lion's club. I think both have sort of died out around here. Even business and professional people don't have the luxury of going to social networking meetings in the community due to overburdened work loads.

@Steve Pan:

Well, I was reading through to the end of comments/follow-ups to post: "Why does Bob always have to be an old white man?" (I'm one myself, but how about we give everyone a fair shot this time?). Instead, I shall say FUCK YOU to Steve, what a piece of work he must be. It's assholes like him that steal opportunities from my non-white foster kids.

@wvFrugan: Poor inner city black people? What about the armies of white folks that got huge mortgages they shouldn't have qualified for and bought huge homes in California and Florida?

The problem isn't in the city, it's in the suburbs.

I do not see the problem here. This is how it used to be done, and it worked!

@mac-phisto:
Here in my medium sized southern town there are still "local" ("local" because they may operate all over the state or region) banks that operate independently of the mega banks. I don't know if it has to do with Louisiana banking laws or what. (I found it curious that the Nations Bank branches closed after the BofA merger.)

It's very easy to do business with them, you can still walk in and talk to your local branch manager and get bogus charges reversed, set up lines of credit, get a home loan that won't be resold, etc.. Like I said, I don't know if it's because of state banking laws or what. There are Chase branches and Capital One's (because they bought out a local bank, Hibernia) but they are the exception to the rule.

If you've ever lived in a small town, you know trying to do business with local people sucks balls. When everybody knows everybody, the conversation becomes, "Son, I'd like to give you this loan, but I didn't like your father when we were in high-school." Or other similarly stupid stuff. Plus, this wouldn't work in a town much over 20,000 or so. What's the plan there?

@megusi: How does one find these fabled institutions?

Would a community bank be more secure? It seems they are more vulnerable to armed robbery and less vulnerable to identity theft since the customer information would be kept in the community and not with a national database linked to half a dozen call centers.

Any analytical people out there care to make some educated guesses as to what it would be like to do business with a community bank that is *not* a credit union?

@dragonfire81:
Educate yourself and look up the Community Reinvestment Act (CRA)

@Steve Pan: Yeah those black people have been hooking people on crack in order to destroy the white establishment. You clearly are suffering as were most bankers and 99% of the US government. Crack addiction is more of serious threat than Communism ever was.

@mac-phisto: Absolutely wrong. Redlining has existed since the birth of moden home finance with the FHA loan. Go read just about any history of the FHA loan, and it will be spelled out for you.

In a nutshell, FHA loans were not allowed in "declining" markets, which were primarily defined based on racial composition of the neighborhood. So, whites moved out of downtown areas to suburbs in order to obtain the loan, while blacks could not. This is one of the primary causes of whote flight.

I work in the industry as a mortgage fraud analyst, and I do still see redlining cases. That said, there ia a huge difference between a rogue loan officer or realtor and a government sponsored, instituitionalized practice of racism.

@Alexander Saites: Oh, so true. And you better get a lawyer from out of town if you want to litigate, because nobody's going to piss off their in-town colleagues by becoming adversarial.

@Jeff Newman: ok, i'll give you that. uncle sam was instrumental in furthering the practice of racial inequality thru the original FHA program.

but as an industry insider, you must be aware of the trend of national banks expanding into locales by gobbling up community banks & then reducing service overall within that locale - not just mortgage lending, but also business lending, consumer lending & depository operations. it's redlining, but in a different context.

there was actually an excellent consumerist article on this a couple years ago --> [consumerist.com]

here's a link to the study by NCRC (NOTE: PDF) --> [www.ncrc.org]

And for a long time all was well. Congress even passed laws in support of Bob's and other community banks. These laws prevented banks from getting too large and from doing business across state lines. Bob's bank flourished. Then, one year, there was a bad harvest. The farmers of Podunk, Kansas had no food. They began to withdraw their savings from the First National Bank of Podunk, which gave the bank some liquidity problems, but since everyone was still paying their bills, all was okay.

Then, the next year, there was another bad harvest. The farmers of Podunk had another bad year and, having used up all of their savings the year before, started defaulting on their loans. Now these community banks had problems. They had very little capital since most of the savings accounts had been depleted by the farmers and, since most of their investments were loans to farmers, they had no income. Thus, the First National Bank of Podunk went under, then the Bank of Olpe, then the First National Bank of York, and the Bank of Hays. One by one every small-town bank in the Midwest went under. Congress felt they had no choice but to repeal the previous banking regulation and allow large banks to exist and do business across state lines.

Welcome to the 1980s. It really is a catch-22.

@EarlNowak: agree, but also disagree. community-based credit unions are great, but so are community banks. conversely, large-scale credit unions can be just as consumer-unfriendly as megabanks.

in a perfect world, instead of the credit union vs. banking political war, local banks & credit unions would align against large-scale banks & credit unions to push thru legislation efforts that benefit smaller, community-oriented operations. as a credit union advocate (& employee), i fully support extending tax benefits to local, state-chartered banks that would dissolve if that bank were to expand their charter beyond a reasonable threshold.

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@Steve Pan: do you actually know anything about the CRA, or are you just another dittohead spreading your master's malaise?

@undefined:

So, whites moved out of downtown areas to suburbs in order to obtain the loan, while blacks could not. This is one of the primary causes of whote flight.

I think that was a result of white flight, not the primary cause. The car, highways, creation of suburbs, integrated schools all contributed to white flight.

@bohemian: We had our mortgage issued by a community bank. (And then sold to ABN AMRO and then Citibank, which I don't mind because they have far more comprehensive online support.) It was very old school, sitting down with a banker who knew the neighborhood and my husband's employer and whatnot.

It's actually about six or seven "tiny" community banks that consolidated into a single "small" community bank that can compete locally with the megabanks. We bank at a credit union, but I would *DEFINITELY* go back to this community bank for future bank-bank needs.

@Prole: Our realtor steered us to one for mortgage loan origination. We were mega-unhappy with the big bank mortgage people WHO WERE ALL ON CRACK.

"When people needed money, they would come to Bob to apply for a loan."

In other words, Bob used the community banking laws to become a local monopolist that probably charged an invisible one or two percent interest rate premium for his services...

after all, who else to go to for money but Bob?

@Haplo9000: It's like Rotary or Kiwanis.

@Prole: As I mentioned above, we got our mortgage through a community bank. It reminded me of my parents going in 25 years ago when going to the bank for a loan was something they dressed up for and the bank was all walnutty and serious-looking.

It basically looked like any other bank, moderny and with computers and such, but I felt like it had a more serious vibe, and we felt more like we were engaged in a business deal and not customers being pitched to. The banker treated us like grown-ups, not like idiots or marks, and was concerned with getting a deal that benefitted all of us -- he wanted repeat business, we wanted to good mortgage, he wanted to be sure we'd pay it off, etc. And it was a banker with considerably control over the bank's decisions, not a mortgage broker and not someone tied to an algorithm.

We were in a slightly nonstandard monetary situation when we went looking for our mortgage, and he was willing to work with us and see us as individuals in a specific situation rather than just numbers on a page.

I also felt like the employees were more engaged in the success of the bank, including its reputation and image. I've sometimes gotten that sense at branches of national banks, but it was quite palpable at this one.

And, yes, the banker knew half the people in town and the bank is very active in local charities and so forth.

I liked it. We bank at a local credit union, but they don't originate mortgages and we'd definitely go back to the community bank -- and we recommend them. They don't have a branch particularly near our house (the CU does) or we might have even ended up banking there instead of the CU. But I love my CU.

@floraposte: I don't know; one reason we like practicing law in a smaller town is the lack of assholes in the local bar because your kid plays T-ball with the judge's grandson and opposing council's daughter. There's no lack of hotly-contested lawsuits, but you can't get away with the massive assholery and gamesmanship that's the hallmark of legal practice in big cities.

(I honestly get some real small-town joy when one of them "big-city lawyers" comes down here and tries to pull that sort of shit, which local judges won't tolerate. Not that we didn't both start out as "big city lawyers" but boy do I get the stereotypical distaste of the small town for the big city lawyer, lol.)

And even small-town bars have the one crazy lawyer who'll take every case and files sanctions against opposing council in EVERY. CASE.

We had a new community bank open here in 1999. The service was great, the rates were competitive, the employees remembered my name, and they were very successful.

Two years ago, before all the crashes, they sold out to a national bank. This made the initial investors a serious amout of cash (about 3x their original investments) and pissed off those of us who had been with them from the beginning.

@Steve Pan: Yes the CRA. It said that a black family and a white family with the SAME amount of credit and income buying a house of the SAME value should be treated the same if the only difference is that their houses are in different neighborhoods. It did not say that bank must lend to people who could not afford it, just because they were a minority.

If you think I'm wrong, please provide me a SPECIFIC cite. Give me the paragraph numbers that say banks had to lend to minorities who couldn't afford their homes.