What is Redlining? Definition, Legality, and Effects

Overview

• Redlining is a discriminatory practice that denies services, usually financial, to residents of certain areas based on race or ethnicity.
• It is most commonly associated with mortgage lending but can also affect other loans and services.
• Redlining has been declared illegal under fair lending laws.

Definition and Historical Context

• Originally coined in the 1960s by sociologist John McKnight.
• Derived from a practice of drawing red lines on maps around neighborhoods where investments were withheld based on demographics.
• Predominantly affected Black inner-city neighborhoods.

How Redlining Works

• Denial of mortgages, insurance, and loans based on area, not individual qualifications or creditworthiness.
• Forced many Black residents into exploitative housing contracts.
• Example: Chicago's Contract Buyers League fought against such practices in the 1960s.

Effects of Redlining

• Long-lasting impact on property values and community wealth.
• Zillow's research in 1996 showed homes in redlined areas were valued at less than half of those in more favored areas.
• Discrimination extends beyond housing, affecting credit cards, student loans, and insurance.
• Critics argue that despite laws, discrimination continues.

Legality of Redlining

• Illegal to use race as a basis for denying loans, as per the Fair Housing Act of 1968.
• Economic factors like credit history and income can legally be considered by lenders.
• Lenders are allowed to consider geological factors like fault lines or flood zones for lending decisions.

Factors Lenders Can Consider

• Credit history: Evaluated using FICO scores and credit bureau reports.
• Income: Consideration of stable income sources.
• Property condition: Economic evaluation of the property and surrounding area.
• Neighborhood amenities: Impact on property value.
• Lending portfolio diversification: Banks' need for diverse loan portfolios.

Addressing Discrimination

• Housing discrimination is illegal; victims can report to the CFPB or HUD.
• Fair housing centers and governmental bodies are available to investigate claims.

Origin of the Term

• Coined by John McKnight in the 1960s.
• Federal and private lenders used redlining to denote areas deemed too risky for investment based on racial demographics.

Why Redlining is Discriminatory

• Denies financial services based on racial demographics, not individual merit.
• Predominantly harms Black inner-city neighborhoods.

Bottom Line

• Redlining reflects a history of racial discrimination in the U.S.
• Although illegal today, the effects persist, and unofficial discrimination continues.

Recommended Legal Remedies

• Civil Rights Act 1964, Equal Credit Opportunity Act, Community Reinvestment Act, and Fair Housing Act are key legislative measures.
• Legal avenues exist for those facing discrimination to seek recourse.