The California Reinvestment Coalition, a coalition of 300 community organizations and small business lenders, filed a federal lawsuit Tuesday against the Consumer Financial Protection Bureau to force the agency to start collecting information on business- and commercial-loan applications made by women- and minority-owned small businesses.
The 2010 Dodd Frank Act, a federal law passed in the aftermath of the 2008 market collapse, requires lenders to compile information on applications and actions taken on loan requests. The CFPB is supposed to publish annual reports on the application, under the law. The absence of such data makes it tougher to pinpoint discriminatory lending problems, according to the case.
Put more bluntly: It could allow lenders to engage in “redlining.”
Redlining dates back to the period following the Great Depression. A federal agency at the time, the Home Owners’ Loan Corporation, was tasked with assessing metropolitan areas nationwide for the risk associated with real-estate investments so that lenders could avoid supposedly riskier mortgages from customers, including African American consumers. The 1968 Fair Housing Act outlawed housing discrimination based on race.
But this same practice can apply to lenders too, advocates say. They point to research saying minority-owned businesses have been missing out on capital and credit at fair terms to boost their businesses. In 2013, African American-owned small businesses received 2.3% of the Small Business Administration’s 54,000 loans, the Wall Street Journal reported.
“The Trump administration is actively defying a law specifically designed to expose discriminatory lending practices by financial institutions,” said Anne Harkavy, executive director of the organization bringing the case, Democracy Forward, a legal advocacy group focused on Trump administration actions. If the information is collected and published, at least there will be transparency as to where the problems are occurring, say supporters of the law.
The CFPB didn’t immediately respond to a request for comment on the new lawsuit.
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