Anti-discrimination legislation

    Numerous statutes at both the state and federal level prohibit lenders from discriminating on a variety of bases. For example, the Equal Credit Opportunity Act (ECOA), 15 U.S.C.A. 1691, bars discrimination on the basis of "race, color, religion, national origin, sex or marital status, or age" or "because all or part of the applicant's income derives from any public assistance program." This prohibition applies to extensions of credit to both businesses and consumers. This scheme is very useful in restricting the information creditors can elicit when taking applications for credit. The ECOA is also helpful in encouraging lower income or minority persons to seek credit. However, like many of its counterparts, the ECOA has a significant exception to its prohibitions. Creditors can request the race, sex, marital status and age on a purchase money residential loan. This exception was intended to provide supervising agencies with pertinent information to assist in detecting illegal discrimination in home loans.

    Consumers are also able to access credit lending data of banks and other lending institutions under the Home Mortgage Disclosure Act (HMDA), 12 U.S.C.A. 2801-2810. Data that is collected by institutions covered by the HMDA includes data about the application and data concerning the applicant. This data is useful to consumers and business in assessing home mortgage lending patterns and subsequently choosing a lender. While it might appear that much of the regulation in this area only prohibits discrimination based on designated factors, there is some regulation that actually encourages lending to low and moderate income neighborhoods.

    For example, the Community Reinvestment Act (CRA), 12 U.S.C. 2901-2905, requires supervisory agencies to prepare written assessments for each institution examined based on twelve factors. Some of these factors include community development efforts, geographic distributions of credit extensions and denials and efforts to communicate with the community regarding credit services. The twelve factors culminate into a CRA rating which is available to the public. The most useful part of this regulation is that the CRA rating is taken into account in considering certain applications by covered institutions for business expansion. Therefore, institutions have a financial incentive to meet community credit needs.

    In California, another statutory scheme prohibits "discrimination in the provision of financial assistance for financing or refinancing the purchase, construction, rehabilitation, or improvement of housing accommodations because of conditions, characteristics or trends in the neighborhood or geographic area surrounding the security property." Health & Safety Code Section 35802. The act also bars financial discrimination on account of "race, color, religion, sex, marital status, national origin, or ancestry. Health & Safety Code Section 35815.

    In spite of the numerous statutory prohibitions against discrimination, discrimination is still rampant in the lending industry. Although much controversy surrounds this area, there is reliable evidence that discrimination does occur. The New York Times reported in a May 10, 1996 article entitled "Race, Mortgages and Statistics: The Unending Debate Over a Study of Lending Bias," that "These statistics don't lie: Black and Hispanic home buyers have a harder time getting mortgages."