May 31, 2010
-
News: Do CC Companies Discriminate Against Race?
A recent report by the Federal Reserve was generated as mandated by the Credit CARD Act 2009 to investigate if any financial institution was or had been involved in any type of profiling or redlining. Redlining is the highly criticized practice that was at one time conducted by insurance and mortgage lenders which has been banned by federal law. Aimed at eliminating discrimination toward any individual card holder or group, the investigation was to look at the practices of credit card companies during the three year period prior to the enactment of the CARD Act. The report determined that some credit card companies had indeed been participating in what would be considered questionable practices in regard to profiling cardholders to determine at risk factors contributing to defaults.
Although the Fed investigation revealed that credit card companies had participated in profiling activities, whether or not they used the information to discriminate against any particular race or group was unclear. The Fed concluded that it was "impossible to know" if there was any connection between changes in card terms to race or economic status. Although the Equal Credit Opportunity Act prohibits lenders from collecting data regarding race or ethnicity some credit card companies have in the past determined credit eligibility by zip code. The practice has been banned.
The report also indicated that five of the top six credit card companies have participated in questionable profiling activities, however, said that it affected a relatively small group of cardholders. It was not known if those affected were members of any particular group or race. The Fed failed to provide any recommendations to Congress on implementation of any new rules that may limit card companies from adequately monitoring cardholder's spending habits because of the implications to card and identity fraud. However, whether or not lenders used this profiling to discriminate against a certain race or group will most likely require further digging.