What are the Three Main Types of Lending Discrimination?

1) Disparate Treatment: Mortgage application is denied because of consideration of the applicant’s race or other protected characteristic.

Rejected Applicant (Plaintiff) must show:
   (1) Membership in a protected class
   (2) He or she applied for and was qualified for a loan with a lending institution;
   (3) The loan was rejected despite his or her qualifications; and
   (4) The lending institution continued to approve loans for applicants with similar qualifications.

Testers (similarly situated applicant, not a member of plaintiff’s protected class) are often utilized to prove disparate treatment.

2) Disparate Impact: A lending institution’s facially neutral policy has a significant and adverse affect on a group of people made up of one or more protected characteristics. There must be a causal connection between policy and adverse affect.

Criteria for evaluating disparate impact claims:
   (1) The strength of the plaintiff's statistical showing;
   (2) The legitimacy of the defendant's interest in taking the action complained of;
   (3) Some indication-which might be suggestive rather than conclusive-of discriminatory intent; and
   (4) The extent to which relief could be obtained by limiting interference by, rather than requiring positive remedial measures of, the defendant.

3) Redlining: The practice of using certain, protected neighborhood characteristics as a basis for declining to lend to a borrower who wishes to purchase a home in that neighborhood. Can be very difficult to prove as companies are allowed to make smart business decisions in declining loans. Deference is typically given to the lender.

Reverse Redlining: The practice of approving loan applications for homebuyers in a protected class in a predatory manner. This practice is attributed as a major cause of the recent housing market collapse.