Redlining is a form of illegal lender discrimination premised on denying mortgage loans or restricting their number for certain low-income, minority communities. Lending institutions often achieve this inequity through aggressive sales tactics and manipulation of borrowers’ lack of understanding of extremely complicated financing transactions. Lender discrimination in the form of redlining mirrors outright fraud.

Examples of Redlining Practices

Although redlining practices can take many forms, there is always one common ingredient: exploitation of the minority or lower income borrower. The following are common redlining methods:

  • Financing excessive fees into loans
  • Charging higher interest rates than a borrower’s credit warrants
  • Making loans without regard to the borrower’s ability to pay
  • Prepayment penalties
  • Loans more than 100 percent loan to value
  • Single premium credit insurance
  • Balloon payments
  • Loan flipping
  • Property flipping
  • Yield spread premiums

Stopping Lender Discrimination or Redlining 

Congress and state legislatures have responded to redlining practices by passing strong anti-predatory lending legislation that protects consumers from abusive lending practices, which have been especially targeted at low-income and minority communities. The following are some of the more prominent federal statutes addressing redlining:

  • Home Ownership Equity Protection Act (HOEPA) – protects borrowers in high cost home loans, and establishes penalties or fines for redlining practices
  • The Community Reinvestment Act (CRA) – encourages banking institutions to help meet the credit needs of the communities in which they operate, as well as penalizes banks that assist lending institutions practicing predatory lending
  • Home Mortgage Disclosure Act (HMDA) – requires lending institutions to report public loan data

Seeking Legal Help as a Victim of Lender Discrimination

If you feel that you have been the victim of lender discrimination, you should contact either a public credit counseling organization or the Department of Housing and Urban Development (HUD). It may also be wise to consult with a financial lawyer experienced in redlining and lender discrimination who will help to explain your legal rights and any possible legal remedies.