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Access Denied: Low-Income and Minority Families Face More Credit Constraints and Higher Borrowing Costs

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Abstract:

Few families in the United States today could pay cash for a home, their children’s college education, a new car, or a major family medical emergency. Most families need to borrow money to create economic opportunities for themselves or protect their financial security. Access to credit helps families get ahead in life—to start a new business or pursue an education—and ensure that unforeseen setbacks, such as a temporary decline in income, do not result in unpaid bills or sharp cuts in living standards.

This report extrapolates from the most recent data and existing literature two overarching reasons for persistent discrimination: product steering, in which financial institutions decide which products to offer to which borrowers and on which terms; and industry segmentation, in which different financial institutions specialize in lending to different kinds of customers. Some of these discriminatory patterns appear to be intentional; others are the result of the growth and breadth of today’s credit markets.