What You Should Know About Credit Discrimination

The country recently witnessed the latest in a centuries-old pattern of discrimination and racism, the killing of George Floyd, an African American man in police custody. This event, and too many others like it, have reignited a demand for real change in not just our institutions, but in our laws, our culture, and our hearts. While many of us will never fully grasp the heavy weight of racism and discrimination in America, it’s important to try to understand it as much as possible, and to help where we’re able.

At Freedom Debt Relief, we know that discrimination within the financial industry exists. It perpetuates oppression and bias against minority communities, and ultimately can limit the economic movement of the lower classes, specifically communities of color. It may seem odd that lack of equal access to a credit card, or a car loan, or a mortgage should matter — but it does.

Access to credit is one way to mitigate class and status differences and allow for movement up the social ladder. Limiting credit and credit consumption makes it more difficult for a group to consume products and services that they otherwise would not be able to afford — including items which lead to access to education (like a computer, or internet access) or a car (to commute to a better job). If you limit access to credit based on color, religion, or national origin, you have a recipe for keeping a whole community stuck in the same place for generations. This is the opposite of the promise of America.

As a country and a society, we must address the discriminations that affect so many people. At Freedom, we know we can’t solve systemic discrimination and exclusion, and we won’t pretend that we can. But we can do our small part to help. To us, that means providing information you can use to move yourself and your family forward financially toward a better future.

In this post, we will touch on just one of the many deeply ingrained problems that face communities of color in our country. In an upcoming series, we’ll bring you information on a regular basis that can start conversations about discrimination in mortgage, auto, credit card, and student loan lending as well as predatory lending and other practices that exacerbate existing challenges to consistently underserved communities.

Let’s look further at one example of the problem with access — discrimination in credit applications. The more you know about credit discrimination, the better prepared you’ll be to protect yourself against it.

What is credit discrimination?

Under the Equal Credit Opportunity Act (ECOA), it’s illegal for creditors to discriminate against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (with certain limitations), because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act.

The law applies to most creditors you can think of, such as banks, credit unions, retailers, mortgage brokers, student loan lenders, payday lenders, savings associations, finance companies, and other financial institutions. And this protection against discrimination covers many types of transactions, including credit applications, consumer credit, business credit, mortgage loans, refinancing, student loans, car loans, open-end credit, and standards of creditworthiness.

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What does discrimination look like?

It’s one thing to know that discrimination in lending is illegal; it’s another to know what it looks like on a day-to-day basis. The Consumer Financial Protection Bureau (CFPB) states that it’s often “hidden or even unintentional,” and that you might be a victim of discrimination if you are:

• Treated differently in person than on the phone

• Discouraged from applying for credit

• Refused credit even though you qualify for it

• Offered credit with a higher rate than the one you applied for, even though you qualify for the lower rate

• Denied credit, but not given a reason why or told how to find out why

• Offered a deal that sounds too good to be true

• Pressured to accept an offer

Of course, if you hear the lender make negative comments about race or other protected group, there’s also a good chance discrimination is occurring.

How to protect yourself

So, what can you do to better identify and protect yourself against credit discrimination? Here are three steps you can take to begin the process.

1. Start your education: It helps to educate yourself about the key factors involved in credit applications. Find out what the current interest rates are. Know how your own credit history and score compared to others and get a sense for what standard fees and terms look like.

2. Look at the terms: If you’re offered unfavorable credit terms, ask the lender for an explanation. They should be able to give you a justification for why you don’t qualify for more favorable terms. Take notes documenting the reasons they give, if any.

3. Do more research: Don’t let a lender’s words or actions make you feel rushed into making a decision. Take their offer and explanations for that offer and do more research, comparing it to other lenders to get a sense for what’s reasonable and fair.

Who can you contact about credit discrimination?

Anti-discrimination laws are meant to protect your rights, and to hold institutions who violate those rights accountable. This can include awarding money damages to victims of discrimination. The agencies below handle complaints of discrimination, depending on the type of creditor you’re dealing with:

• Consumer Financial Protection Bureau (CFPB): Banks, savings associations, and credit unions with total assets of over $10 billion and their affiliates. The CFPB shares enforcement authority with the FTC over mortgage brokers, mortgage originators, mortgage servicers, lenders offering private educational loans, and payday lenders.

• Comptroller of Currency (OCC): National banks, federal savings associations and federal branches/agencies of foreign banks with total assets under $10 billion (the words “national” or “federal” or the initials “N.A.” or “F.S.B.” appear in or after the bank’s name).

• Federal Reserve Board (FRB): Financial institutions with total assets under $10 billion that are members of the Federal Reserve System, except national banks and federal branches/agencies of foreign banks.

• Federal Deposit Insurance Corporation (FDIC): State chartered banks with total assets under $10 billion that are not members of the Federal Reserve System.

• National Credit Union Association (NCUA): Federal credit unions (the words “Federal credit union” appear in the institution’s name).

• Federal Trade Commission (FTC): Retailers, finance companies, creditors that are not exclusively assigned to another agency.

Of course, you can also file a civil lawsuit against a creditor who has discriminated against you. Contact a consumer protection attorney or legal aid organization to understand your options.

Knowledge is power

While we don’t have all the answers or solutions to the discrimination that affects so many, Freedom Debt Relief is dedicated to doing our part to help. We will continue to provide information about financial challenges to help you understand your money – and your rights in a wider sense, so you can better protect yourself and your financial future. So, please come back to our blogs for additional updates and information with this series and other posts.

Learn More

• Your Equal Credit Opportunity Rights (Federal Trade Commission)

• What is Fair Lending? (Office of the Comptroller of the Currency)

• 4 Tips to Improve Your Credit (Freedom Debt Relief)

• Redlining was banned 50 years ago. It’s still hurting minorities today. (Washington Post)

Tanya Sotos, Sr. Content Manager at Freedom Financial Network, also contributed to this post.