Last week, a bipartisan group of senators voted to roll back regulations put in place in the wake of the 2008 financial crisis. Those regulations rewrote the rules of our banking system that had long prioritized profits over people—a system that for generations exploited and perpetuated racial inequities and ultimately foiled the financial wellbeing of millions of Americans. This recent legislation, should it become law, would further skew economic power to the top, making it easier for banks to discriminate against historically marginalized communities and harder for the rest of us to detect and deter that discrimination.
Racial inequity is a deepening problem in the United States, sustained by an economy built for the few. One of the starkest illustrations of this injustice is the vast wealth divide between white families and families of color, which sees the median white family with 13 times more wealth than the median black family. The persistence of America’s racial wealth gap is the result of a range of rules—both current and historical—that stifle shared economic prosperity and drive disparate outcomes for people of color. Unequal access to credit by non-white borrowers is one of those rules, which helps to explain the vast racial disparities of homeownership: Homeownership rates among black and Hispanic households are 41.3 percent and 47 percent, respectively, compared to 71.9 percent for white households.
A recent Pew analysis showed that in 2015, nearly 1 in 3 black applicants and 1 in 5 Hispanic applicants were denied mortgages, compared with about 1 in 10 of both white and Asian applicants. Women—and particularly women of color—are disproportionately impacted by these trends. A study done before the 2008 crash showed that women were 41 percent more likely to receive high-interest loans than men, and a more recent study showed that black women were a whopping 256 percent more likely to have a subprime mortgage than a white man with the same financial profile.
One of the reasons discrimination in the credit market persists is because of market segmentation: Borrowers of color receive worse terms for mortgage loans because the only financial institutions they have access to act more predatory—the firms that tend to offer better terms don’t lend to them at all. This market distortion leaves people of color and women, and particularly women of color, without access to the free market for loans, making them vulnerable to the few financial institutions willing to do business with them, often at a steep price. Market segmentation is not an inevitable feature of our economy; it is the result of economic rules that were written to advantage certain market actors over others by carving up the market on the basis of race.
The recent bill would only worsen credit market discrimination, in part by destroying the evidence that it’s happening. Following the 2008 financial crisis, lawmakers attempted to address racial discrimination in the mortgage lending market by including a provision in the Dodd-Frank Act that required credit unions and banks to collect and report detailed lending data. Lawmakers voted to repeal that provision last week, loosening reporting requirements for banks that make fewer than 500 mortgage loans a year. The Consumer Financial Protection Bureau (CFPB) predicted that the weakened rule could allow 4 out of every 5 banks and credit unions to report less data about lenders and the details of the loans.
In a recent piece for The Atlantic, Annie Lowrey described what the fallout could be from the rollback of this regulation:
“But fair-lending groups, civil-rights organizations, and Democratic politicians have pointed out that many financial institutions would still be able to discriminate and hide their discrimination—and the government, journalists, and housing activists would have fewer tools to detect troublesome patterns. That might make it harder for regulators to identify discriminatory lending practices that might precipitate another crisis going forward, or simply make the country’s yawning racial wealth gap worse.”
Even a “perfect” market would not correct for gender and racial biases, which have been long baked into our economy, but unregulated markets are particularly harmful to communities that are recurrently discriminated against and face numerous barriers to entry. History tells us that unless held accountable, companies will continue to prioritize profits—by sidelining traditionally marginalized communities and perpetuating cycles of economic and racial inequality. Requiring companies to collect and report information about their lending practices is one way to keep discriminatory practices in check, and it is especially necessary in an environment in which consumers have fewer and fewer options.
The people who will be most impacted by these recent regulatory rollbacks will be those already held back by decades of racial rules that have curbed economic opportunities and outcomes. How far this bill goes to undo banking regulations and hinder marginalized consumers will be determined by the House, which is expected to push for amendments that will worsen its impact. But make no mistake. Any rules that prioritize profits over people—rules that siphon power from the public and funnel it to corporations—are bad for all of us.
Also published on Medium.