Why Do Banks Collect Racial Information?
By Jill Terry
Have you ever wondered why you're asked to provide information
about your race, gender, marital status, and age when you
apply for a home loan? Have you refused to disclose the information
because you suspected it could be used against you?
Your fears are understandable. After all, there are federal
laws that prohibit a bank from asking such questions. So,
why do they ask when you buy a home? Read on--the reason just
might surprise and even please you.
The Home Mortgage Disclosure Act (HMDA) requires certain financial
institutions (banks, savings associations, credit unions,
and other mortgage lending institutions) to collect this type
of data and to submit it to the federal government (specifically
to the FFIEC or Federal Financial Institutions Examinations
Council). The FFIEC then aggregates the data and creates disclosure
reports for each metropolitan area.
Why should you care about a bunch of government reports?
Because they're available to the public and can be useful
tools in determining how well served an area is by the banks
that populate it.
What You're Asked To Provide
When you apply for a loan to purchase a dwelling (home, condo,
cooperative unit, mobile home, or manufactured home), your
bank (or mortgage lender) must ask you for your:
- Race/national origin
- Sex
- Marital status (using only the terms "married,"
"unmarried," and "separated")
- Age
They can ask for this information on the application itself
or on a separate form that references the application. They
must tell you that it is your option whether or not to disclose
the information.
If you choose not to answer any of the questions, here's
a little fact that may interest you: the person who takes
your application must note that you declined to disclose and
then he or she must complete the information based on your
surname and/or his or her visual observation of you. Not surprisingly,
the margin for error on information recorded this way is enormous.
Therefore, because the feds must have the information, it
may be to your greater advantage to supply it than risk being
misrepresented by bank personnel. It is illegal for the bank
to use the information against you or to have it affect the
credit decision in any way. Your bank is required by law to
submit a register of this data for all applicants (approved
and declined) to the FFIEC--that is the only reason for asking
you to supply it.
Why the Government Wants the Information
The data collected by banks and aggregated by the FFIEC
provides the public with loan data that can be used to:
- Help determine whether financial institutions are serving
the housing needs of their communities.
- Assist public officials in distributing public sector
investments and to attract private investment to areas where
it's needed.
- Identify possible discriminatory lending patterns.
Who Uses It
General curiosity seekers notwithstanding, the information
is used by the federal government and citizen action and advocacy
groups. Bank examiners review the aggregated information in
their assessment of a financial institution's CRA
performance. They also use it to help them uncover any
discriminatory lending patterns in certain areas or among
certain banks.
So, the next time you're asked for the information, you may
not want be so quick to say, “It's none of your business."
Answering 4 brief questions is, in effect, your contribution
to fair and non-discriminatory lending practices.
Should you ever want to take a look at this aggregated information
to check up on lenders in your neighborhood, the past 3 years
are available at the FFIEC
Web site. Reports are also available at most public libraries.
Banks keep copies of their own reports on file, too--just
ask the main office of your bank for its HMDA (pronounced
"humda") disclosure.
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