Redlining

Redlining is the practice of refusing, restricting or overpricing loans, insurance and other financial services for people because of where they live, rather than their individual creditworthiness. The term comes from the red lines drawn on maps in the United States in the 1930s to mark neighborhoods considered too risky for lending, many of which were mainly Black or immigrant areas. Today it refers to any pattern of a lender or insurer avoiding communities on the basis of race, ethnicity or another protected characteristic.

In the US, redlining is illegal under federal fair-lending laws and is enforced by the Department of Justice and banking regulators. The idea is related to, but distinct from, "reverse redlining", which is the targeting of the same communities with expensive or abusive credit. Similar concerns arise elsewhere, for example when insurers or lenders price by postcode, although the American history gives the term its specific meaning.

Imagine a bank that decides, before anyone even applies, that it will not lend to anyone living on certain streets. A careful saver with a steady job on one of those streets is turned away, while a less reliable borrower a few blocks away is approved. The decision is about the address, not the person.

When that happens across a whole city for decades, people in the excluded areas cannot buy homes, fix them up or start businesses with borrowed money. Property in those areas loses value, and the gap between neighborhoods can persist long after the original rule is gone.

During the Great Depression the federal government created the Home Owners' Loan Corporation (HOLC) in 1933 to refinance failing home loans. Between about 1935 and 1940 the HOLC produced "residential security" maps of more than 200 cities, grading neighborhoods from A (best) to D ("hazardous"), with D areas shaded red. The presence of Black residents was commonly cited as a reason for a low grade. The Federal Housing Administration, created in 1934 to insure mortgages, also used underwriting guidance that discouraged lending in racially mixed areas and favoured restrictive covenants.

Historians and economists debate how much the HOLC maps themselves drove lending, since some research suggests they were drawn to reflect existing patterns and were not widely shared with private lenders, and that FHA practices mattered more. Other studies comparing neighborhoods just either side of map boundaries, a kind of natural experiment, find lasting differences in homeownership, house values and segregation. The term "redlining" itself is usually credited to the sociologist John McKnight in the late 1960s.

• Fair Housing Act (1968). Prohibits discrimination in the sale, rental and financing of housing on grounds including race, colour, religion and national origin.
• Equal Credit Opportunity Act (1974). Bars discrimination in any credit transaction; race and several other grounds were added in 1976.
• Home Mortgage Disclosure Act (1975). Requires lenders to report data on mortgage applications and approvals by location and applicant characteristics, the main source for spotting lending gaps.
• Community Reinvestment Act (1977). Requires bank supervisors to assess how well banks meet the credit needs of their whole communities, including low- and moderate-income areas. Regulators issued a modernised CRA rule in October 2023 and moved in 2025 to rescind it and return to the earlier framework.

In October 2021 the Department of Justice launched a Combating Redlining Initiative with banking regulators. It produced a series of settlements in which banks agreed to open branches, fund subsidised loans and advertise in neighborhoods they had avoided; the largest, with City National Bank in January 2023, totalled more than 31 million dollars. Settlements are typically recorded in a consent order. In 2025 the Department asked courts to end several of these orders early, and judges granted a number of the requests, while fair-housing groups opposed others.

Redlining today is rarely an explicit policy. Regulators look for statistical patterns, such as a bank drawing very few applications from minority neighborhoods compared with similar lenders, or locating branches and loan officers only in other areas. Related practices include:

• Reverse redlining. Steering borrowers in minority areas toward high-cost products, as with much sub-prime mortgage lending before the 2008 financial crisis; this overlaps with predatory lending.
• Insurance redlining. Refusing or overpricing home or car insurance by area in ways that track race.
• Digital redlining. Credit or marketing models that use location or proxies for race, so that an apparently neutral algorithm reproduces exclusion. Regulators have warned that fair-lending law applies to automated decisions.

Economists studying redlining focus on lasting effects. Because home equity is the main store of wealth for many families, being shut out of mortgage credit limits generational wealth and contributes to the racial wealth gap and wider economic inequality. Areas starved of credit can fall into a poverty trap, where low investment lowers property values, which in turn justifies less lending.

There is also debate about where risk-based pricing ends and discrimination begins. Lenders argue that pricing must reflect real differences in credit risk and collateral values; critics reply that location data can embed past discrimination, and that information gaps about borrowers in under-served areas lead lenders to rely on crude signals, a form of market failure. Expanding financial inclusion, through better data such as alternative credit scores, community banks and development lenders, is one response supported across much of the political spectrum.

• US Department of Justice: Fair Lending Program