Redlining

What is Redlining?

Redlining refers to the biased practice that makes certain services and products inaccessible to the people based in specific parts of the country or region. In simple terms, the merchant or a company considers the race and ethnicity of a person to determine whether they qualify for the particular service.

Redlining could be applied to financial services, such as loans and mortgages, insurance, and more. For example, a lending institution can deny the loan request of African-Americans just because they are not white Americans. People that come from minority cultures and neighborhoods are the ones that suffer from redlining the most.

How Redlining Affects Minority Neighborhoods?

Redlining dates back to the 1960s when investors would mark certain areas, especially the minority neighborhoods with the red lines. The main reason for redlining these areas was to ensure that they do not invest in particular regions just because of the demographics and the people living there. Earlier, the areas surrounding the neighborhoods where African-Americans lived were redlined.

According to the research, lenders were willing to sanction the loan application of the low-Income group Whites, but they would not grant loans to the Blacks that come from middle and upper-class families. In the 1930s, the government redlined the areas based on the ethnicity and race of the people that occupied the particular neighborhoods. Investors would not invest in the estates located in the redlined area. This discriminatory behavior continued for several decades.

Surprisingly, the racial disparity has grown a lot over the past few years. In 1996, the estates in the Black neighborhoods (which were redlined in the early 19th century) were worth a lot lesser than the estates located in the White neighborhoods. This difference made racial differences worse in the United States.

How did Redlining Start?

Redlining not only affects the chances of the minorities getting their loan applications approved, but it creates racial disparities in nearly every field. From student loans to insurance, redlining can be traced in all the financial sectors. The government had taken an initiative to control the adverse effects of redlining on the minority groups by passing the Community Reinvestment Act in 1977. However, critics believe that racial disparities still exist. One of the common areas where redlining is extensively used is the retails and online stores.

Reverse redlining refers to the practice of targeting the neighborhoods where the majority of the Whites and the upper-class people are based, for example providing them with the loan at a low-interest rate and on flexible repayment terms. This also leads to biased behavior towards the minority group. Legal firms and courts have declared redlining as an illegal practice. Financial institutions, Insurance companies, credit unions, and retail stores are not allowed to judge people based on their ethnicity and race. Besides, minority neighborhoods must not be excluded from loans and financial services. The qualification of the person applying for an insurance or mortgage must be based on their debt-to-income ratio and creditworthiness.