Beware of Redlining
On July 27 , 2022 , the Consumer Financial Protection Bureau ( CFPB ) and the U . S . Department of Justice ( DOJ ) ordered Trident Mortgage Company , a Philadelphia mortgage banker , to pay over $ 22 million in fines for “ deliberate discrimination against minority families ” and “ redlining .” This fine comes at a time where there have been previous actions taken against financial institutions for discriminatory practice , yet despite warnings , the unsavory practices continued to occur .
Redlining : What Is It and How to Avoid It ?
Redlining is a discriminatory practice where services are withheld from potential customers in neighborhoods classified as dangerous , hazardous or bad . These neighborhoods are most commonly minority-majority , or low income to very low income . Redlining can also be racially motivated , with services refusing to do business , open locations , send employees or lend to individuals within a specific racial group .
The practice of services avoiding these areas creates a hostile economic environment for the residents . They may already have very few services because of the classification of their neighborhood , and now additional services are refusing to come . As a result , this lowers the neighborhood and property value , providing residents with very little opportunity to fairly participate in economic development .
Fortunately , this practice is technically illegal and goes against fair lending laws , like the Fair Housing Act and Community Reinvestment Act ( CRA ). The federal government has tried to reverse some of the damage done to these communities from long ago when the lending laws and practices were designed to benefit wealthier white people , by sectioning off ( redlining ) “ risky ” neighborhoods . These neighborhoods were defined by race . The fair lending laws aim to change this by outlawing neighborhood drawings based on race or income .
Despite these efforts , redlining still exists . Financial institutions may inadvertently participate in what the federal government would consider to be redlining when they are :
• Avoiding loans to members / customers of certain communities based on its reputation .
• Charging different interest rates for members / customers of certain communities .
• Neglecting brick and mortar locations and are actively avoiding certain communities .
• Not training employees on discrimination and placing them in certain communities .
• Offering predatory mortgages and rates in certain communities .
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