Racism in finance? Major banks issue higher interest rates to minorities
Mark Lennihan, Associated Press
Some of America’s biggest banks have been charging minorities more than 3.3-times more than other borrowers according to a recent survey of U.S. loan data.
Matthew Lee, head of Fair Finance Watch and Inner City Press, collected data on the average interest rates on loans granted to African Americans by major banks, according to MarketWatch.
Citigroup Inc. issued loans to African Americans with rates 3.38-times more than other borrowers in 2011. Wells Fargo & Co. charged 2.28 times more, while J.P. Morgan Chase & Co. loaned out at rates 2.21 times higher.
African Americans borrowing from KeyCorp, owner of KeyBank, saw rates that were 1.7-times higher.
Some financial institutions have issued statements about the findings.
“Careful lending controls are in place at KeyBank,” KeyCorp told MarketWatch in a statement. “We lend based on factors such as credit scores, debt-to-income ratios, and loan-to-value ratios. We do not lend based on race, and we work hard to ensure our standards are consistent among all applicants.”
Lee says his findings paint a different picture of the lending methods used by major banks, according to MarketWatch.
“Even after the bailouts, lending disparities grew worse and not better,” Lee, who has been tracking the loan data for more than five years, told MarketWatch. “Regulatory laxity, at least on fair lending, has continued despite the financial meltdown caused by predatory lending.”
The government has taken action against some lenders for predatory loans targeting minorities.
The U.S. sued New York-based GFI Mortgage Bankers Inc. for allegedly charging higher rates to African American and Hispanic borrowers than white borrowers in similar situations between 2005 and 2009, according to the Wall Street Journal.
"As the lawsuit we filed today alleges, discrimination still exists in certain quarters and it has profound consequences for the victims," Preet Bharara, the U.S. attorney in Manhattan, told the Wall Street Journal. "At a time when so many American homeowners of all races and nationalities are struggling to make their mortgage payments, it is unacceptable that, as we allege, the impact of GFI Mortgage's business practices resulted in its African-American and Hispanic customers paying higher fees and interest rates for their residential mortgages."
According to the lawsuit, GFI Mortgage allegedly made about 740 mortgage loans to African Americans and Hispanics in New York and New Jersey.
African Americans paid $7,500 more than white borrowers over the first four years through a GFI Mortgage loan, according to the Wall Street Journal. Hispanics paid $5,600 more through GFI.
Other studies show that bankruptcy may not be a solution to the high interest rates imposed on minorities.
Most debtors file a Chapter 7 bankruptcy, which absolves all debts. Filing Chapter 13 bankruptcy requires debtors to pay back the loan through a payment schedule despite hardship, making it the more costly alternative.
Research from a combined team of bankruptcy experts, law professors and psychology professors from the Universities of Illinois and Arizona show the racial differences in filings, according to the New York Times.
The survey found that bankruptcy lawyers were more likely to steer African American debtors towards the more costly Chapter 13 protection than whites in similar situations.
“Unfortunately I’m not surprised with these results,” Neil Ellington, executive vice president of Consumer Education Services, a credit counseling agency in Raleigh, N.C., told the New York Times. “The same underlying issues that created the problem in mortgage lending, with minorities paying higher interest rates than their white counterparts having the same loan qualifications, are present in all financial fields.”
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