15.1: Black Economics - Readings and Media

The selected readings, images, and videos of this module will inform students about Black economics, the wealth gap, and generational wealth.

Readings and Media

Discrimination in Banking and Lending

People of color, especially Black Americans, are disproportionately disadvantaged in banking and lending as compared to their white counterparts. This differential treatment has had a tangible impact on their wealth accumulation and partially accounts for the gap in wealth between whites and people of color in the United States.

Discriminatory Banking

When examining banking and lending practices more broadly, deep racial inequalities exist in the United States. For example, a 2018 study by professors Jacob Faber and Terri Friedline, of New York University and the University of Kansas, respectively, found a number of "racialized costs of banking" in the United States. Some of the study's key findings include the following:

• Banks typically charge people of color more than their white counterparts for opening checking accounts. For instance, the minimum opening deposit is nearly $81 in majority Black neighborhoods, but it is only $68.50 in majority white neighborhoods.
• It is cheaper for those in white neighborhoods to maintain their checking accounts (a minimum of about $625 must remain in their accounts to avoid bank fees) than for those residing in majority Black neighborhoods (about $871) or those in majority Latino neighborhoods (about $749). This means that those living in majority Black or Latino communities must keep more of their earnings in their checking accounts than those living in majority white areas; consequently, a greater proportion of their earnings cannot be accessed.
• Banks tend to open and operate the majority of their branches in middle- and upper-class white communities, creating "banking deserts" in low-income and nonwhite communities. Consequently, people of color living in poorer areas with few white residents must travel farther to find a banking facility or instead rely on more expensive services, such as payday lenders, check cashing stores, and other nonbank services that typically proliferate in these communities. This is especially problematic for impoverished Americans without cars or other motorized transportation.

Several national banks have been sued for widespread discriminatory practices against people of color, such as allegedly opening accounts and lines of credit without their knowledge, illegally charging fees for dormant accounts they did not even know they possessed, automatically closing accounts when they exhibited signs of fraudulent activity (instead of first conducting investigations as legally required), and charging them comparatively higher interest rates than their white counterparts.

Discriminatory Lending

Research also shows discrimination in lending practices—particularly when Americans apply for home, car, and business loans. As compared to people of color (especially African Americans), whites are more likely to be granted loans, offered lower interest rates, given better customer service, and offered more information from loan officers—at times regardless of creditworthiness.

A 2016 study published in the Journal for Urban Economics found differential treatment by mortgage loan originators (MLOs)—the primary point people that homeowners typically deal with when applying for mortgages. MLOs were more likely to respond to e-mails from prospective borrowers with white-sounding names than those with Black-sounding names. They also found that the effect of having a Black-sounding name on how MLOs responded to prospective borrowers was equivalent to having a credit score that is 71 points lower.

A 2018 study performed by Reveal from The Center for Investigative Reporting found that of 31 million mortgage applications in 2015 and 2016, people of color, especially African Americans and Latinos, were denied conventional mortgage loans at much higher rates than whites—even when they had the same level of income. Banks often point to the comparatively lower credit scores of people of color to explain the disparities, though because this information is not publicly available (because lenders refuse to report credit score data to the government), there is no way to know for sure.

In 2019, the real estate company Clever analyzed 1.7 million mortgage applications from 2016 and found that Black applicants were denied home loans at twice the rate of white applicants, even when controlling for income. Furthermore, more than half of Black applicants (52%) were given no reason for why their loans were denied (this was the highest percentage for any racial group). The authors of the study called for more transparency in mortgage lending.

Consequences of Racial Disparities in Lending Practices

According to federal data, the average wealth of white families was 10 times that of Black families in the United States in 2016. Much of this wealth gap stems from different rates of home ownership and the accumulation of home equity over time. According to Princeton sociologist Dalton Conley, "The majority of Americans hold most of their wealth in the form of home equity. So that's their nest egg. That's how they can finance the education of their offspring, that's how they can … save up for retirement. It's their savings bank. They're living in their savings bank." However, American lenders have a long history of denying home loans to people of color, especially African Americans, and studies suggest the practice of denying loans to people of color persists.

As whites obtain mortgage loans, buy homes, and build equity, they continue to build wealth, though the same opportunities are not always afforded to people of color, even when they have similar incomes. White Americans also benefit from increased access to banks, less expensive bank services, increased access to their money, and lower interest loans on homes. While inequality in banking and lending often goes unnoticed, discrimination and inequality persist, disproportionately hitting people of color in their wallets.

NPR. "Housing Segregation and Redlining in America: A Short Film." YouTube video, 6:37. April 11, 2018. https://www.youtube.com/watch?v=O5FBJyqfoLM.

Redlining

Redlining is a practice in which companies or institutions deny goods and services to certain groups on the basis of race or where they live. In the United States, redlining was supported by a combination of government policies and private-sector practices. Key stakeholders in redlining are borrowers, lenders, government regulators, realtors, and fair housing advocates. Redlining established de facto residential segregation patterns that have lasted into the present despite increased federal regulation over the practice.

Origins and Development of Redlining

In the 1930s, Federal Housing Administration (FHA) lending guidelines provided a critical policy basis for redlining in the housing industry. The FHA justified its redlining policy by saying it would prevent inharmonious racial groups from mixing in communities and would prevent property values from declining. These policies resulted in limited housing opportunities for African Americans, who increasingly lived in racially segregated neighborhoods, where the housing available had lower assessed property value, was substandard in quality, and was more overcrowded than housing available to white people.

The federal government created the Home Owners Loan Corporation (HOLC) in 1933 as a New Deal measure to help struggling homeowners by refinancing mortgages. The HOLC had a color-coded rating system for assessing the value of neighborhoods in terms of long-term lending. It included a red-colored designation for undesirable areas (which is credited as the basis for the term "redlining"). Areas with significant African American populations tended to fall into this lowest category. HOLC staff used evaluations from local real estate professionals to "grade" neighborhoods across the country.

Realtors used restrictive covenants to reinforce residential segregation. A restrictive covenant is language included in a property deed that restricts its use. Race-related covenants were designed to prevent homes from being sold to, or purchased by, certain racial or ethnic groups. These covenants helped to perpetuate the segregated neighborhoods caused by redlining and provided a convenient rationale for denying loans to African Americans and other minorities. The U.S. Supreme Court struck down the power to enforce restrictive covenants in Shelly v. Kraemer in 1948. The decision, however, did not stop the housing industry from continuing to engage in redlining. Racially restrictive covenants were not outlawed until the Fair Housing Act of 1968.

Legislation in the 1960s and 1970s

The most significant government legislation enacted to expand housing access, and limit exclusionary practices like redlining, was the Fair Housing Act of 1968. Lenders could no longer use race as a factor to determine creditworthiness. Government regulators were lax in enforcing the law, but fair housing advocates engaged in various protests to bring to light the injury caused to African Americans by banks and lenders. Their actions influenced Congress to pass further anti-redlining legislation.

When Congress passed the Home Mortgage Disclosure Act (HMDA) in 1975 and the Community Reinvestment Act (CRA) in 1977, fair housing advocates tackled redlining head-on through protests, lawsuits, and consumer education in the community reinvestment movement. Throughout the 1980s, government regulators enforced HMDA by requiring banks to collect data about where they made housing loans and to document efforts to make loans in previously underserved communities. Despite these advances, lenders continued to deny loans to African Americans about twice as often as white borrowers into the 1990s.

Effects of Redlining

Redlining is often associated with patterns of "white flight" in response to growing African American populations in cities. It allowed real estate companies to create exclusive, often wealthy, white suburbs and exurbs in major American metropolitan regions. The higher tax base of these suburbs allowed for higher municipal spending, such as the per capita spending per student within their local public school districts. In contrast, urban municipalities faced shrinking tax bases as residents who could afford to moved away. This meant less money for public services such as police, fire, health, and education in urban areas.

Reverse Redlining

A turning point occurred in the 1990s with more aggressive government support for programs to expand African American homeownership. Lenders in the private sector simultaneously developed loan products that made it easier for African Americans to qualify for home mortgages. However, the drawbacks to these increased opportunities were high interest rates and confusing repayment terms. Fair housing advocates soon after introduced a new term, "reverse redlining," to explain troubling new lending practices.

Predatory lending and subprime loans are key components to reverse redlining. Lenders target African Americans to purchase or refinance mortgages at high interest rates in the subprime lending market, rather than qualify them for low interest rates in the prime market. Reverse redlining practices contributed to record home ownership levels among African Americans in the early 2000s. However, these unfavorable loans led to unprecedented default and foreclosure rates near the end of the decade. Fair housing advocates have urged the government and private companies to combat reverse redlining by using objective criteria and fair terms when lending to African American borrowers.

Housing Discrimination in the 21st Century

Redlining and housing discrimination is still occurring in the 21st century, although it is illegal. For example, in 2023, Los Angeles-based City National Bank settled with the Department of Justice for $31 million over charges of discrimination in lending against Black and Latino communities.

In 2018, the Brookings Institution released a report finding that homes in Black neighborhoods were worth 23% less than comparable homes in white neighborhoods, and homes in neighborhoods where the residential population is 50% Black are valued at about half the price as homes in neighborhoods with no Black residents. In addition, metropolitan areas with more devalued Black neighborhoods are also more segregated and provide less upward mobility for Black children living in these communities. The report concluded that the difference in home values was a result of racial bias.

In 2021, Freddie Mac, a government-sponsored mortgage corporation, reported that between 2015 and 2020, homes in Black and Latino neighborhoods were much more likely to be undervalued by appraisers than comparable homes in white neighborhoods. Again, researchers stated that differences in home and neighborhood quality did not account for the disparity. Undervalued appraisals result in families selling their homes for less than the property is worth, making it more difficult for Black and Latino families to build wealth.

Hinesmon-Matthews, Lezlee J. "Redlining." In The American Mosaic: The African American Experience, ABC-CLIO, 2026. Accessed January 3, 2026. https://africanamerican2-abc--clio-c...isplay/1477470.

Khanna, Nikki, and Noriko Matsumoto. "Discrimination in Banking and Lending." In The American Mosaic: The African American Experience, ABC-CLIO, 2026. Accessed January 3, 2026. https://africanamerican2-abc--clio-c...isplay/2269224.