|Copyright:||Copyright 2011 USA TODAY|
After making big financial gains in recent decades, African Americans and Hispanics are again losing ground, critics say.
Rather than blaming the lingering effects of the recession, a growing number of reports point to financial discrimination as a major cause.
“Communities of color have received the worst treatment at a very high cost,” says
Homeownership is the primary engine of wealth, but the housing slump only partly explains the growing gap affecting minority families, says
“It’s about a dual system of finance,” he says. “People of color do not have the same access that most American citizens enjoy.”
While most consumers are able to go to a full-service bank branch that offers an array of competitively priced products and services, minorities are disproportionately forced to go to payday lenders, pawnshops and high-cost mortgage lenders, Taylor says.
Those who live in minority neighborhoods — even middle-income families whose high credit scores could qualify them for a prime loan — are likely to be steered into a subprime loan, says
“That is what this nation is about,” says Warner, 57, a single working mother who is raising five adopted children while she pursued dual graduate degrees in project management and information systems.
She had needed to refinance her mortgage when she took time off from work in 2006 to go to
When Countrywide was close to filing for bankruptcy protection, another lender took over her loan, and her payments continued to spiral out of control until she got a foreclosure notice.
Getting pushed back
“She had faith in the process, but she was qualified for a loan that she could not afford,” says
Fierro suggested Warner find a buyer for a short sale, where the home is sold for less than the mortgage balance and prevents a foreclosure. He put her in touch with
“They were my guardian angels,” says Warner, who hopes to eventually buy back the home.
Cases like that show how minority communities are being pushed back to where they were 25 or 30 years ago, Calhoun says.
It is a reminder of redlining, a practice that grabbed much attention in the 1990s, where whole minority neighborhoods were excluded from banking and insurance services, as though the financial community had drawn a red line around areas where it didn’t want to do business.
Regulators tried to stamp out redlining by using the Community Reinvestment Act and public access of mortgage data through the Home Mortgage Disclosure Act to help more minorities become homeowners.
Those “were major and effective tools in helping to open the doors of opportunities,” says Shelton, but over time, regulatory oversight has loosened.
Now, minorities face what is sometimes called reverse redlining, Taylor says. Instead of financial services companies avoiding minority neighborhoods, the industry targets them with more-expensive and more-abusive products.
Other signs that minorities are losing financial ground:
•In December, the NCRC said that too many of the largest lenders in the FHA loan program refused to provide conventional loans to consumers with credit scores between 580 and 640, even though that violated FHA policy. It said that has had a disparate impact on communities of color.
Last May, a study compiled by seven non-profit groups including the
•Minorities are much more likely to be unbanked and underbanked, which are households that have a checking or savings account but rely on alternative financial services, such as payday loans. In
•Only 16% of people who overdraw their accounts paid 71% of all overdraft fees, but they were more likely to be minorities and low-income consumers, according to a 2006 and 2008 study by the CRL.
Excessive overdraft fees are a major reason why consumers close bank accounts and leave the banking system, according to a 2008
•People of color are more likely to be payday borrowers, and a typical borrower pays back
Many financial experts say that African Americans and Hispanics tend to get subprime loans or rely on check-cashing businesses, payday lenders and pawnshops because of job loss and low income.
They also say that banks do not ignore minority neighborhoods.
“The penetration of banks throughout the communities has continued to grow,” says
Meanwhile, regulators are taking steps:
•The FDIC tried to address payday lending by creating a two-year, small-dollar loan pilot program with 28 volunteer banks. When it ended last summer, the banks had made more than 34,400 loans with a principal balance of
“Warren has indicated that overdraft fees are a major problem … that she wants to address,” says the CRL’s Calhoun.</p>