What Is Overt Discrimination in Lending?

If you’ve been treated differently by a mortgage lender because of your race, sex, religion or disability status, you may have experienced lending discrimination. For instance, maybe your lender doesn’t want to consider your disability-related income, or you’re being charged a higher interest rate because you live in a predominantly non-white neighborhood.

Overt discrimination in lending is illegal — as are certain types of more indirect discrimination — but it can still be a barrier to homeownership. We’ll go over your rights and the laws around lending discrimination, so you can protect yourself from unfair lending practices.

Lending discrimination explained

Lending discrimination is common — for example, mortgage denial rates are higher for Black borrowers in all 50 of the country’s biggest metro areas — so it’s important to keep an eye out for unfair practices.

If a lender takes action or makes a decision about your loan based on any of the following protected characteristics, it’s discrimination and it’s illegal.

Lenders aren’t allowed to make decisions based on any of those characteristics. Nonetheless, lending discrimination does occur — commonly, when you’re applying for a loan. However, it can also show up in any other part of the home loan process, such as home appraisals, homeowners insurance policies and mortgage loan modification.

Three lending discrimination types

There are three types of lending discrimination:

• Overt discrimination: Refusing to lend or to apply normal guidelines to creditworthy borrowers, simply because they exhibit a protected characteristic.
• Disparate treatment: Refusing to offer the same options or treatment to borrowers because of a protected characteristic.
• Disparate impact: Operating according to policies that have a negative impact on people with protected characteristics, whether that outcome was intended or not.

So far we’ve mostly been covering overt lending discrimination. As the most blatant form of discrimination, it’s typically the easiest to recognize. However, there are more subtle actions a lender can take based on protected characteristics that are just as illegal.

Disparate treatment

If a lender takes longer to approve female applicants, or fails to provide Black applicants with the same options that they provide to white applicants, that would be disparate treatment.

Disparate impact

Disparate impact looks a little different. For example, let’s imagine a lender has a policy not to underwrite mortgages for less than $150,000. Although the policy seems neutral, in this lender’s area it’s extremely uncommon to find homes that would require loans larger than $150,000 in a non-white neighborhood. Because of this, the policy effectively excludes non-white borrowers.

What laws protect homebuyers from discrimination?

There are two federal laws that protect consumers from lending or bank discrimination: the Fair Housing Act (FHA), which is enforced by the U.S. Department of Housing and Urban Development (HUD), and the Equal Credit Opportunity Act (ECOA), which is enforced by the Federal Trade Commission (FTC).

4 ways to protect yourself from lending discrimination

1. Understand mortgage approval guidelines

The guidelines that lenders use in underwriting are publicly available and — when applied equally to all applicants — form the basis of fair treatment in lending. As long as you understand these guidelines, you should have a strong idea of whether you’re experiencing overt lending discrimination.

Take a look at the following items to make sure you understand mortgage guidelines:

• Uniform residential loan application. This will show you what sort of information you’ll need to provide to the lender.
• Minimum mortgage requirements. Set by Fannie Mae and Freddie Mac, the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA), these requirements tell you exactly what financial factors could preclude you from getting a mortgage.
• How mortgage rates are determined. The mortgage rates that lenders quote you aren’t based on one simple, universal formula. That said, you can get a good idea of where you stand with most of the factors that determine mortgage rates, since they’re based on your financial profile and public information about the mortgage market.
• Lender websites. Lenders often publish their mortgage requirements on their websites, as well as mortgage rates. If you can’t find what you’re looking for, you can also call and ask, for example: “Hey, what DTI ratio do you use to qualify? Which credit score versions do you use to qualify? What is the lowest credit score you use to qualify?”

Looking for lenders? Check out our list of the best mortgage lenders. We also link to each lender’s website in our reviews.

2. Look for red flags

If you notice any of the following red flags, you may be experiencing discrimination:

 You’re treated differently in person than you were on the phone or online

 You’re being discouraged from applying for a loan

 You’re refused credit even though you qualify for it based on the advertised requirements

 You’re being pressured or pushed into a specific loan type

3. Ask for assistance

The mortgage process can be confusing, and even if you’re not worried about mortgage discrimination, having an advocate can help you secure the best rates and terms for your home loan. Consider consulting a HUD-approved housing counseling agency for advice and guidance as you shop for mortgages.

4. Compare multiple lenders

If you only get one quote from one mortgage lender, you may not be able to identify whether lending discrimination is occuring. Gathering multiple quotes allows you to see what a competitive rate looks like — and choose the lowest one.

You should also know what the national average mortgage rates are, so you can have an idea of what’s going on in the market and what’s normal.

Get quotes from multiple lenders now

What to do if you’re experiencing lending discrimination

• Speak with your lender’s manager. A good first step is to call customer service and report the problem. The lender may be willing to do something to resolve the situation.
• File a complaint with the Consumer Financial Protection Bureau (CFPB). The CFPB exists to protect consumers like you, and lenders don’t want to be in hot water with a government agency.
  You can submit a complaint online or call 855-411-CFPB (2372). The CFPB’s contact center is set up to take calls in more than 180 languages, and from consumers who are hearing impaired. The CFPB’s toll-free teletypewriter (TTY/TDD) line can be reached at 855-729-2372.
• File a complaint with the U.S. Office of Fair Housing and Equal Opportunity (FHEO). You can file a complaint online, submit a form via snail mail or call to speak with an intake specialist at 800-669-9777. HUD also offers a TTY/TDD line at 800-877-8339. If you would rather speak with someone local, FHEO also maintains a contact list for regional FHEO offices, as well as region-specific email addresses for civil rights complaints.
  → Prefer a language other than English? Read HUD’s guide to reporting housing discrimination in languages other than English.
• Contact your state attorney general’s office. Your state attorney general’s office may have a website with information about your state’s equal credit opportunity laws. You may be able to see there if the creditor violated state laws, or get connected with someone who can help you.
• Contact a lawyer. If you’ve experienced discrimination, you have the option of suing the creditor in federal district court, especially if you’ve incurred damages.