Fair Housing
A Vermont lender who approves loans at lower rates for applicants from certain zip codes while denying or charging more to applicants from zip codes with higher minority populations may be engaged in:
ALegal risk-based pricing
BReverse redlining or pricing discrimination in violation of fair lending laws✓ Correct
CStandard underwriting practices
DLegal geographic market segmentation
Explanation
Charging higher rates or denying loans based on the racial composition of a neighborhood (rather than individual creditworthiness) is reverse redlining or geographic discrimination, violating the Fair Housing Act and the Equal Credit Opportunity Act. Vermont lenders are subject to fair lending examinations.
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Key Terms to Know
Fair Housing Act
Federal law prohibiting discrimination in the sale, rental, or financing of housing based on race, color, national origin, religion, sex, disability, and familial status.
RedliningAn illegal practice where lenders or insurers deny services or charge higher rates in certain neighborhoods based on the racial or ethnic composition of those areas.
SteeringAn illegal practice where a real estate agent directs buyers toward or away from certain neighborhoods based on the buyer's race, religion, national origin, or other protected characteristics.
BlockbustingAn illegal practice of inducing homeowners to sell by claiming that the entry of minority groups will lower property values.
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