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Ensuring Financial Protections for Marginalized Communities

August 18, 2017
Lawmakers, Academics and Policy experts alike are flummoxed on how to reduce the ever-widening wealth gap between White Americans and other minorities particularly African Americans. Well, one idea is to begin by addressing the historical explanations for such stark racial wealth disparities.

Regarding these disparities, a 2017 study by the Economic Policy Institute found that the average wealth for white families is seven times larger than the average wealth for black families. [1] The means of marginalization of certain communities in the United States has been economic in nature. Most glaringly seen in the practice of redlining. This racist housing policy of the mid-20th century continues today. Redlining occurs when residents of a neighborhood are refused access to credit or loans by restricting their access to other neighborhoods. Between 1934-1964, the Federal Housing Administration [who originated the policy] made homeownership accessible to white people by guaranteeing their loans while explicitly refusing mortgage lending to black people. [2] But without credit and access to financial markets, it is nearly impossible to buy a home and start a business. Credit therefore becomes less about a service offered by a lender but also about the keys to lifetime aspirations and goals. However, this key remains out of reach to certain communities by some financial gatekeepers. Lower-income consumers continue to face immense challenges in the financial market space.

Image: A predominantly White neighborhood in the North Side of Chicago, Source: Wikimedia Commons.Image: A predominantly White neighborhood in the North Side of Chicago, Source: Wikimedia Commons.

For many African-American and Hispanic communities, access to credit remains a challenge. They face higher hurdles to gain access to credit which hinders their abilities. Today, unlike the concrete exclusionary laws demarcating where non-white families can or cannot live, redlining consists of not locating a bank or mortgage lending institution in predominantly Black or Hispanic neighborhoods, avoiding having mortgage brokers present for these customers and refusing to market loan opportunities to these populations. This reality is especially financially disadvantageous because as stated in the New York Times, “the mortgage is the largest source of consumer financial wealth in the nation.” [3] It is an important asset and source of familial and community wealth. Unfortunately, many Americans are still ‘redlined’ and discouraged from or unable to access the credit to participate in this market. This lack of access is accordingly reflected in the underdevelopment of their neighborhoods. No opportunity for asset building and a dearth of financial services contribute to financial instability and dreams unfulfilled.

Low-income and minority families today continue to navigate a financial marketplace that is filled with discriminatory and deceptive practices. Removing these obstacles is vital. And federal agencies like the Consumer Financial Protection Bureau (CFPB) recognize the importance of ensuring fair, equitable and nondiscriminatory access to credit for marginalized consumers in America. Enforcing federal anti-discriminatory laws such as the Equal Credit Opportunity Act (ECOA), is one of the functions of the CFPB. The agency is at the forefront of financially protecting these consumers by cracking down on financial institutions that have been proven to engage in redlining. For instance, in 2016, the CFPB announced a $10.6 million enforcement action against BancorpSouth, a Memphis based community bank after regulators uncovered illegal practices of BancorpSouth that denied African-American Consumers Fair and Equal Access to Mortgages. [4] The court ordered the bank to pay a fee for its practices, but most crucially, the bank was ordered to expand its physical presence, target its advertisement to generate applications from residents in the minority neighborhood previously neglected and increase access to affordable credit. [5] This case illustrated that financial inclusion and protections go hand in hand.

Image: An abandoned home in a black neighborhood, Source: Wikimedia Commons.Image: An abandoned home in a black neighborhood, Source: Wikimedia Commons.

Without fair and equitable access to credit, communities may never reach their financial goals and aspirations. This is the reason why financial empowerment in lieu of enforcing anti-discriminatory laws such as the ECOA is necessary. It is more important than ever to enforce the laws that protect these communities. Crucially, financial protections also occur through financial education (ensuring a long-term culture of safeguarding family resources), credit repair and ensuring fair access to credit. Implementing financial protections will eventually lead to financial empowerment and access for marginalized communities. But to achieve this, it is important for policymakers to ensure that families have the ability and opportunity to access financial markets in order to eventually build tangible assets. The long-term and contemporary consequences of redlining illustrate that there is a link between reducing racial disparities and reducing the wealth gap, and the consequences of this lack of access to credit are not only individual but also collective.

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

 

References

  [1] Jones, Janelle. “The Racial Wealth Gap: How African-Americans have been short-changed out of the materials to build wealth.” Economic Policy Institute. February 13, 2017. Accessed August 03, 2017.

  [2] Madrigal, Alexis. “The Racist Housing Policy that Made your Neighborhood.” The Atlantic. May 22, 2014. Accessed August 03, 2017. https://www.theatlantic.com/business/archive/2014/05/the-racist-housing-policy-that-made-your-neighborhood/371439/

  [3] Madrigal, Alexis. “The Racist Housing Policy that Made your Neighborhood.” The Atlantic. May 22, 2014. Accessed August 03, 2017. https://www.theatlantic.com/business/archive/2014/05/the-racist-housing-policy-that-made-your-neighborhood/371439/

  [4] CFPB, “Consumer Financial Protection Bureau and the Department of Justice Action Requires Bancorp South to Pay $10.6 Million To Address Discriminatory Mortgage Lending Practice.” The Consumer Financial Protection Bureau. June 29, 2017. Accessed August 03, 2017.  https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-and-department-justice-action-requires-bancorpsouth-pay-106-million-address-discriminatory-mortgage-lending-practices/

  [5] CFPB, “Consumer Financial Protection Bureau and the Department of Justice Action Requires Bancorp South to Pay $10.6 Million To Address Discriminatory Mortgage Lending Practice.”

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  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
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