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 Fair Housing Act
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:
- People of a different race
- People of color
- Different national origins
- Different religions
- A person’s sex
- If they are disabled
- Familial status
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:
- Not provide the necessary information regarding loans
- Provide different interest rates, fees, and terms and conditions on a loan
- Refuse to make a mortgage loan
- Not provide financial assistance residence
- Discriminate in the appraisal of a residence
- Refuse to purchase a loan
- Add conditions to the availability of a loan when questioned about harassment
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.
Does Lender Discrimination Still Exist?
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.
How to Prepare for a Loan Application
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.
Do You Suspect Discrimination?
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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