I can’t say the findings are shocking but researchers in a study entitled "What's in a Picture? Evidence of Discrimination," found that Black borrowers on prosper.com, a peer-to-peer lending website, were at least 25 to 35 percent less likely than others to be turned down for a loan. Some 110,000 loan applications were studied from 2006 and 2007.
According to a draft of the study on the Federal Trade Commission’s website, “Conditional on receiving a loan, the interest rate paid by Blacks is 60 to 80 basis points higher than that paid by comparable whites.”
People turn to so-called “peer-to-peer” lenders to avoid some of the red tape and bothersome hurdles associated with your traditional lenders. But the problems may arise when borrowers on prosper.com are asked to send in a picture.
The study explains, “These pictures and descriptions often provide potential lenders with signals about characteristics such as race, age and gender, that anti-discrimination laws typically prevent traditional lending institutions from using.”
When I read that line I had to fight the urge to yell, “Duhhhh!” from my desk. I know that the study was a well-intentioned attempt to track discrimination in what it sees as a burgeoning area in the financial marketplace. But I wonder whether it was even necessary in the first place. How much data do we actually need to prove what history has emphasized for years.
Questions about discriminatory lending practices are not new to this country. As late as last December the Department of Justice filed a $335 million settlement for victims of Countrywide Financial Corporation for what it found to be a pattern of discrimination against qualified Black and Hispanic borrowers. The federal government alleges that minority borrowers were charged higher fees and interest rates, regardless of their credit-worthiness.
So now we have a new study to prove what all of the old ones already did. We know how tough it can be for even the most desirable borrowers with good credit to get a loan, and if you add a little melanin into the situation, things can get pretty interesting to say the least. Discrimination exists everywhere in this country. That’s what we know. My question is simple: Now what?! A study that answers that question is one worth waiting for.
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(Photo: Andrew Burton/Reuters)