Washington, D.C. – Today the Center for American Progress released “Access Denied,” a new report highlighting unchecked discrimination in the credit industry. Few families in the United States today could pay cash for a home, their children’s college education, a new car, or a major family medical emergency. Most families need to borrow money to create economic opportunities for themselves or protect their financial security. For many families, especially minorities and those with low incomes, access to credit opens doors that were previously closed—literally so in the case of homeownership. In the wake of the recent subprime home lending crisis, however, access to credit is becoming more restrictive across all credit products, even while persistent differences in access to credit and in the cost of that credit are still based on race, ethnicity, and income.
“It is stunning to see that even during the years of an unprecedented boom in household debt, differences by income, race, and ethnicity persisted. Minorities and lower-income families often do not get the same chances to invest in their future as other families do,” said Christian Weller, author of the report.
The laws of our nation and our common values dictate that access to credit and the costs of credit should not be determined by one’s race, ethnicity, or even income. If someone is creditworthy, that person should have access to credit at the same price as everyone else. As the detailed findings of this report demonstrate, there is clear evidence of continuing discrimination. Specifically:
Loan denials are more likely for low-income and minority families.
Minority families and low-income families feel discouraged from applying for loans.
Differences in credit constraints by race and ethnicity persist.
Credit constraints affect a wide range of loans.
Minority families and lower-income families face higher costs of borrowing.
Cost differences persist over time.
Higher costs of borrowing are tied to different credit products.
Clearly, fair and equitable access to credit remains a problem for low-income and minority families. The data point toward persistent differences across race, ethnicity, and income even though there are certain trends that show progress in some areas. For example, while credit market discrimination with respect to loan denials has remained high for African American families, the cost differential with white families has decreased.
Still, the data indicate that lower-income and minority families had less access to credit than white families and higher-income families. In the wake of recent financial market turmoil, especially in the home mortgage marketplace, there are concerns that credit access will decrease and especially affect those who may need it the most—low-income and minority families.
Given the findings in this report that low-income and minority families have less credit access than more wealthy families and white families, it is reasonable to assume that minorities and low-income families will disproportionately feel the effects of the current credit tightening.
These families will have fewer chances to create economic opportunities for themselves or build assets to ensure their future economic security.
In this report, the analysis will first examine the most sweeping data on credit access to establish a baseline for a more detailed multivariate analysis of the same data to highlight continuing discrimination in the credit marketplace.