While it’s less common for discriminatory policies and practices, the impact can still be seen throughout Oregon. One major issue is lending discrimination. People of color have historically been disadvantaged by unfair lending practices, either by being denied loans outright or charged higher rates than white borrowers with similar creditworthiness. Lending discrimination has made it more difficult for people of color to buy homes or start businesses. This cycle of inequity prevents them from building generational wealth.

What is lending discrimination?

Lending discrimination refers to denying or providing less favorable loan terms based on race, ethnicity, gender, age, marital status, sexual orientation or other identifiers. This type of discrimination can occur throughout the financial industry and it has a detrimental impact on individuals and communities. Not only is it illegal, but it makes it harder for people to access credit and build wealth. It can also lead to costly fines and penalties for lenders.

Who does lending discrimination affect?

Lending discrimination can target a variety of demographic groups, including:

• Racial and ethnic minorities. Lending discrimination has historically targeted African Americans and Latino communities through practices such as redlining.
• Women. They may receive higher interest rates on loans or other fees. For example, although Oregon is one of the places where women overpay the least for mortgages, there’s still more work to do.
• Older adults. They may experience higher interest rates and extra fees or be denied credit despite their acceptable creditworthiness or ability to repay.

It’s important to note that lending discrimination can take many forms. It can also occur based on other demographic factors such as sexual orientation, marital status, and more.

What is redlining?

Redlining refers to lenders refusing to provide loans or credit or charging higher interest rates or fees according to where you live. This type of lending discrimination can happen in specific neighborhoods or to certain groups of people based on their race, ethnicity, or other demographic factors. The term “Redlining” comes from lenders using red ink to show neighborhoods were “too risky” for lenders. Redlining generally targets areas according to racial stereotypes and, in some instances, intentionally creates slums or results in decreasing property values.

Current forms of redlining may be less obvious but still, have a discriminatory impact. Some lenders use algorithmic models that consider factors like zip code or credit score, which discriminate against communities based on where they live or other identifying info. Advanced digital marketing techniques can target certain types of borrowers, leading to some communities receiving better access to financial products and services.

Discriminatory practices in the real estate industry persist. One example is steering, where borrowers are directed to specific neighborhoods or loan products based on race or ethnicity. Regulators and advocacy groups are working on getting rid of these practices. Yet, it’s an ongoing concern that requires consistent monitoring and enforcement.

Categories of lending discrimination.

Lending discrimination typically falls under the following types; overt, disparate impact, and disparate treatment. All are unacceptable.

Overt discrimination.

Overt discrimination involves explicit bias or prejudice from the lender, such as refusing to provide loans to people based on race, ethnicity, or other demographic factors. Overt discrimination tends to be the clearest form of lending discrimination. However, overt should not be confused with intentional. The intent of the lender’s actions does not matter. The result does. For example, suppose a lender discovers that an individual or couple has children. In that case, they cannot refuse to offer them certain products or services due to their parenthood—even if the lender’s intent is to help. The lender must use the same criteria for lending to all borrowers.

Disparate treatment.

Disparate treatment lending discrimination occurs when a lender treats some groups differently than others. It happens when a lender applies different standards, such as higher credit score requirements, to specific groups of borrowers. Disparate treatment is the result of an inconsistent approach to lending practices. Treating protected classes unfairly is the most common form of discrimination.

Disparate impact.

Disparate impact lending discrimination occurs when a lender’s policies or practices have a non-direct discriminatory effect on specific groups of people. A neutral policy or practice can still result in a disproportionate impact. For example, disparate impact can come from loan amount minimums excluding communities of color with historically lower incomes or denying insurance coverage to those whose properties are older or less valuable. If policy results in disparate impact, then there must be a business necessity for the policy.

How lending discrimination affects people.

Lending discrimination has a real impact on people and communities. The impact can come in many forms, but the results are often the same—less financial opportunity and higher costs for borrowers. Here are some of the ways that lending discrimination can impact people:

• Higher interest rates. This can make repaying loans more challenging or even make borrowing unaffordable. High interest rates can lead to more debt and eventual loan default. At the least, it limits discretionary income and individuals’ ability to get loans or build wealth.
• Lower loan approval rates. This can be a barrier to renting or owning a home, getting a car loan or obtaining any form of credit. It also makes starting or expanding businesses more difficult for certain groups, which has a lasting negative impact on their finances and the overall economy.
• Less opportunity. The history of lending discrimination has harmed different communities and groups—specifically people of color. This can impact overall opportunity by creating distrust in financial institutions and discouraging people from seeking financial services.
• Less community diversity. Diversity in communities, societies, and the workplace has enhanced productivity, creativity, quality of life, economic growth, and reduced discrimination. Lending discrimination results in less diversity in communities and hurts everyone.

In the second part of our series about lending discrimination, you can learn about what OnPoint and our local government are doing to combat historical inequity in our region. Additionally, you’ll discover what actionable steps you can take to protect yourself from discriminatory practices.