Getting any type of loan isn’t
a small task. A loan is a large financial
investment that has the potential to improve your life. Minorities, such as
African-Americans, women, and the economically disadvantaged have faced
discrimination from lenders. They have been
turned down based on who they are rather than based on their credit
score or credit history. But rules have been changed. With these changes, do
lenders still discriminate against minorities in 2019?
The US
Department of Housing and Urban Development (HUD) summarizes
housing discrimination under The Fair Housing Act as “...illegal in nearly all
housing, including private housing, public housing, and housing that receives
federal funding.” It protects people seeking to buy a home, applying for a
mortgage and financing, applying for housing assistance, and more. The act
describes all those who are protected
against discrimination:
The Fair Housing Act sets the
legal standards mortgage lenders must adhere to as well. It's illegal for a
lender to do the following to any person who falls under the protected list and
applies for a mortgage or housing
assistance:
Additionally, a lender
cannot intimidate, threaten or coerce anyone who is within their rights under The Fair Housing Act.
They also can't retaliate against any persons who have filed a complaint or
launched a fair housing investigation.
There have been patterns in
the loan denial for people of color nationwide. The patterns are based on a year-long
analysis conducted by the Reveal from The Center for Investigative Reporting.
The U.S Department of Justice and the Federal
Reserve looked at 31 million records to
identify the lending differences between groups of people and individuals. They
found that denial rates for people of color were much higher than the denial
rates for white people in 48 cities across the nation.
The DOJ and Federal Reserve found that denial rates for people of color were much higher than the denial rates for white people in 48 cities across the nation
During the 1930s, discrimination was rampant. Redlining was a popular form of
discrimination. Redlining is a systematic denial of a service to specific residents. Surveyors for the federal Home
Owners' Loan Corp would draw on maps to mark areas where immigrants and
African-Americans resided. They would refuse to lend to these areas based on
racial and ethnic factors. Redlining
has now been illegal since 1968 when the Fair Housing Act was passed.
In
2015, the Consumer Financial Protection Bureau and the Department of Justice accused a New Jersey bank,
Hudson City Bancorp, of redlining entire
neighborhoods that mostly consisted of black and Hispanic residents. It spanned
across home mortgage lending services in Pennsylvania, Connecticut, New York, and
New Jersey.
Many residents were
creditworthy and would have otherwise been
approved for loans. The act of denial in these cases goes against The
Fair Housing Act that states lenders cannot refuse to make or purchase a
mortgage loan. The case ended with a $33 million settlement because of unfair lending
practices.
In early 2018, the
Pennsylvania Attorney General launched a redlining
investigation in the Philadelphia area. Their findings concluded
that African-American borrowers in the area were 2.7 times more likely to have
their home mortgage applications denied than white borrowers.
The Pennsylvania AG launched a redlining investigation that concluded that African-American borrowers in the area were 2.7 times more likely to have their home mortgage applications denied than white borrowers.
It was also revealed that white applicants, despite having a closely-related population percentage, had
received ten times more loans than black applicants. All this has contributed
to the denial rate statistics that black people are far more likely to be
denied in 48 cities.
There are ways for
minorities to make sure they aren't
discriminated against when applying for a
loan. The first step is to shop around at multiple lenders. It may reveal
a lender who offers rates that are much higher than the others- possibly due to
discrimination. Shopping around can also help borrowers find the best deal.
Understanding the rights that
loan applicants have through federal, state, and local laws will help applicants
know if they are being mistreated. Other
than the Fair Housing Act, applicants should educate themselves about the Equal
Credit Opportunity Act and the Dodd-Frank Wall Street Reform and Consumer
Protection Act. While the laws
are similar, different legislations dive deeper into mortgage lending and other
types of loans.
If you suspect you're
facing discrimination, you can take several
actions. The first step is to question the lender. Assuming you’ve
shopped around, you have an idea of what rates you’ll get. Sometimes digging
into why you were denied may lead to a resolution.
Legal steps you can take
include contacting your state attorney general’s office, hiring a local
attorney or filing a complaint with the Department of Housing and Urban
Development or the Consumer Financial Protection Bureau
(CFPB).
Complaints should be filed within a year, but the sooner, the better. They launch an investigation after
receiving the complaint about the alleged
discrimination. It’s common for an investigation
to conclude with a Conciliation Agreement or a Voluntary Compliance Agreement.
However, based on the findings the organization may enforce the law which could
land the case in federal courts.
It's important to distinguish between denial that is based on discrimination and denial based on financial aspects such as
credit history. Some lenders do have stricter lending standards, and many do
uphold the law. By remaining diligent and knowing your rights, the chances of
being approved for a loan can increase.
If your credit has been negatively affected, learn about your options and about credit repair.
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