Why Do Banks Collect Racial Information?
By Jill Terry
Have you ever wondered why you’re asked to provide information about your race, gender, marital status, and age when you apply for a home loan? Have you refused to disclose the information because you suspected it could be used against you?
Your fears are understandable. After all, there are federal laws that prohibit a bank from asking such questions. So, why do they ask when you buy a home? Read on–the reason just might surprise and even please you.
The Home Mortgage Disclosure Act (HMDA) requires certain financial institutions (banks, savings associations, credit unions, and other mortgage lending institutions) to collect this type of data and to submit it to the federal government (specifically to the FFIEC or Federal Financial Institutions Examinations Council). The FFIEC then aggregates the data and creates disclosure reports for each metropolitan area.
Why should you care about a bunch of government reports? Because they’re available to the public and can be useful tools in determining how well served an area is by the banks that populate it.
What You’re Asked To Provide
When you apply for a loan to purchase a dwelling (home, condo, cooperative unit, mobile home, or manufactured home), your bank (or mortgage lender) must ask you for your:
- Race/national origin
- Marital status (using only the terms “married,” “unmarried,” and “separated”)
They can ask for this information on the application itself or on a separate form that references the application. They must tell you that it is your option whether or not to disclose the information.
If you choose not to answer any of the questions, here’s a little fact that may interest you: the person who takes your application must note that you declined to disclose and then he or she must complete the information based on your surname and/or his or her visual observation of you. Not surprisingly, the margin for error on information recorded this way is enormous. Therefore, because the feds must have the information, it may be to your greater advantage to supply it than risk being misrepresented by bank personnel. It is illegal for the bank to use the information against you or to have it affect the credit decision in any way. Your bank is required by law to submit a register of this data for all applicants (approved and declined) to the FFIEC–that is the only reason for asking you to supply it.
Why the Government Wants the Information
The data collected by banks and aggregated by the FFIEC provides the public with loan data that can be used to:
- Help determine whether financial institutions are serving the housing needs of their communities.
- Assist public officials in distributing public sector investments and to attract private investment to areas where it’s needed.
- Identify possible discriminatory lending patterns.
Who Uses It
General curiosity seekers notwithstanding, the information is used by the federal government and citizen action and advocacy groups. Bank examiners review the aggregated information in their assessment of a financial institution’s CRA performance. They also use it to help them uncover any discriminatory lending patterns in certain areas or among certain banks.
So, the next time you’re asked for the information, you may not want be so quick to say, “It’s none of your business.” Answering 4 brief questions is, in effect, your contribution to fair and non-discriminatory lending practices.
Should you ever want to take a look at this aggregated information to check up on lenders in your neighborhood, the past 3 years are available at the FFIEC Web site. Reports are also available at most public libraries. Banks keep copies of their own reports on file, too–just ask the main office of your bank for its HMDA (pronounced “humda”) disclosure.