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Lending discrimination occurs when a lender makes a decision during the mortgage application process based on a persons race, color, sex, religion, familial status, nationality, age, receipt of public assistance or disability.
The federal fair lending lawsthe Equal Credit Opportunity Act and the Fair Housing Actprohibit discrimination in credit transactions, including transactions related to residential real estate.
In addition, when borrower race is controlled and bank ownership examined, black-owned banks are more likely than white-owned banks to reject similarly situated black applicants.
Low-wealth and minority business owners have fewer collateral options to secure loans. Underwriting criteria are more stringent for young, often minority-owned, businesses. Minority-owned businesses have fewer banking relationships. Incentives for the loans minority borrowers need are too low.
Types of Lending Discrimination Overt evidence of disparate treatment; Comparative evidence of disparate treatment; and Evidence of disparate impact.
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Examples of lending discrimination include: Denying a mortgage or charging a higher interest rate because the property is located in a majority-minority neighborhood.
Lending discrimination occurs when lenders base credit decisions on factors other than the applicants creditworthiness. Denying financial services to residents of certain neighborhoods due to race or ethnicity is called redlining.
The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction. It applies to any extension of credit, including extensions of credit to small businesses, corporations, partnerships, and trusts.

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