New research from the University of Michigan points to the potential of public banking to better serve the financial needs of Chicago residents as the volume of complaints about private banking services has increased exponentially over the past decade.

Terri Friedline, U-M associate professor of social work and faculty affiliate of Poverty Solutions, worked with Ameya Pawar, a fellow with the Open Society Foundations and the Economic Security Project, to analyze 40,645 complaints about financial products and services made by Chicago residents to the Consumer Financial Protection Bureau between 2011 and 2022.

A new policy brief summarizes their findings and outlines considerations for a public bank in Chicago.

The number of consumer complaints rose from 785 in 2012—the first full year of operation for the CFPB’s Consumer Complaints Database—to 7,070 in 2021 and 7,696 in the first eight months of 2022, when the researchers began their analysis. The complaints came from residents of 67 ZIP codes in Chicago, and the researchers incorporated demographic data for those ZIP codes to analyze trends in the types of complaints filed by different populations.

“People need financial products and services to pay bills, send money to friends and relatives, buy a house and start businesses,” Friedline said. “Unfortunately, private banks and lenders often provide financial products on expensive and exploitative terms—especially to people who are poor and racially marginalized. The CFPB Consumer Complaints Database offers insights into how Chicago residents experience harms and problems from private banks and lenders.”

The analysis found a majority of complaints (64%) had to do with credit. The next largest categories of complaints were related to debt collection (12%), bank accounts (9%) and mortgages (8%). Credit increased in prominence as a percentage of overall complaints, rising from 23% in 2012 to 66% in 2021. This contrasts with the patterns of complaints about bank accounts and mortgages, which both comprised larger shares of overall complaints in 2012 and declined on average over time.

Chicago’s residents with low incomes and Black residents submitted complaints about credit-related products and services—for example, unauthorized charges on a credit card or incorrect information on a credit report—at substantially higher rates than their wealthier and white counterparts. More affluent and whiter communities submitted more complaints about bank accounts and mortgages than disproportionately poorer and racially marginalized communities.

Among the ZIP codes with the lowest poverty rates, 52% of total complaints have to do with credit, compared to 72% among ZIP codes with the highest poverty rates in the city. Similarly, 51% of total complaints among ZIP codes with the smallest shares of Black residents have to do with credit, compared to 72% among ZIP codes with the largest shares of Black residents.

“The analysis reveals differences in the types of financial products used by different populations and the problems they experience with those products,” Pawar said. “When we consider these complaints alongside evidence of historic and contemporary racist lending practices, it is evident that private banks and lenders are not equipped to support Chicago residents’ full and equal participation in the economy.”

Public banking is one idea for mitigating the harms and problems Chicago residents experience from private banks and lenders, according to the researchers. A public bank is a locally and democratically governed institution that can serve as the city’s fiscal agent; support a variety of banking products and services like bank accounts, credit and mortgage lending; and invest in the types of development communities need.

Rather than borrowing expensive debt from private lenders or using a private bank as a fiscal agent that reinvests profits elsewhere, the city of Chicago could establish a public bank mandated to invest locally and equitably, the researchers say. A public bank could be designed to equip Chicago residents with easy-to-access and inexpensive bank accounts, credit cards, home mortgages and business loans.

The researchers note the importance of gauging residents’ interest in establishing a public bank and having residents lead its design.