Wall St. and Business Wednesdays: Black Banks In the Background II (April 02, 2003)

A few weeks ago, while guest hosting for Mark Thompson (Matsimela Mapfumo) on his “Make It Plain” talk show heard nationally on Channel 169 on XM radio and 1450 WOL-AM in Washington, D.C., I had Robert Patrick Cooper, senior counsel, and chief legal strategist for One United Bank, on as a guest. One United Bank is the largest Black-owned bank in the United States Of America with over $500 million in assets.

Our discussion dealt with the history and the current state of Black-owned banks today. The audience response was tremendous. We didn't even have enough time to talk to all of the callers.

As I stated this past Monday night while on-air with Mark Thompson, during our weekly BlackElectorate.com segment on “Make it Plain,” the Black community, in many respects, can judge its economic progress since chattel slavery by the condition and strength of its Black-owned financial institutions. The little-known history of Black-owned banks in this country is rich and would probably surprise most Blacks once exposed to it. Black Americans in major cities and rural areas throughout this country have wielded considerable influence, at various moments, as financial intermediaries - even dwarfing their White counterparts at times. I will get into this subject in more detail in the second-semester of Black Electorate Economics University (BEEU), but a strong case can be made that in proportional terms, more capital formation and accumulation took place in the Black community prior to the civil rights movement than after. As a result of the lower prioritization that capital accumulation has received in the past 50 years, the Black community, as a whole, has suffered and has perpetuated a relationship with the larger White community that is not all that dissimilar to what existed when Blacks were in slavery – in terms of the Black labor to White capital ratio. Without Black-owned financial institutions to intermediate the wages of Black labor and to serve as indigenous sources of capital to entrepreneurs and Black-owned businesses (producers and retailers) that could suffice the basic needs of the Black community; any dollar that comes into the hands of a Black laborer will ultimately end up in a White-owned commercial bank forming capital that is much more likely to be given to a White person in the form of a loan than a Black person. Integration and the civil rights movement have produced many material (and a host of others) gains for Blacks, no doubt, but some in the movement have consciously and subconsciously equated equality with Whites as the standard of excellence - at the expense of economic development within the Black community.

The problem has been that Blacks have largely sought access to capital (directly or indirectly) from the government and corporate America rather than from the development of a pool of indigenous capital or from American equity markets. Government activism and civil rights have taken precedence over Black capital formation and accumulation, generally speaking. (Of course there are important points of intersection between these two approaches that benefit the Black economy.)

On-air, Mr. Cooper and I lamented over the fact that as many as one-third of all Blacks do not own bank accounts. At one point, during the broadcast I read from a 21-year old study, "An Analysis Of The Portfolio Behavior Of Black-Owned Commercial Banks" by Timothy Bates, that listed the five reasons that Blacks most commonly gave, at that time, for not opening a bank account. The reasons were:

1) I can’t think of any disadvantages.
2) Banks are open at inconvenient times
3) It is too easy to get overdrawn
4) It is difficult to get checks cashed
5) Banks are not located close to me.

Mr. Cooper confirmed that those reasons, provided two decades ago are exactly the same reasons provided today, which explains some of why only 66% of Blacks have bank accounts. These facts are particularly distressing when one considers that Black-owned banks are uniquely positioned to help overcome this financial gap. The study from 1982 states that “available evidence indicates that… Black banks are capable of inducing small inner city savers to participate in the financial intermediation process. Mobilizing savings is the first step in financing community economic development…”

I thought about all of this when I learned of the news that Russell Simmons had finally moved forward on his business partnership with Unifund, the largest holder of distressed debt in the United States. Russell had told me about this initiative when we spoke recently. Russell told me, "I have a card which has a great possibility for empowerment. There are 70 million Americans who cannot get a bank account. Can't get one. I have a non-bank required debit card with Visa. It is the only one of its kind. That means your check gets deposited. You go to the ATM take your money out if you want or you pay all of your bills."

Here is how Allhiphop.com reported the news:

”Russell Simmons has launched UniRush Financial Services, a new joint venture between Simmons' Rush Communications and Unifund Corporation, a leading leading buyer and seller of distressed debt and will launch the Rush Prepaid Visa Card.

The new Rush Visa card will target people who don't have checking accounts or relationships with traditional banking institutions.

"Nearly 48 million Americans do not have a banking relationship or access to traditional banking systems," Simmons said. "These people don't have bank accounts, and often pay exorbitant check cashing and money transfer fees. The Rush Card and the services offered by UniRush will help put money back in their pocket and put them on the path to sound fiscal management."

UniRush has developed an "existing pool" of potential users that they will market the card to. The user that doesn't have a checking account will be able to utilize direct deposit of income into his or her account with UniRush and have access to the funds via the Visa Card.

"UniRush has created a unique service offering, which is only possible through the type of complex electronic debit and prepaid commerce systems we currently have in place," said Craig Marshall, chief operating officer of Rush Communications. "Starting with the Rush Card, we will introduce a host of new services over the coming months geared towards improving the lives of unbanked Americans everywhere."

Unifund Corporation, owned by David Rosenberg, is said to hold as much as $9 billion in distressed debt, which it buys from the largest 100 banks in the country, as well as from savings and loans, finance companies, retailers and other lenders.

I have mixed feelings about the venture between Rush Communications and Unifund, called UniRush. I love Russell’s spirit and truly believe that he is motivated to help those who don’t have bank accounts. I also understand and respect much of Russell’s business model, which should be a case study in and of itself for the Black community. In many ways the Rush Prepaid Visa Card can potentially improve the quality of life and self-esteem of people who are “profiled” and stereotyped because they do not have bank accounts or credit cards. "Starting with the Rush Card, we will introduce a host of new services over the coming months geared towards improving the lives of unbanked Americans everywhere.", Rush says. It is hard to knock Rush or their efforts which are aimed at satisfying a need within a market segment that is filled with Blacks.

But a prepaid Visa Card that grows out of a partnership with a holder of distressed debt, for all the good that it can do in the short-term, for individuals, cannot solve the longer-term problems in the national Black economy. Only the rise and proliferation of Black banks and their integration with the $500 billion of purchasing power in the Black community can accomplish that. It is the fastest way for the Black community to marry its immense talent with its formidable financial capital and produce the prosperity that we have longed for since slavery ended. At the end of the day, anything short of an all-out effort to match the Black community's three sources of capital (human, physical and financial) is only a band-aid approach.

A partnership between Rush and One United Bank; or Rush and Atlanta's Citizens Trust Bank; or Rush and Carver Bank as initiatives to solve the unbanked crisis, resonates with me, far more than the Rush-Unifund-All First Bank partnership.

Cedric Muhammad

Wednesday, October 4, 2006

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The views and opinions expressed herein by the author do not necessarily represent the opinions or position of BlackElectorate.com or Black Electorate Communications.