The nineteen sixties was a very controversial time for the United States, with one of the most important issues being equality among race and gender. Racism was visible in almost all areas of life, including the financial industry. To help address this issue, congress passed a series of laws intended to help prevent discriminatory lending practices.
One of the major problems in the lending and credit industries was that the terms of a loan was often not completely obvious to borrowers. This meant there were often hidden terms and costs, which would not be disclosed to the borrower until they violated these terms. To help protect against this, Congress passed the Truth in Lending Act in 1968.
The main purpose of the Truth in Lending Act was to ensure that prospective borrowers were made fully aware of all terms and costs associated with a loan, before they actually signed the loan agreement. This may sound like common sense advice that should be used before entering any contract, but many lenders purposely hid information from borrowers.
In most cases the Truth in Lending Act does not attempt to regulate the types of charges that can be applied to a consumer credit line, but instead is aimed at requiring a standardized disclosure of the charges and terms, without requiring the consumer to first sign the contract. The exception to this is subprime mortgages and high cost mortgages, whose charges may be regulated by the Truth in Lending Act.
The Truth in Lending Act also allows the borrower more freedom in canceling credit transactions that require a lien to be placed on the borrowers primary dwelling.
The Truth in Lending Act contains several sections, which require that:
While the Truth in Lending Act was a step in the right direction, a true change in the lending industry would take many years and still has a long way to go.
With as complicated as most mortgages are, even with the information fully disclosed, many borrowers do not fully read or understand closing documents, which can lead to many problems.
Today, women borrowers are one of the fastest growing demographics in the lending industry, however even just a short while ago, this would have been impossible. This is because until the Civil Rights Movement of the 1960’s, lenders participated in discriminatory lending, discriminating by race and gender. These practices began to change with the passage of several pieces of legislation in the sixties and seventies.
One of the most important pieces of legislation to reduce discriminatory lending practices was the Fair Housing Act of 1968, which led the way for several other laws that would help further reduce discrimination.
The Fair Housing Act of 1968 was passed to prevent mortgage lenders from discriminating against people by their race, gender, religion, or nationality. Today, this seems like common sense, but at the time, creditors would gather a great deal of personal information about prospective borrowers and use this information to decide whether or not to offer them a loan.
Originally, the Fair Housing Act was referred to as the Civil Rights Act of 1968 and came 4 years after the first Civil Rights Act. However, because it addressed housing discrimination, it became known as the Fair Housing Act.
The Fair Housing Act not only prevents discrimination when selling homes, but also in lending, as a it prohibits people from refusing to rent or sell a property based on a persons race, gender, religion, or nationality. It also prevents changing the terms of a loan or rental agreement based on discriminatory factors, using coercion in lending practices, and discrimination in advertising.
While the Fair Housing Act is designed to prevent discrimination, it does allow landlords some rights when selecting a tenant for their rental property. For example, a landlord can discriminate against someone based upon their income, ability to pay rent, job status, or credit history. Landlords are also not required to accept Section 8 Housing Vouchers in all areas.
The main purpose of the Fair Housing Act is to prevent discrimination against prospective buyers and renters, but these groups themselves are allowed to be discriminatory when looking for a home. For example, it is not illegal for a potential buyer to ask their real estate agent to search for homes using a discriminatory basis.
Since the Fair Housing Act prohibited outright discrimination, the lending industry and real estate industry became more subtle in their approach, using redlining and steering to achieve a similar goal. These subtle forms of discrimination took the place of outright discrimination in the real estate and lending industries.
Redlining is the practice of not offering credit to certain areas of a city. This was typically preformed in low income areas or minority areas and would prevent people in these areas from getting a loan. Redlining was so prevalent in the industry that there were even official maps made by banks and other creditors outlining areas that should not receive credit.
Steering is when real estate agents, bankers, and city officials would try to steer minorities and certain social groups to a specific part of the city. These officials would lie or manipulate prospective buyers and steer them into housing projects, creating ghettos and low income housing areas.
Today, other pieces of legislation have been passed to prevent steering and redlining, although the practices still occur.
Discrimination based upon race, gender, religion, and nationality were deep seated and could not be removed with only one law or over night. However, the Fair Housing Act was a step in the right direction to help protect the rights of buyers and renters in the housing market.
It would be followed by a number of pieces of legislation to further protect the rights of minorities.