By James H. Carr, Chief Business Officer for the National Community Reinvestment Coalition
The January 20, 2012 New York Times article titled “Blacks Face Bias in Bankruptcy, Study Suggests” reports on a soon-to-be-released study showing significant disparities in the treatment of white versus black clients facing bankruptcy. The study’s reported results are disturbing but neither surprising nor unexpected. African Americans continue to face major obstacles to succeeding economically in America. A preponderance of data and studies demonstrate blacks continue to face unfair barriers across the opportunity spectrum, from securing employment for which they are qualified and receiving equal pay and promotions, to accessing mainstream banking products, including safe and affordable mortgage credit. Now, it’s been documented that blacks also face bias in restructuring debt after a personal financial crisis.
The irony of this situation is, of course, that blacks are more likely to face financial crises directly as a result of multiple barriers they face accessing opportunities based solely on their race. The study is reported to have found that African Americans are twice as likely to be steered toward higher cost and less sustainable Chapter 13 bankruptcy filings, versus lower cost and more effective Chapter 7 filings, even when the financial characteristics of the clients are identical. This result parallels, for example, the propensity of blacks to have been steered toward high cost and unsustainable subprime mortgage loans during the years leading up to the recent foreclosure crisis. Research from the Center for Responsible Lending showed that in 2004 African Americans were more likely to receive subprime loans than white borrowers, even when risk factors such as credit scores were taken into consideration. Not only did that excessive peddling of reckless mortgage products to blacks result in their having experienced foreclosures at a disproportionately higher rate than white borrowers, but also, blacks are over-represented in the ranks of the long-term unemployed which has also grown as a result of the financial crisis.