Redlining

October 9, 2009

Any company which provides financial products like loans, insurance, mortgage and so on, will have their own policies and techniques to find out whether it is worth to give the financial product to the person applying. This is a valid practise, as it saves the financial company from incurring losses. But sometimes this practise becomes unethical due to certain preconceived notions and prejudices and is known as Redlining.


The practise of redlining by financial establishments, is mainly aimed at certain demographic locations whose residents are poor and/or of a particular race. These institutions by their default rates, make it almost impossible for residents of such areas to get any loans, mortgages, insurance and any other kind of financial service. Their applications are arbitrarily rejected without considering their qualifications or creditworthiness.

The term of Redlining came about, when financial establishments used to just draw a red line around a particular area on the map which had the poor neighbourhoods, and did not sanction any of the financial products to these people. To counter this unfair practise, two laws were passed. In 1968 the Fair Housing Act, and in 1977, the Federal Community Reinvestment Act was passed. But many are still of the opinion that the practise of Redlining is still prevalent.


The main impact of Redlining was seen in the housing and mortgage sector. It completely disabled the housing industry, and the property values started plummeting. Many left the neighbourhoods and many buildings stood abandoned giving rise to illegal occupation, and a rise in crime. The main areas which were targeted with Redlining were the African American neighbourhoods. After the passing of the two acts, Redlining was considered illegal but was still going on in a subdued manner. In 1973, Shore Bank was the first in Chicago to openly combat this unfair practise and started providing mortgage loans in these areas.


It was observed that even in 2002 Redlining was still prevalent and many businesses in the African American neighbourhoods were denied loans. In the Insurance sector also, Redlining was common and agents answering telephone queries were able to assess the race of the person calling and would not provide the necessary information, especially for Home Insurances. In the automobile Insurance, sector also there was effect of redlining as premiums were found to be more for people of such areas. Another major financial facility which was affected by Redlining was student loans. Hispanic and African American students were discriminated and not provided the loans.

Tags: , , , , , , ,

Written by Uncle Sam · Filed Under Insurance 

Comments

Got something to say?