Barriers to Wealth & Housing Equity

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Discrimination against home renters and buyers by landlords, sellers, and lenders on account of race, color, religion, and nationality was outlawed in the United States by the Fair Housing Act of 1968. Six years later, the federal government expanded this act to include protections for genders (and again in 1988, to protect families with children and people with disabilities). In 1974, the Equal Credit Opportunity Act went on to keep credit score systems from also using information pertaining to gender, race, marital status, religion, and ethnicity.

At first glimpse, it might seem these systems were created to be “blind.” However, BIPOC and other underserved communities are still being denied opportunities to build wealth. Discrimination against Black, brown, and indigenous potential home buyers, renters, and business owners still regularly occurs. This discrimination can take many forms, including charging higher fees to potential renters with children, refusing to show immigrant applicants homes in certain areas, or submitting lowball offers to buy a home based on the seller’s race. Right now, the gap between Black and non-Hispanic white homeownership rates is enormous. At the end of 2020, Black homeownership rate was 44% compared to 74.5% for non-Hispanic white consumers.

Children of wealth get into the system early by their parents opening a credit card in their name and helping them make payments each month. Parents or other family members might also open a savings account for a child and contribute to it for a number of years.

If intergenerational wealth can be created for future generations, so can the burden of poverty trickle down to children, leading them to inherit debt from their parents. Often, parents in a financial crisis take out credit in their children’s names. They start in the hole before they’ve reached college age, where even more debt is accumulated. Inherited debt paired with a lack of financial education, options, or resources is a damaging combination that does nothing to help build wealth and assets.

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Credit Scores

Your credit score is based on payment history, amounts owed, credit history, which includes on-time and late payments, new credit, and credit mix. However, about 54% of Black Americans report having either no credit, or a poor to fair credit score, (anything below 640); about 41% of Hispanic Americans report falling into the same categories. More than half of Black Americans live paycheck to paycheck, which can impact payment history and the rate at which they use credit to get by. Living paycheck to paycheck leaves little room for people to feel empowered or in control of their finances. 30% of Black and 25% of Hispanic Americans feel this system does not favor them nor gives them the chance to build good credit. 30% of Black Americans and 27% of Hispanics report they were misinformed or tricked during their first experiences with credit. Only about 18% of white and 15% of Asian Americans say they also felt deceived.

Some 45 million people in the United States carry student debt. Almost a fifth owe more than $100,000, according to the National Association of Realtors. Black Americans tend to have higher rates of student loan debt than the average person. They enter the workforce with this debt and cannot (or do not) build up their credit scores because they are worried about taking on even more. 83% of people ages 22-35 with student loan debt blame their student loans for not being able to buy a house.

Black consumers (who make up 20.3% of all renters) are at a disadvantage, despite mortgage and rental payments both falling under the same category of “housing.” Without building up a healthy credit score, they’re barred from access to funds when needed, thus creating a catch-22 situation. Moreover, Black consumers bear most of the brunt from lawsuits related to debt collections, according to a Pew Research paper, which states that in New York City, 95% of consumers with default debt claims judgments entered against them lived in low- or moderate-income neighborhoods, and more than half were in mostly Black or Hispanic communities.

Credit scores are determined by private, for-profit, publicly traded companies whose main focus and goal is to turn a profit. These companies are under no legal requirement to be accurate, and make a tremendous amount of mistakes, all at the consumers’ expense and there is also no way of knowing if accuracy in reporting has improved. A 2013 Federal Trade Commission study of the U.S. credit reporting industry discovered that 5% of consumers had errors on one of their three major credit reports. The Consumer Financial Protection Bureau (CFPB) receives more credit reporting complaints than complaints in any other industry it regulates.

Consumers also have no say in which companies can access their data, and have no choice in which company is used to provide their credit report to any entity that might require it. If your score is being dinged by mistake on one of the credit bureau’s reports, consumers still have no say in which credit bureau or credit score to use.

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Accessibility

Accessibility to banks is just one barrier in getting a loan. Some 38% of US zip codes have zero banks in them at all, and 21% of zip codes have just one bank. In these situations, time is, quite literally, money. Scheduling time off work to take care of financial needs and travel time have a cost – a cost that many cannot afford. When people are underserved by banks, whether because of institutional prejudice or physical distance, it creates another situation where they may turn to predatory loans that further hurt their chances to build up savings. These “get cash now” or “payday advance” lending services force people to borrow money at an extremely high interest rate without building a credit history.

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Higher Interest Rates

An analysis of nearly seven million 30-year mortgages by the University of California at Berkeley found that Black and Latino/Hispanic applicants were charged 0.08% higher interest rates compared with white borrowers, costing them $765 million in extra interest per year. That same analysis also found that Black and Latino borrowers pay 5.6-8.6 basis points higher interest on housing loans than their white and Asian counterparts. And they pay three points more for refinancing. These loans earn 11-17% higher profits off of minority borrowers.

A yearlong study by Reveal from the Center for Investigative Reporting (based on 31 million records) found a pattern of denials for people of color across the U.S. It showed that Black applicants were turned away at “significantly higher rates” than white applicants in 48 cities, Latinx/Hispanic applicants in 25, Asian applicants in nine, and indigenous applicants in three. Reveal found that all four groups were significantly more likely to be denied a mortgage in Washington, D.C. The analysis was independently reviewed and confirmed by the Associated Press.

These gaps exist based on systemic issues that caused and continue to cause discrimination against Blacks and people of color. The gaps in many cases remain wide 60 years after the Civil Rights Movement. In some cases, including in homeownership rates and college degree attainment, the gaps are wider now than in the 1950s and 1960s. The processes have not been updated to reflect how nuanced and complex peoples’ lives are and the barriers they face to build up wealth for themselves and their families.

“They’ve been testing alternate scores for years, and I don’t know why the process is taking so long,” said Lisa Rice, president and CEO of the National Fair Housing Alliance. “Well-deserving consumers are being left behind.”

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Know Your Rights

Researchers suggest that instead of using past behavior that might stretch back several years or more to predict future repayment behavior, credit scoring models should also look at cash flow and payment history on rent and utilities, which will lower people’s scores if they get behind on them and are sent to debt collectors, but don’t currently boost credit scores if payments are made on time. Companies should find out what’s important to consumers and find ways to track those payments, such as a phone bill or rent.

You are entitled to free weekly access to your credit reports by Equifax, Experian and TransUnion (through the end of 2022). If you see an incorrect event on your credit report, dispute it immediately, in writing, to both the bureau and the original source. For example, if you’re making on-time car payments and your credit report inaccurately states that you were late on a payment, contact both the bureau that reported it and your car loan lender.

If you suspect you are or have experienced credit discrimination, carefully and thoroughly document your lending experience. Be sure to file a formal complaint with your local, state or federal agency that governs consumer credit. Some things to consider:

• Is your lender providing you with timely and accurate data?
• Do they treat you differently in person vs. on the phone?

Read more on the four major laws (The Fair Credit Reporting Act, Equal Credit Opportunity Act, The Fair Credit Billing Act, and The Fair Debt Collection Practices Act), and how to protect yourself here from unfair creditors and collectors.

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If you have…

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5 Minutes	and	10 Minutes	and	30 minutes
	and		and
Get your free credit scores from Equifax and TransUnion.	and	Check out this article on the racial disparities in debt and collections lawsuits.	and	Watch “The Big Payback“, season 3, episode 4 of of Atlanta, created by Donald Glover, or read about it here.

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To dive deeper check out these additional resources…

• Payback: Debt and the Shadow Side of Wealth – Margaret Atwood
• From Inherent Racial Bias to Incorrect Data—The Problems With Current Credit Scoring Models
  – Forbes Advisor
• Traditional Bank Loans Are Racist, Ageist, Classist, And We Can Do Better – International Business Times
• Housing Discrimination: What Is It and What Can You Do About It? – Investopedia
• Disparity in home lending costs minorities millions, researchers find – CBS News
• Black and Hispanic Americans often have lower credit scores—here’s why they’re hit harder – CNBC
• Why buying a home can be almost impossible with massive student loan debt– CNBC
• The History of Lending Discrimination – Investopedia
• Renting Statistics [2022]: Facts & Trends in Rental Market – iProperty Management
• The secret bias hidden in mortgage-approval algorithms – Reveal
• Closing the Racial Inequality Gaps – CitiGPS
• Citi to dedicate more than $1 billion to initiative for closing the racial wealth gap – CNBC
• How race affects your credit score – Creditcards.com

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Stand Against Racism 2022

To learn more about the legacy of housing discrimination sign up for Stand Against Racism 2022! Our discussion this year will be centered on housing and economic equity. You can attend this event virtually, in-person, or watch the recording after the event.

REGISTER TODAY!