Credit Scores Used to Deny African-Americans Access to Financial Services

The National Black Caucus of State Legislators (NBCSL) has released the disturbing results of a study conducted by the University of Denver Center for African American Policy demonstrating that credit scores are being used to deny African-Americans and other minorities access to credit and financial services.

This study breaks new ground by using location mapping and statistical correlation techniques to examine the disparities in accessing mainstream financial services and credit products. These maps overlay credit scores (also known as FICO scores), race, income, employment, ethnicity and other variables with the availability of traditional banking and fringe financial institutions in those communities.

“Credit scores are a key enabler of wealth, but credit scores today are used in a way that denies minority and underserved communities access to the financial services and products they need. This study demonstrates that credit scores — more so than simply race or income or other variables — are the key factor, and minority communities are disproportionately affected,” said Mississippi state Rep. Mary H. Coleman, the immediate past president of the NBCSL.

Entitled “Financial Empowerment for the Unbanked and Underbanked Consumer: ‘Crossing the Red Line,'” the report was released at the Rainbow/PUSH Wall Street Project’s 2007 Economic Summit.

Dr. Rickie C. Keys, PhD, MPH, of the University of Denver Center for African-American Policy, conducted the study which found that:

* Credit scores are more closely correlated to lack of access to financial services for the unbanked and underbanked communities — and thus to wealth creation — than other factors, such as race, income and ethnicity.

* In part, this is because credit scores today are used for an increasing array of basic necessities beyond credit-worthiness to purchase a home or car, such as determining eligibility to: obtain employment; rent a home; obtain insurance; and open accounts for checking accounts, as well as basic utilities like telephone service or electricity.

* The 130-plus million Americans lacking prime credit scores (also the unbanked and underbanked) are disproportionately African-American and Hispanic.

* Although banks may be located in areas with high concentrations of low FICO scores, they do not provide proportional access to their services in these underserved areas, compared to higher FICO score, higher income communities.

* This results in a lack of supply of mainstream financial services to underbanked and unbanked consumers.

* Federal regulations discourage banks from providing equal access by requiring higher capital reserves when lending to low credit score customers.

* There is no endorsed method by which consumers can move from a sub-prime credit score to a prime credit score.

The data used to construct the maps came from a variety of sources, including the U.S. Census Bureau, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Federal Depository Insurance Corporation, Credit Union National Association, State Banking Agencies and Telephone Directories.

“Having identified the problem, we found it especially disconcerting that there is no endorsed method by which consumers can move from a sub-prime credit score to a prime credit score,” said Colorado State Senate President Pro Tem Peter Groff, who serves as Executive Director of the University of Denver Center for African American Policy. “It’s a Catch-22. To build a prime score, banks require consumers to demonstrate positive credit; but banks won’t extend credit to these consumers without a prime credit score, leaving many trapped.”

A copy of the report is available at the University of Denver’s www.blackpolicy.org website.

About National Black Caucus of State Legislators
Founded in 1977, the National Black Caucus of State Legislators is a nonpartisan organization with more than six hundred members in 44 states, the District of Columbia and the Virgin Islands. For more information, please visit our Web site at http://www.nbcsl.com/.

About The University of Denver Center for African American Policy
The University of Denver Center for African American Policy is a unique blend of academics, public policy and community and public service. The Center was formed to encourage public discourse and to increase the flow of information on issues, policies and trends that affect African Americans. The goal of the Center is to work for and achieve a positive change in the present and future lives of African Americans through academics, the arena of public discourse and community and public service.

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