Redlining

THE TERM redlining originated in the insurance industry where insurance executives would draw a red line around a neighborhood to be excluded or treated differently. Defined as the refusal or an inequality of service to a specific geographic region based upon income and/or race, it has been common in the banking and insurance industries. Banks practice redlining when they refuse to accept checks over a certain amount from customers, or when they assign disproportionately higher loan costs, interest rates, loans greater than real value, loans with no regard to borrower's income, loan/property flipping, balloon payments, or negative amortization. Neighborhoods where such practices are commonplace can become devastated by loss of equity and mortgage foreclosure.

The disparity of loan refusals between whites and minorities has been on a steady rise. African-Americans are twice as likely to be turned down for loans when compared to white applicants of similar circumstances. Latinos are one-and-a-half times more likely to be turned down compared to white applicants. And residents, regardless of race, in low-income areas are three times more likely to be turned down as those in upper-income areas when applying for a conventional mortgage. But even when income is held constant, racial redlining is still present.

For example, upper-income African Americans are more likely to be denied a loan or mortgage than middle-income whites. Legislation passed to curb the practice of redlining includes Home Ownership Protection Act (HOEPA), the Community Reinvestment Act (CRA), and the Home Mortgage Disclosure Act (HMDA).

Insurance companies, on the other hand, are not regulated by the laws of Congress but by the states. The states have mostly left laws that govern the practice of insurance sales largely unenforced.

[Page 670]Because of this, it is hard to obtain data needed to calculate and plot the depth and seriousness of insurance redlining.

In the late 1990s and early 2000s, technological advances brought a new type of redlining called electronic redlining. Electronic redlining is defined as the refusal of broadband, high-speed internet access to a poor and/or minority neighborhood. In 2002, a lawsuit was filed against AT&T for discriminatory practices in favoring white neighborhoods.

Redlining is not exclusive to the United States. For example, in South Africa, with its unique history, this is an especially prevalent problem. Since the country is still recovering from a long period of apartheid, there are generations of animosity and hostility along racial lines. The South African Parliament attempted to introduce the Community Reinvestment Bill that would prohibit redlining. But after stiff opposition from the banking community and lobbyists, the bill was withdrawn for further consideration. In 2002, the Banking Council agreed that it is not feasible or acceptable to issue loans to “anarchic” areas. On the other hand, in areas where this is not the case, it is not acceptable to refuse lending based on race or income.