Redlining

Posted in Finance, Accounting and Economics Terms, Total Reads: 595
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Definition: Redlining

It refers to a discriminatory practice against a specific group of people and is considered against the law. Redlining refers to the unethical practice that is followed by many of the financial institutions, where in they make it very difficult or almost impossible to borrow money, or gain any sort of approval for any mortgage for that matter for poor residents. This is done mainly because of the reason of tackling with high default rates of that group of people. Also, this practice doesn’t give any weightages to the creditworthiness or the qualifications of the loan applier. The name Redlining explains itself as in some places the financial institutions use the map and redline the areas which they want to segregate and never give them any sort of loans.

But this practice is considered by many as highly unethical and discriminatory practice and is against the law and the proven guilty has to face serious penalties. To tackle this issue, many efforts were put to make stricter laws. But there was a reason from financial institution because of very high default rates which increased the non-performing assets of the financial institutions. The Community Reinvestment Act was passed in the year 1977 to finally put a final stop at this discriminatory and unethical practice. But researchers say that this practice is still prevalent and is very difficult to get rid of without proper laws and its strict enforcement on the ground level. The implementation of the corrective mechanisms should also be in place and financial institutions should be informed about the same.

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