Why Redlining May be Holding Some African-American Business Owners Back

The illegal practice of bank redlining is happening in cities across the U.S.
The illegal practice of bank redlining is happening in cities across the U.S.

As New York Attorney General Eric T. Schneiderman files suit against Evans Bank, a reminder that redlining is bad for business too.

The memory of Ferguson, Missouri, with its terrible images of police brutality and reminders of persistent racial inequalities, is stilll fresh in the nation’s psyche.

Now comes news, first reported by the New  York Times Tuesday, of another kind of racial discrimination–this time allegedly perpetrated by banks against prospective African American mortgage borrowers. On Tuesday, New York State Attorney General Eric T. Schneiderman filed a lawsuit in the U.S. District Court for the Western District of New York, against Evans Bank, charging it with redlining in Buffalo, New York. The suit is part of an ongoing investigation into bank lending practices to minorities in the state.

Redlining, an illegal practice with roots that stretch back to the 1920s, eliminates typically poorer, inner-city neighborhoods from a financial institution’s lending outreach efforts. A related practice, called reverse redlining, charges disproportionately higher rates for loans to minority borrowers in those areas.

Both practices, it seems, got a boost immediately prior to and during the financial crisis, when it became harder for borrowers in general to get bank financing. And redlining has likely extended financial difficulties for thousands of minority-owned small businesses.

“It is crucial that all New Yorkers, regardless of the color of their skin or the racial composition of their neighborhood, be afforded an equal opportunity to obtain credit,” Schneiderman said in a release today. “This is especially true as families continue to recover from the mortgage crisis.”

Sadly, fewer mortgages to African American customers probably also means fewer African American small businesses. Numerous studies point to a direct correlation between home ownership and business creation and access to financing.

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