Author: Sara Savat


About Sara Savat

As a senior news director for social sciences, I write about political science, religion (and their intersection), sociology, education, anthropology, philosophy and linguistics. I have a passion for storytelling and enjoy working with our world-renowned faculty and members of the media to bring research to life for the public. Prior to joining the Public Affairs team, I worked in public relations at SSM Health and covered academic medicine at Saint Louis University. I have a master’s degree in communication from SLU. Outside of work, I am most likely to be found at a dance studio or cheering from the sidelines of a soccer field. My family and I also love traveling, camping and visiting national parks.

Over the years, policymakers have enacted consumer protection laws and regulations to ensure better access to credit for low-income and minority consumers at fair lending rates. While these regulations make it illegal for financial institutions to discriminate against borrowers when making loan approval decisions, they do not guarantee equitable outcomes.

New research from the Olin Business School at Washington University in St. Louis has exposed a significant increase in poor customer service, fraud and mis-selling — or misrepresentation of a product or service’s suitability — by retail banks in low-to-moderate income areas targeted by the Community Reinvestment Act, especially those with a high minority population.

Researchers believe the regulations’ quantity-based goals, meant to measure a bank’s compliance, are to blame. Their findings are forthcoming in the Journal of Financial Economics.

“Most regulations in the U.S. and around the world primarily focus on the quantity of loans to marginalized borrowers,” said Taylor Begley, assistant professor of finance and study co-author. “These goals may unintentionally encourage banks to engage in aggressive sales tactics or make loans to uninformed borrowers without proper disclosure as they seek to satisfy their regulatory requirements.”

Used CFPB data to track complaints

Taylor Begley
Taylor Begley

To measure the quality of the mortgage-related financial products and services, Begley and co-author Amiyatosh Purnanandam, of the University of Michigan, used Consumer Financial Protection Bureau (CFPB) data to track the incidence of consumer complaints against financial institutions.

These are typically not complaints that are easily resolved between the customer and financial institutions, otherwise they would have already been settled and not appear in the CFPB data, Begley noted.

“Mortgage products can be complex, and the transactions leave many potential borrowers at a substantial information disadvantage compared to sophisticated financial institutions,” Begley said.

“The complaints to the CFPB include allegations of hidden or excessive fees, unilateral changes in contract terms after the purchase, aggressive debt collection tactics and unsatisfactory resolution of mortgage servicing issues.”

The data, collected between 2012-16, included about 170,000 complaints from more than 16,000 ZIP codes. With this robust dataset, researchers were able to draw comparisons of complaint rates between Community Reinvestment Act-targeted areas and similar control areas with no such regulation pressure, as well as comparisons between areas with above- and below-average minority populations.

More complaints in certain ZIP codes

Overall, researchers found substantially more complaints in ZIP codes with lower education rates, lower incomes and higher minority populations. Of these variables, though, high minority status had the greatest impact on complaints — approximately two to three times more than the effect of low income or low education alone.

Even more telling: Within neighborhoods containing a below-median minority population, the complaint rates were indistinguishable between the Community Reinvestment Act-target and control areas. However, in target areas with an above-average minority population, complaint rates were about 35% higher than similar control areas.

“While banks face pressure to increase the quantity of lending in every target area, in high-minority areas they effectively have two sources of pressure for regulatory compliance — lending to low-income customers and lending to minority customers,” Begley explained.

“These results show that groups that are often the intended targets of consumer protection laws experience much worse outcomes in terms of quality.”

Since its formation in 2010, the CFPB has fined financial institutions almost $10 billion to protect consumers. While it is difficult to pin down the precise economic costs of complaints for financial institutions, Begley said banks with more complaints paid significantly higher fines.

The quantity-quality trade-off

Previous research has studied the quantity of lending to low-income customers and pricing, but this study is among the first to measure the quality of these products. Begley said better understanding the quantity-quality trade-off could have broad policy implications.

“Regulations such as the Community Reinvestment Act that aim to meet the needs of low- and moderate-income neighborhoods may be successful in increasing the amount of credit extended in those areas. However, it’s important to remember that the loan approval decision is only one part of the lending process,” Begley said.

“Our research shows that regulators’ outsize focus on the loan approval decision may come with unintended adverse consequences for consumers on other important, but more-difficult-to-regulate, dimensions, including the customer’s understanding of the mortgage, whether it is a good fit for them and how lenders treat borrowers during renegotiation.”

In less than a week, companies around the country have scrambled to transition their operations from traditional offices to — in some cases — entirely remote-based workforces. That swift transition coupled with the chaos of a global pandemic can wreak havoc on workflow and productivity.

“Businesses should expect a period of adjustment as people develop new routines, norms and shared understandings about how work will progress through a new medium,” said Andrew Knight, professor of organizational behavior at Olin Business School at Washington University in St. Louis. He offered the following advice for managers and employees for working through this unprecedented time.

What should businesses expect from their employees during this time?

AK: Although many people have worked remotely intermittently — or at least dealt with the intrusion of work into the home — this large-scale shift to remote work will disrupt organizational practices and shared habits. Employers must be open to questioning old ways of doing things given the new situation.

What are some best practices that  managers can implement to support their employees and encourage productivity?

AK: The most important best practice would be having a means for gathering and sharing new best practices that employees are learning. Rather than presuming that they know what will work best, managers should instead structure a mechanism (such as a brief morning briefing or an online community) for people to share with one another what’s working, what’s not working and what needs changed. This type of “bottom-up” adaptation will be most effective because this is an unprecedented situation.

A good example of this is the Army Center for Lessons Learned, which emerged as a way for soldiers to share with one another their knowledge and experience as the “boots on the ground.” Managers should similarly defer to the experts — the employees — on how to be most productive.

What recommendations do you have for leaders to support communication and collaboration during this time? 

AK: Zoom is a wonderful technology for getting people together for a shared experience. Teams can use this technology to continue to coordinate. However — and, frankly, this advice would apply to in-person meetings as well — managers should be reticent to overschedule synchronous meetings. These often are not productive uses of people’s time. This is particularly the case for web-based meetings.

When using synchronous meetings, leaders should adhere to a set of principles, such as the ones that Google uses:

  1. Meetings should have a single decision-maker/owner … “someone whose butt is on the line.”
  2. The decision-maker should be hands on (e.g., set objectives, determine participants, send agenda)
  3. Meetings should be easy to kill — if it’s not useful, kill it.
  4. Meetings should be manageable in size — no more than eight people.
  5. Attendance isn’t a badge of importance — if you aren’t needed, leave or excuse yourself ahead of time.
  6. Timekeeping matters — respect biological needs, leave enough time to summarize actions, and end on time.
  7. If you attend a meeting, attend the meeting — multi-tasking doesn’t work.

When coordinated work can be accomplished without a meeting, it should be. This is facilitated through file sharing (Box, Dropbox) and shared documents (Google Docs). For leaders to support communication and collaboration, they have to ride the line between giving sufficient information and overloading people with email blasts. Having a rhythm to communications is important: a Monday brief, a morning brief … depending on the rhythm of people’s work.

What are some best practices for employees to work successfully from home?

AK: The most important practice for people who haven’t worked remotely is to experiment with different approaches, take stock in a systematic way and adjust as needed. Applications like Rescue Time can help people figure out whether they need to be physically isolated to be productive or whether working from the living room couch with a partner or child in the room can work.

The important thing to remember is that people differ in their preferences for whether to integrate their home life with their work life. Some people are “segmenters” who prefer having work and life separate. For these folks, having a defined space and time in their home will be preferable. Others are “integrators” who are comfortable with and even enjoy bringing these two spheres of life together. These folks may be most productive with work and life activities coming together.

How do you think this experience will impact businesses going forward? Will we return to “business as usual”?

AK: This is a tragic event with respect to health outcomes. At the same time, as it is forcing people to work and live in new ways, it can also provide a stimulus for development, learning and growth.

I hope that employees, employers and society take this situation as a way to get better — as a way to work and live in more productive and meaningful ways. I’m not sure what we’ll learn; however, I suspect that we’ll learn (a) we’re resilient; (b) some aspects of work or ways of working aren’t as “critical” as we thought; and (c) we need social connection to thrive.