Minorities Discriminated against in Credit Markets, Study Finds
Feature Story by Steven Fanucchi - 8/29/2007
African-American, Hispanic, and low-income families face continual discrimination at all levels of the American credit market, according to a new report by the Center of American Progress.
The report, titled Access Denied, finds that minorities and low-income families face limited access to credit as well as pay higher borrowing costs, even when other factors are taken into account.
"Most families need to borrow money to create economic opportunities for themselves or protect their financial security," said Christian Weller, author of the report. "Access to credit helps families get ahead in life—to start a new business or pursue an education—and ensure that unforeseen setbacks, such as a temporary decline in income, do not result in unpaid bills or sharp cuts in living standards."
Minorities and low-income families experience more difficulty gaining access to loans than whites, the study suggests. Statistics in the report show that African-American families are twice as likely to be denied loans as white families and that the number of African-American families discouraged from applying for loans is increasing.
The report also found that African-American, Hispanics, and low-income families depend more on costly lenders than their white counterparts and pay more for doing so.
Less wealthy groups are often forced to borrow money through their credit cards or installment loans, which charge higher interest rates than more traditional lenders. For example, the median interest rate on installment loans was 9.9 percent for whites in 2004 compared to 13.3 percent for Hispanics.
"The laws of our nation and our common values dictate that access to credit and the costs of credit should not be determined by one's race, ethnicity or even income," said Weller. "If someone is creditworthy, that person should have access to credit at the same price as everyone else. As the detailed findings of this report demonstrate, there is clear evidence of continuing discrimination."
The findings come at an already bad time for those in need of affordable credit as current financial markets have been experiencing a crisis of their own due to a rash of foreclosures in the subprime lending market. In the month of July alone, 180,000 new home foreclosures were filed in the United States, an increase of 93 percent from 2006 data. Nevada, which experienced a huge housing boom during the 90's, has seen as many as one foreclosure for every 199 households according to reports.
The subprime market provides loans to borrowers with impaired credit who often wouldn't be able to afford a loan otherwise. Fair housing advocates and civil rights groups have expressed concern that some lenders in the subprime market are taking advantage of borrowers.
"For many families, access to credit affords a path to the American Dream," said Wade Henderson, president and CEO of the Leadership Conference on Civil Rights. "Credit markets should work in a fair and non-discriminatory manner to provide the means for all persons to achieve their goals."
