What is financial discrimination?

Financial discrimination is the unethical or illegal practice of unevenly offering compensation, financial assistance, access to financing or financial services on the basis of non-relevant factors such as profit interest, illogical reasoning and religious orientation.

Financial discrimination

An example of financial discrimination is when a lender or servicer denies, adjusts or rejects a legitimate financial claim via an unfair qualification or indemnification process. Financial discrimination can occur across a range of industries and economic sectors such as insurance and municipal services.

Not offering equal pay

for equal work is a form of financial discrimination. The infamous

“glass ceiling” is a recognized inequality brought about by

gender perceptions. Possible indicators of gender based financial

discrimination are evident in data from government agencies such as

the U.S. Bureau of Labor Statistics. More specifically, according to

the BLS, the difference between income among male and female

caucasians in 2012 was $169 or 19.22 percent. Another form of income

discrimination is the legal mechanism of deeming work by contractors

unqualified for minimum wage.

According to the Consumer Financial Protection Bureau or CFPB, denying credit, and even discouraging potential applicants from pursuing credit on the basis of race, gender and age is illegal credit discrimination. Many industries are vulnerable to this because illegitimate reasons are easily replaced by legitimate ones. For example, even if a home loan applicant pre-qualifies for a mortgage, they may not be pre-approved or discriminated against on the basis of a minor financial detail that does not substantially impact that applicants ability to qualify.

When lenders have the

ability to set their own lending policy within the law, the raising

of prices for one group of people while keeping prices lower for

another within the same marketplace is possible. This practice is

brought about by official or unofficial policy or underwriting

practices that selectively or falsely target financial criteria as

being a greater financial risk. Thus, if a loan applicant is seen as

a higher risk via a biased, but seemingly objective lending policy,

that borrower could technically be charged a higher rate of interest.

While laws such as the Equal Credit Opportunity Act offer consumers protection against financial discrimination, enforcing laws designed to protect against financial discrimination is not always easy. To illustrate, auditing a multitude of corporations amid a nexus of almost endless and shapeless financial criteria is not only expensive, but an unrealistic undertaking. At some point, an element of trust and public faith is both necessary and reasonable despite those things being taken advantage of.

Any case of financial

discrimination outside of the sphere of legitimate free market

enterprise is a serious issue. However, investigating and evaluating

every suspected instance of financial discrimination is not

guaranteed to be feasible. This provides an opportunity to those who

seek to discriminate. Consumers can protect themselves from  financial

discrimination by becoming aware of what financial discrimination is,

and what laws, policies and organizations exist to prosecute or

mediate instances of such.

About the author:

A.W. Berry is the blog manager for Moneycationa website dedicated to building financial awareness and literacy.