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Understanding Borrowers' Rights: Credit and Lending Discrimination

People use credit for many aspects of life, like buying a car, financing an education, or buying a home. When you apply for credit, it should depend on valid factors like your:

  • Expenses
  • Debt
  • Income
  • Credit history

It should not depend on arbitrary factors like race, religion, sex, or personal traits. Upholding civil rights and fair lending laws is important to ensure everyone has an equal opportunity to access credit.

Lending discrimination happens when a creditor considers certain protected personal characteristics to deny credit or impose unfair and less favorable terms or conditions on loans. These less favorable loan terms can include:

  • Higher interest rates
  • Variable interest rates
  • Short repayment terms
  • Higher fees
  • Ballon payments

The federal Equal Credit Opportunity Act (ECOA) bans creditors from discriminating on the basis of :

  • Race
  • Religion
  • Sex
  • Familial status
  • National origin
  • Age
  • Applicant's use of public assistance

Right to the Equal Opportunity to Get Credit

The ECOA entitles you to an equal opportunity to get credit but does not entitle you to the credit itself. Factors such as your credit history, expenses, debt, and income determine a denial or approval. The ECOA applies to banks, financial institutions, credit card companies, or anyone granting credit. It requires creditors to engage in certain policies and practices. For example, when you apply for credit, a creditor may not ask you to reveal your:

  • Race
  • Sex
  • National origin
  • Religion
  • Whether you receive public assistance income

But, you could voluntarily reveal these demographics to get a real estate loan.

Mortgage Lending Discrimination

Buying a home is a significant purchase, but lending discrimination is an obstacle to successful home ownership. Fortunately, there are statutory protections against mortgage discrimination. Because the ECOA applies to all credit transactions, it also directly applies to home loans. The Fair Housing Act, another federal law relevant to mortgage lending, bans lenders from discriminating based on race, religion, color, national origin, sex, familial status/marital status, or disability in housing sales or loans.

Types of Lending Discrimination

Federal law acknowledges three types of lending discrimination under the ECOA and the FHA. They are:

  • Overt discrimination
  • Disparate treatment
  • Disparate impact

Overt Discrimination

Overt discrimination exists when a lender openly treats an applicant differently on a prohibited basis. For example, a woman on maternity leave sued a credit union for discrimination based on sex and familial status for rejecting her home renovation loan. They would not consider her income until she returned to work.

Disparate Treatment

Disparate treatment happens when a lender treats an applicant differently based on one of the protected characteristics (such as race or gender). This type of discrimination can be obvious, blatant, or subtle. The lender does not issue an actual denial, but disparate treatment creates barriers, making borrowing more difficult.

For example, Bank A requires evidence of one month of verified income for a mortgage. Jake, a disabled mortgage applicant, must provide more extensive income documents than Jennifer, a non-disabled person in a similar situation. Proving disparate treatment does not require showing that the lender was motivated by prejudice. It only requires that the lender did not have a nondiscriminatory justification for the difference in treatment.

Disparate Impact

Disparate impact happens when a lender applies a neutral policy to all credit applicants. But the policy affects people belonging to a certain group based on their race, sex, age, or other protected characteristic. The policy is not intentionally discriminatory, but the policy's effect results in discrimination. For example, a car dealership has a policy of marking up finance rates on car loans. The policy is for all applicants but has a disparate impact on Black American and Hispanic customers. They ultimately pay more for the credit than their white counterparts with similar credit ratings.


Redlining is a practice of denying and limiting financial services to certain racial communities despite their creditworthiness. The practices of redlining prevented racial and ethnic minority groups from getting mortgage loans. Historically, redlining primarily affected Black and Hispanic communities.

Mortgage lenders would identify certain areas and neighborhoods and designate them as high-risk. The designation was due to the racial composition of residents. Redlining is illegal today. There are lingering long-term effects that have hurt Black and other minority communities.

If you have experienced mortgage lending discrimination, file a claim with the U.S. Department of Housing and Urban Development.

Get Legal Help With Your Discrimination Issues

Have you experienced credit discrimination? Were you denied credit even though you qualify for it? Did a creditor treat you differently over the phone than in person? If you suspect you are a victim of discriminatory lending practices, you should ask an attorney about filing a complaint. An attorney experienced in discrimination issues understands the different types of lending discrimination and can help you assert your rights.

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