How can banks discriminate against blacks in a free-market economy?

The PBS NewsHour, which I love for telling me what to think and when to think it, had a piece yesterday about a black lesbian woman who claimed she couldn't get a mortgage because racist banks wouldn't lend to a black person.  When her Japanese lesbian partner applied for a loan, however, she quickly got it.

Fifty years after the federal Fair Housing Act banned racial discrimination in lending, African Americans and Latinos continue to be routinely denied conventional mortgage loans at rates far higher than their white counterparts.

It found a pattern of troubling denials for people of color across the country, including in major metropolitan areas such as Atlanta, Detroit, Philadelphia, St. Louis and San Antonio.  African Americans faced the most resistance in Southern cities – Mobile, Alabama; Greenville, North Carolina; and Gainesville, Florida – and Latinos in Iowa City, Iowa.

"I had a fair amount of savings and still had so much trouble just left and right," said Rachelle Faroul, a 33-year-old black woman who was rejected twice by lenders when she tried to buy a brick row house close to Malcolm X Park in Philadelphia, where Reveal found African Americans were 2.7 times as likely as whites to be denied a conventional mortgage.

But that still wasn't enough.  When she tried again a year later, this time at Santander Bank, a Spanish firm with U.S. headquarters in Boston, the process dragged on for months.  Her loan officer kept asking for new information, she said – or sometimes the same information again.

By this time, Faroul had been trying to get a mortgage for over a year, and the process itself was damaging her credit.  Every time a lender pulls a hard inquiry on a credit report, the score goes down to guard against people who are trying to take on a lot of debt.

Then, an unpaid $284 electric bill appeared on Faroul's credit report.  It was for an apartment she didn't live in anymore.  She paid the bill right away, but the bank said it couldn't move forward.

Oops – how did that happen?  It must have been racism!  You have to wonder what other bills Faroul had failed to pay in the past that affected her credit score.

For Faroul, things suddenly took a turn for the better after her partner, Hanako Franz, agreed to sign on to her loan application.

A few weeks later, the couple got the loan from Santander and bought a three-bedroom fixer-upper.  But Faroul remains bitter.

"It was humiliating," she said.

Wait.  Was she bitter or humiliated?  These are two very different emotions!  Or was she bitter about having been, past-tense, humiliated?  The article is totally unclear on her emotional state.

According to media reports, banks like making money from the lesbian lady on the left but do not like making money from the lesbian lady on the right.

The banks in the article gave the answer you would expect: that their decisions are based on credit ratings, and the reason blacks get fewer mortgages is that, on average, they have worse credit ratings.

Without having more information about this anecdotal story, and without being able to read the minds of mortgage lenders, I have just one question: in a modern, somewhat free-market economy, how can banks discriminate against applicants?

Because if one bank, or even two or three banks, decides not to lend to blacks because it hates black people, another bank will see the opportunity for profit and step in, right?  To believe that there is discrimination against blacks, you have to believe that every bank in metropolitan areas would rather discriminate against blacks than make money.

How possible is that?  Not likely.

I wonder what Dick Parsons would say about mortgage discrimination.  For many years, he was CEO of Citigroup, which owns Citibank, one of the largest banks in America.  Did Dick Parsons, who is black, knowingly preside over an organization that discriminated against blacks?  Did he order banks not to lend to blacks?  Was he part of the conspiracy, too?

When you consider just how many banks would have to be involved in a conspiracy to discriminate, you realize that there is nothing to this other than the obvious truth that black people, on average, have lower credit scores than white people.  They probably even have lower credit scores than Japanese lesbians.

But rather than explore an article as to why black people's credit scores are lower, it is easier to report a "story" about "racist banks."  What would PBS have to report on if not for cleavages in sex, class, and race?

Ed Straker is the senior writer at

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