How to Change the Racial Biases in Lending
So, overall, the stats for racial biases in lending clearly aren’t great, even after the rise of computer-based lending decisions and other fintech innovations. It goes without saying, but there is no reason for lenders to charge higher rates and fees to minority borrowers with the same credit and financial profiles as white borrowers, and something needs to be done to help level the playing field.
Note: This piece is part 2 of a two-part series on racial biases in lending. Missed part 1 of Racial Biases in Lending? Click here to access it.
But what can be done? Well, on the surface, it can be difficult for the average person to change the way lending practices occur, especially considering how entrenched the issue appears to be in the lending landscape. Still, there are ways that you can help mold lending practices to be more fair and balanced, including:
Supporting nonprofits that are focused on leveling the lending playing field
To help make changes and lessen racial biases in lending, consider supporting nonprofits that are focused on just that. There are tons of organizations that work to educate consumers and advocate for disenfranchised or minority borrowers, and these organizations are laying the groundwork for change to occur.
Take, for example, the Chicago-based nonprofit Working Credit, which helps clients in seven states navigate the credit system. Ricki Lowitz, chief executive officer at Working Credit, believes that the way to assist disenfranchised consumers is to first help them overcome “their deep-seated fear of credit.”
While supporting this nonprofit doesn’t directly change the inequalities in lending, it does help empower minority borrowers with education, information and tools. Plus, 80% of Working Credit’s clients are people of color, which means supporting this nonprofit is directly supporting minority communities and helping to make changes via educated consumers.
Working Credit is hardly the only organization focused on empowering consumers, though. The National Fair Housing Alliance is a nonprofit consortium of more than 200 private, non-profit fair housing organizations, state and local civil rights agencies, and individuals from throughout the United States, all of which are fighting to end discrimination in housing.
The NFHA is the only national organization dedicated solely to ending discrimination in housing, which makes it a great organization to support if you’re trying to help eliminate discrimination in mortgage lending in particular. NFHA works to ensure equal housing opportunity for all people through leadership, education and outreach, membership services, public policy initiatives, community development, advocacy and enforcement.
There are tons of other nonprofits focused on fairness in lending, so find one you are comfortable with and support it. It’s an easy way to ensure you’re doing your part for equal treatment of all people in lending.
Opting to do business with minority-owned mortgage lenders or other banks that prioritize the elimination of racial biases in lending
While some lenders may perpetuate unequal lending standards, other lenders have made a point to open the door to minority borrowers. One of those lenders is Union Bank, which is committed to supporting underserved communities and is one of the only lenders in the nation to have a special purpose credit program under the Equal Credit Opportunity Act.
This program is called the Business Diversity Lending Program, and it’s designed to empower woman-, minority- and veteran-owned businesses by providing the credit and financing that minority-owned businesses need to help them grow and thrive. The products offered under this program are the same as Union Bank’s traditional loans and lines of credit, but the credit policy opens the door so a wider universe of business owners can access that capital.
You can also show your support by opting to do business with minority- or Black-owned lenders and companies rather than traditional banks. If you need help finding resources, start with the website Blackwallet.org, which has a solid list of 10 minority-owned mortgage companies with information on each lender and what they offer.
Reporting any clear cases of discrimination in lending against minorities
This may go without saying, but it’s important to speak up when you see or experience racial discrimination, regardless of whether you’re the party on the receiving end. There are federal and state laws against this type of discrimination, but the only way these laws can be used to halt this type of behavior is by reporting it when it happens.
For example, The Fair Housing Act makes it unlawful to discriminate on the sale or rental of housing based on national origin, race, color, religion, sex, familial status or disability — and this includes imposing different terms and conditions for minorities. There may also be state laws prohibiting this type of practice, though it will depend on where you live.
Credit and lending discrimination is often hidden or even unintentional, though, which can make it hard to spot. Consumerfinance.gov offers some good tips on how to identify the warning signs of discrimination, including:
- You are treated differently in person than on the phone
- You are discouraged from applying for credit
- You hear the lender make negative comments about race, national origin, sex, or other protected groups
- You are refused credit even though you qualify for it
- You are offered credit with a higher rate than the one you applied for, even though you qualify for the lower rate
- You are denied credit, but not given a reason why or told how to find out why
- Your deal sounds too good to be true
- You feel pushed or pressured to sign
If one or more of these red flags pops up, take notice and take action. Whether you suspect that you’re being discriminated against because you shopped around for lenders and one lender quoted an interest rate several points higher than the rest or you’re simply a bystander who sees suspect behavior, it’s important to voice your concerns so that something can be done about it.
- Questioning the lender on why there is a discrepancy between its rate and the other rates you’ve received and/or filing a complaint with the lender’s office;
- Contacting your state attorney general’s office to file a formal complaint against the lender;
- Retaining a local attorney to handle the complaint for you;
- Or filing a complaint with the CFPB and/or the Department of Housing and Urban Development, two organizations that fight for equal lending practices