Racial discrimination evident in continued bank redlining
African-Americans and Hispanics are beginning to lose ground when it comes to the use of traditional banking, according to the Center for Responsible Lending. Discriminatory practices like redlining (denying access to credit) have once again risen up as the U.S. struggles to emerge from the economic recession. Such financial discrimination, which includes mortgage denial and lack of access to short term loans from banks, highlights an ever-present form of racism, critics suggest.
Minorities losing homes at twice the rate of Caucasians
Center for Responsible Lending President Michael Calhoun told USA Today that U.S. minorities have “received the worst treatment, at a very high cost.” Estimates that 20 percent of African-American and Hispanic householders will lose their homes in the mortgage crisis – a rate more than double that of white householders – suggest that the gap between the minority and the majority is growing.
In his 2008 study of household debt entitled “Credit Access, the Costs of Credit and Credit Market Discrimination,” Christian Weller of the University of Massachusetts and Center for American Progress found that African-Americans were 41.7 percent more likely than Caucasians to be denied a traditional bank loan. The gap widened considerably when mortgages were in question.
The inequity of a ‘dual system of finance’
John Taylor, CEO of National Community Reinvestment Coalition, sees a double standard.
“It’s about a dual system of finance,” he says. “People of color do not have the same access that most American citizens enjoy.
The alternative when traditional banks deny low- or middle-income minorities credit is frequently basic credit check payday loans from payday lenders. While such short term loans are highly convenient in a financial emergency, the fees are generally higher than traditional prime loans, said NAACP Senior Vice President for Advocacy and Policy Hilary Shelton. Also, payday loans are small and can’t take the place of mortgage loans.
The legacy of banking deregulation
Redlining and similar practices gained much attention in the 1990s, when entire minority neighborhoods were shut out of being able to obtain bank loans, mortgages and insurance. Not coincidentally, banking and utility deregulation that occurred at the same time has been tied by numerous academic studies to the practice of redlining. While regulators installed such mechanisms as the Community Reinvestment Act and Home Mortgage Disclosure Act to help combat redlining, further loosening of the oversight belt allowed the practice to continue in various forms (such as reverse redlining, where short term bank loans are offered in minority neighborhoods, but at prohibitive rates). This ultimately led to the Wall Street crisis, from which the U.S. is still recovering.
What regulators are doing now to stem the tide
- The FDIC is trying out a two-year short term loan program at 28 volunteer banks.
- The Department of Justice has created a fair lending unit to police redlining.
- The Consumer Financial Protection Bureau will open in July 2011.