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Redlining

DEFINITION

Redlining is the discriminatory, illegal practice of refusing to offer, or offering on different terms, products or services based on an individual’s ethnicity, race, or place of residence.

EXPLANATION

The term “redlining” originates, historically, from the practice of lenders outlining, with red pencil on a map, geographical areas perceived to be in economic decline based on their racial or ethnic composition.  Financial services providers, health care providers, housing providers, and other providers (such as supermarket owners) illegally engaging in redlining are those that systematically deny, or offer on disadvantageous terms, products or services to individuals based on their race, ethnicity, or place of residence.  The systematic refusal to provide goods or services is not based on valid criteria, such as an applicant’s individual credit history in the case of financial or insurance products, but rather is a method of discrimination.

The practice of redlining is in direct violation of the Fair Housing Act of 1968 (also known as the Civil Rights Act), which outlaws discrimination by housing providers based on an applicant’s race or national origin.  Redlining also violates the Community Reinvestment Act, which Congress passed in 1977 to require banks to apply the same lending criteria to all communities.

Despite legislative measures taken to prohibit redlining, the practice continues in less overt ways.  Minority groups in the United States continue to experience redlining in several sectors of the economy, including:

–             Credit issuance: Despite the passage of the Community Reinvestment Act in 1977, banks continue to engage in redlining by apportioning lower amounts of credit to racial and ethnic minority communities.  Credit card issuers have reduced the credit lines of individuals who habitually purchase from retailers that are frequented by so-called “high-risk” customers.

–             Insurance: Despite being illegal, redlining by insurance agents continues in certain forms.  Some agents engage in “lingustic profiling,” whereby they attempt to assess a caller’s race or ethnicity over the phone and offer different insurance products accordingly.  Auto insurance scores have been shown to be not well correlated with individual credit scores across different racial and ethnic groups.

–             Mortgages: In an example of “reverse redlining”, predatory subprime mortgages with high interest rates are overwhelmingly more often issued to residents of racial and ethnic minority communities.   In addition, certain lending institutions have been shown to offer different mortgage loan terms to black residents buying homes in white-majority communities than in black-majority communities.

–             Student loans: Student loan issuers have been shown to utilize different underwriting criteria for schools with predominantly minority populations.  In addition, minority borrowers are not well informed by lenders in regards to loan repayment terms.

–             Delivery and transportation services: Food delivery and taxi services may not service certain geographical areas, basing their decisions on racial or ethnic compositions or perceived crime rates, rather than economic considerations such as profit potential.  Other providers that do service those areas may charge premium rates for identical services.

–             Online retail sales: Some online retailers have been shown to engage in differential product pricing based on customers’ locations, charging higher prices to customers in rural or economically depressed locales.

–             Brick & mortar stores: Predatory businesses such as liquor stores and payday lenders frequently engage in “reverse redlining” by specifically targetting racial and ethnic minority communities as the locations for their businesses.

Redlining can also occur in the public sphere.  Policy planners engaging in environmental racism designate less space for public parks in minority communities, and those parks tend to be smaller and with fewer amenities than public parks in predominantly white neighborhoods.  In addition, “planned shrinkage” programs, which reduce or systematically deny public services such as fire protection and health resources to minority communities, have been demonstrated to negatively affect minority communities’ public health and overall stability.  The sluggish national response to the AIDS epidemic of the 1980s, which overwhelming affected minority communities, is an example of “planned shrinkage” in action.

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