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Credit and Lending in Communities of Color

Credit and Lending in Communities of Color
2010Fair Credit/Fair Housing

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Access to credit is critical for communities of color to build assets, income and to pay for basic necessities. Historically, communities of color have lacked access to credit, both in quantity and quality. Past struggles for fairness in lending have focused on mortgage lending because of the transformative capacity of home ownership as a means of asset building, shelter security and space stability. Unfortunately, anti-discriminatory laws have done little to change the geography of lending discrimination. Facilitated by widespread deregulation in the 1990s, communities of color, which had previously been neglected by mainstream financial institutions, were inundated with subprime lending products. For consumers of color, the high cost of lending extends past home loans. African American and Latino consumers, even when they qualify for better lending terms, are disproportionately receiving predatory terms.

As the lending industry innovates new consumer products, advocates must stay in step with current forms of lending that affect our communities. Consumers of color disproportionally pay more for auto financing, credit cards, private student loans, payday lending, car title loans and others. For example, an area that has received little attention is the world of auto finance, despite being a key lending product for communities of color. With the importance of transportation for securing and maintaining employment, access to auto finance is vital for building income and assets. The rise in alternative financial lending products poses a threat to the economic security of borrowers of color whose communities contain an overrepresentation of these lenders. As the Obama Administration focuses on consumer protections as part of the larger financial regulation discourse, lawmakers need to ensure that all forms of lending fall under the penumbra of fair lending regulation.